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Investing in a
brighter future
Legal & General Group Plc | Annual report and accounts 2023
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Cardiff Central
Square investment
The economic benefits that this
large-scale investment is bringing
to Cardiff reflect our inclusive
capitalism model, which sees us
generate returns for shareholders
whilst also making a difference
to society.
Employment
hub
13,000
jobs upon completion
in the new developments:
BBC Wales, HMRC,
Cardiff University
and law firms
Central
Quay
715
we are on track
to deliver 715 BTR
apartments at
the former Brains
Brewery site
The Interchange:
Wood Street House
318
The Interchange:
Calon
120,000
Build to Rent (BTR)
homes, the tallest
building in Cardiff
1st
BTR scheme in the
city, forming part of
our Central Square
regeneration
square feet
office element
2,500+
employees
Net zero
designed to align
with net zero carbon
14 bay
bus station and retail
space transformation
Front cover:
Legal & General
employees outside
our new office, part
of our significant
investment in reshaping
Cardiff’s city centre.
Transport
infrastructure
£200m
financing to support
Wales & Borders
franchise to improve
services for train
passengers while
reducing carbon
emissions through
electrification
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Contents
Strategic report
Governance
Financial statements
Other information
Strategic report
How we bring our vision of inclusive capitalism to life
Governance
How we grow our business responsibly
Sir Nigel Wilson
2 At a glance
4 Chair’s statement
6 Chief Executive Officer’s Q&A
8
10 Our strategy
12 Our business model
14 Our stakeholders
16 Place making
18 Our climate actions
20 Our people
22 Chief Financial Officer’s Q&A
Key performance indicators
24
(KPIs)
26 Tax review
28 Business review
40 A sustainable business
51
Non-financial and sustainability
information statement
52 Managing risk
55 Group Board viability statement
56 Principal risks and uncertainties
62 Letter from the Chair
64 Board of directors
66 Group Management Committee
67 Governance report
74
76
Employee engagement
Section 172 statement and
stakeholder engagement
79 Data and Technology
Committee report
80
Nominations and Corporate
Governance Committee report
86 Audit Committee report
92 Risk Committee report
Directors’ report on
94
remuneration (DRR)
97 DRR quick read summary
100 Summary of remuneration policy
104 Annual report on remuneration
Financial statements
Our financial statements for the
year ended 31 December 2023
Other information
122 Group consolidated
financial statements
123 Independent auditor’s report
138 Primary statements
and performance
174 Balance sheet management
232 Additional financial information
256 Company financial statements
263 Directors’ report and additional
statutory and regulatory information
268 Shareholder information
270 Alternative performance measures
273 Glossary
Annual report quick read
A summary of the Annual report
and accounts, highlighting strategy,
performance and how the Group
is structured, is available online:
group.legalandgeneral.com/
annualreportsummary
Climate and nature report
group.legalandgeneral.com/reports
Tax supplement
group.legalandgeneral.com/reports
Social impact report
group.legalandgeneral.com/reports
Risk management supplement
group.legalandgeneral.com/reports
Contents
Legal & General Group Plc Annual report and accounts 2023
1
At a glance
Financial measures
With the introduction of IFRS 17 on 1 January 2023, some of our previously reported
financial measures are no longer relevant and others have been restated on the new basis.
Accordingly, we have presented the current year and restated prior year values only.
Profit before tax £m
Adjusted operating profit £m
Earnings per share p
Store of future profit £bn
£195m
£1,667m
(2022: £939m)
(2022: £1,663m)
7.35p
(2022: 12.84p)
£14.7bn
(2022: £13.5bn)
Profit before tax comprises all items
of income and expense recognised
in profit or loss (excluding tax).
Adjusted operating profit measures
the pre‑tax result excluding the impact
of investment volatility, economic
assumption changes caused by changes
in market conditions or expectations
and exceptional items. The measure enhances
the understanding of the Group’s operating
performance over time by separately
identifying non‑operating items.
Earnings per share (EPS) measures the
profitability and strength of a company over
time. It is determined as total shareholder
profit after tax divided by the number
of shares outstanding.
Store of future profit refers to the gross of
tax combination of established contractual
service margin (CSM) and risk adjustment
(RA) (net of reinsurance) under IFRS 17.
Solvency II capital coverage ratio
Solvency II operational surplus
generation £m
Investment portfolio economic
GHG emission intensity
Operational footprint
(scope 1 and 2 (location))
Non-financial measures
224%
(2022: 236%)
1,821m
56 tCO2e/£m
27,722 tCO2e2
(2022: £1,805m)
(2022: 62 tCO2e/£m)1
(2022: 30,062 tCO2e)
Solvency II capital coverage ratio, which
shows own funds on a regulatory basis
divided by the solvency capital requirement,
is one of the indicators of the Group’s
balance sheet strength and aligns to
management’s approach of dynamically
managing the Group’s capital position.
Solvency II operational surplus generation
is the expected surplus generated from the
assets and liabilities in‑force at the start of
the year. It is based on assumed real world
returns and best estimate non‑market
assumptions, and includes the impact
of management actions to the extent that,
at the start of the year, these were reasonably
expected to be implemented over the year.
This is made up of our ownership share
of the emissions related to the assets we
invest in within the Group proprietary asset
portfolio. It includes bonds, equities, and
investment property but excludes cash,
derivatives, or any assets already covered
in our operational footprint. It is measured
per unit of investment.
Measures the greenhouse gases (GHG)
associated with our direct operations.
Scope 1 emissions are direct GHG emissions
occurring from sources owned or controlled
by the Company. Scope 2 emissions are
indirect GHG emissions from consumption
of purchased electricity, heat or steam.
Performance measures and remuneration
The performance measures used for the purpose of determining variable elements
of directors’ remuneration are aligned to the Group’s key performance indicators (KPIs).
These are indicated with the icon:
.
For more details, refer to pages 100 to 103 of the summary of remuneration policy.
Alternative performance measures (APMs)
The Group uses certain APMs to help explain its business performance, indicated
with the icon:
.
Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found on page 270.
Full definitions of the financial metrics above are included in the glossary on page 273.
1. Metrics have been re‑baselined through a combination of methodology and data sourcing changes. Figures from the 2022 report, with an associated impact assessment, are provided
in the 2023 Climate and nature report at: group.legalandgeneral.com/reports.
Our total scope 1 and scope 2 (location) emissions have been subject to independent limited assurance by Deloitte. The basis of preparation (or reporting criteria) for our Group carbon
footprint and Deloitte’s limited assurance report is available in our 2023 Climate and nature report at group.legalandgeneral.com/reports.
Legal & General Group Plc Annual report and accounts 2023
Strategic report
2.
2
Strategic report
Governance
Financial statements
Other information
Our offices
We are expanding our international reach.
Stockholm
Dublin
Amsterdam
Frankfurt
Milan
Chicago
Frederick
Stamford
Bermuda
Edinburgh
Cardiff
Barnsley
Solihull
London
Bracknell
Hove
Tokyo
Hong Kong
Singapore
Our businesses
We benefit from scale in each of our businesses. Our businesses work
together to deliver on our purpose and to drive synergies across the Group.
See more about
our business
model on page 12
Institutional
retirement
(‘LGRI’)
£13.7bn
Capital
investment
(‘LGC’)
>4,500
Investment
management
(‘LGIM’)
£1.2tn
Retail
c.14 million
new business premiums
homes delivered
assets under management
people’s needs met
We take on pension liabilities
from corporate schemes
in both the UK and the US.
This ‘pensions de‑risking’ gives
companies greater certainty over
their liabilities while providing
guaranteed payments to
individuals within their schemes.
Our investments across
specialist commercial real
estate, clean energy, housing
and alternative finance generate
attractive shareholder returns
and create alternative assets
which benefit society.
Our Build to Sell business, CALA,
has grown to become the 10th
largest housebuilder in the UK
by revenue.
We are one of the world’s leading
asset managers, with internal
and external clients.
We are the market leader in UK
defined contribution schemes.
We are also a leader in
responsible investment, and
continue to innovate and be
recognised for our strength in
this growing area of the market.
We help millions of people in the
UK and the US create brighter
financial futures. We support their
savings, protection, mortgage and
retirement needs through our
retail and workplace businesses.
We are a market leader in UK Retail
protection and retirement income.
Our workplace savings business
administers the largest and
fastest‑growing commercial
UK MasterTrust.
Our US protection business
continues to grow due to our
ongoing investment in technology
and digital transformation.
See page 29
See page 32
See page 35
See page 37
At a glance
Legal & General Group Plc Annual report and accounts 2023
3
Chair’s
statement
Momentum
through change.
A growing force
for good.”
4
Legal & General Group Plc Annual report and accounts 2023
Strategic report
Annual General Meeting 2024
The Annual General Meeting (AGM)
will be held on Thursday 23 May 2024
at the British Medical Association, BMA
House, Tavistock Square, Bloomsbury,
London WC1H 9JZ, with additional
facilities for shareholders to join
and vote electronically.
Dividend policy
The Group’s dividend policy states that
we are a long-term business and
set our dividend annually, according
to agreed principles. The Board’s
intention for the future is to maintain
its progressive dividend policy,
reflecting the Group’s expected
medium-term underlying business
growth, including measurement
of capital generation and adjusted
operating profit.
Full year dividend p
20.34
19.37
18.45
17.57
17.57
2019
2020
2021
2022
2023
Final dividend to be
paid on 6 June 2024
14.63p
(2022: 13.93p)
Strategic report
Governance
Financial statements
Other information
Introduction
2023 marked the beginning of a transition
for Legal & General, with the Company’s
announcement in January that our Chief
Executive Officer (CEO), Sir Nigel Wilson,
would stand down by the end of the year, and
the appointment of António Simões, with effect
from 1 January 2024, as his successor. It is
pleasing in that context to be publishing an
Annual report that demonstrates continued
good progress across the full breadth of our
organisation. This is a testament both to Nigel’s
personal impact, and the strength of the business
he has helped to build over the course of a decade.
As we look back on the year, I want to reiterate
my gratitude, alongside the Board’s, to Nigel for
his relentless commitment to Legal & General,
and for his leadership and contribution since
he took up his post over a decade ago. Under his
stewardship, Legal & General delivered outstanding
shareholder returns, while putting purpose and
societal impact at the heart of our choices,
through our championship of inclusive capitalism.
Following a rigorous global selection process,
António Simões formally assumed the role
of CEO on 1 January 2024. António brings
a formidable leadership track record at the most
senior level in financial services, working across
complex global organisations. His energy,
ambition, and clarity of strategic thinking stood
out during the selection process, as did his
strong belief in the positive role that business
should play in society which, of course, he shares
with Legal & General.
Change beyond our business
Businesses are now becoming accustomed
to a new inflation and interest rate environment,
with the global economic outlook remaining
uncertain. Geopolitical tensions have also
accelerated with the impacts of the war in
Ukraine, conflict in the Middle East and the
prospect of several important elections in the
coming year. These conditions create complex
challenges for investors to navigate, as well
as rises in cost of living for many households.
Our customers rely on Legal & General to
continue to pay their pensions, protect their
income and manage their assets. I am proud
of the role we play, always keeping sight of our
purpose, making a real and positive difference
to people’s lives. 2023 was also a time of wider
transition in our industry, particularly in our
regulatory environment, with the introduction
of IFRS 17 and the Consumer Duty. IFRS 17
changes the way insurance firms account for
insurance contracts, and the Consumer Duty
sets out new rules for delivering good
outcomes for all customers.
Both of these initiatives are important context
for Legal & General’s business, and I am pleased
to report that our teams have done a terrific job
to prepare for their introduction. Thanks are
due to all colleagues involved.
Positive momentum
In 2023, we delivered a resilient set of results,
with an adjusted operating profit of £1.7 billion
and a 9% growth in our store of future profit to
£14.7 billion. Profit for the year of £443 million
and EPS of 7.35 pence reflected mark-to-
market movements and certain one-off
accounting impacts.
We have a strong balance sheet, with a
Solvency II coverage ratio of 224%, and capital
generation in the year of £1.8 billion. These
have supported a final dividend of 14.63 pence,
consistent with our stated ambition to grow the
dividend at 5% per year to 2024.
Our performance highlights the benefits of our
synergistic business model. This year, we have
seen more long-standing LGIM clients transition
to our pension risk transfer (PRT) business,
where we continue to take advantage of our
powerful asset origination and management
capabilities to match these liabilities with low
capital strain.
The Group continues to build out its international
franchises. We have made good progress in the
US over the last decade and LGIM continues to
expand in Europe and Asia, with 40% of assets
under management (AUM) now outside of the UK.
We remain on track to achieve our five-year
ambitions, and ready to set new, stretching
goals for the next phase of our journey.
We have identified strategic growth areas and
in doing so have generated consistent,
sustainable, and socially beneficial returns.
We are committed to supporting individuals
in planning their financial futures, and are proud
to help regenerate towns and cities, provide
housing and deliver on our climate commitments.
We are delighted to now be settled into our new
office in Cardiff, which brings these elements
together to create a workplace with sustainability
and wellbeing at its heart. This is the culmination
of years of strategic investment and development
around Cardiff Central Square – Legal & General
has invested more than £1 billion in the city
in recent years – and underlines the broad and
positive value our approach can generate for
our shareholders, customers and our people.
We continue to take action on climate change,
regarding this as both a responsibility and
a fundamental element of our business strategy.
Our 2023 Climate and nature report highlights
our progress against the targets we set out
in our Climate transition plan, released in
April 2023, and our commitments for the coming
years. Our material climate disclosures are
disclosed on pages 45 to 48 of this report.
Looking ahead
With a first-class executive team, a strong and
resilient business model and platform for growth,
the opportunities for impact are plentiful. In our
first months working together, following a smooth
and well-managed leadership transition, António’s
dynamism and ambition have been evident.
I am confident we can look forward to going
from strength to strength under his leadership.
In closing, I should like to extend my thanks
and appreciation to leaders and teams across
Legal & General for their enthusiasm and delivery
throughout the year, and to our shareholders
for their continued support. I look forward
to working alongside you, and on your behalf,
in the year ahead.
A growing force for good
Acting in both an economically and socially
useful way is core to the way we do business.
Sir John Kingman
Chair
Transition
Chair’s statement
Legal & General Group Plc Annual report and accounts 2023
5
Chief Executive
Officer’s Q&A
Welcoming António Simões
Legal & General is a
business with strong
foundations, and
excellent potential.”
What attracted you to Legal & General?
Three things stood out to me: our sense of
purpose and commitment to playing a positive
role in society, the quality and performance
of our businesses, and the talent and
commitment of our people.
Few businesses have such a long-standing
heritage – this year is our 188th birthday.
We have seen through multiple economic cycles
and societal changes, and evolved to stay
relevant. We have proven that we can adapt and
thrive in changing circumstances, and support
our customers and partners throughout.
Today we are a very significant business –
a global leader in pension risk transfer, supporting
the needs of c.14 million people through our
Retail division, managing £1.2 trillion of client
assets, and investing alongside them to
originate new, socially valuable assets –
generating returns that help to fulfil long-term
pension liabilities.
With this unique synergistic approach, and our
track record of consistent performance and
delivery for our shareholders, clients and
customers, we are well placed to continue
to seize the many growth opportunities
in our markets.
6
Legal & General Group Plc Annual report and accounts 2023
Strategic report
Strategic report
Governance
Financial statements
Other information
Central to this success are our people.
Legal & General has a reputation for the
dedication and expertise of its employees.
I was drawn to the Company as a place with
a rich culture, in which excellent people thrive.
I’m pleased to say these impressions have
only been reaffirmed now I have joined.
In short, Legal & General is a business with
strong foundations, and excellent potential.
I am looking forward to helping define and
lead our next phase.
What should shareholders expect from
you as a leader of Legal & General?
A fresh perspective. I bring experiences from
outside the business, which means I ask
different questions and look at issues in new
ways. I am encouraging us to think broadly
about our markets and how we work.
My first priority as CEO has been to listen.
By taking the time to hear from my colleagues,
our customers, clients, shareholders and
partners, I am learning what Legal & General
means to them, getting their perspectives
on what matters most, and where they see
our future potential.
Looking ahead, I hope to combine strategic
vision and focus with consistent delivery.
I am working with my team to articulate our
long-term growth strategy, considering how
each of our divisions needs to focus and evolve
to address our biggest opportunities. I look
forward to presenting this later in the year,
and working with our people and partners
to execute our plans.
How will the experiences you bring from
other organisations shape your approach?
I’ve learned that putting customers at the top
of our priority list is how we succeed in the long
run. Every decision we take should be with our
customer in mind, whether that’s a retail
customer, institutional client, co-investor
or partner. Understanding where our clients
are coming from and being able to walk in their
shoes is really important – that focus keeps
us compassionate and relevant, and helps
us to spot new opportunities to add value.
I’ll be encouraging all our teams to dedicate
time to building that connection.
Having lived and worked around the world,
I bring a truly international mindset. I understand
what it takes to succeed and scale in different
markets, particularly the importance of
understanding local culture and knowledge.
I am also focused on how we take learning
from different contexts to improve and
innovate elsewhere.
Finally, with nearly 30 years of experience
in financial services, I have a strong appreciation
of the complexity of our stakeholder environment,
and how it shapes our opportunities and success.
I’m committed to ensuring Legal & General
continues to be an insightful, thoughtful voice
in our industry.
What are your early observations
on the business?
My early observations are very positive.
The strengths I saw looking from the outside
are authentic. We are purposeful and commercial;
the business is full of talented and expert
people. Our track record of delivery against
the targets we set in 2020 shows the power
and resilience of our business model.
Alongside this, I am focused on our future
growth opportunities. The world is hungry for
capital and expertise to support new industries
and the transition to net zero; institutions want
help to navigate a changing economic
backdrop; and individuals increasingly need
support to prepare for the future financially.
With our strengths in asset management and
origination, and a respected, trusted brand,
we are well placed to help and to benefit.
To be successful, we need to communicate
our vision clearly and crisply. My focus over
the coming months is to define a strategy that
shows why and how Legal & General will be
as relevant in the next 188 years as it has been
to date.
How important are culture and purpose
to you as a business leader?
Legal & General is a great example of the
importance of purpose and culture in action.
Inclusive capitalism has been a powerful
galvanising force inside the business and
beyond it, and delivered consistent returns
for our shareholders. It is motivating to hear
how people love being part of Legal & General
because we have a clear role to play in society,
and to see this reflected in the choices we have
made as a business.
Businesses have a responsibility to help solve
problems. All our business divisions are
shaping how society and individuals prepare
for the future. Our decisions can help make
that future as positive a place as possible
for the next generation.
When can we expect to hear more
on your plans for the business?
I have thoroughly enjoyed my first few months
at Legal & General. My conversations with
our stakeholders, including our shareholders,
continue to help me and my team to develop
our plans. I look forward to meeting more
of our shareholders at the Annual General
Meeting in May and providing an update
on strategy at our Capital Markets Event in June.
António Simões
Chief Executive Officer
Ambition
Chief Executive Officer’s Q&A
Legal & General Group Plc Annual report and accounts 2023
7
Sir Nigel Wilson
With thanks
Leading Legal &
General has been
the most enjoyable
and rewarding job
of my career.”
With additional thanks to:
Ali Toutounchi, Sarah Aitken, Bill Hughes,
Drew Love, Mark Holweger, Amy Ellison,
Kevin Whitaker, Symon Drake Brockman,
Jeff Davies, Tim Stedman, Mark Gregory,
Geoffrey Timms, John Godfrey, Chris Knight,
Stephen Licence and Emma Hardaker-Jones.
The long view
When we began our usual planning for our
Annual report and accounts in autumn 2023,
the team shared with me a selection of those
we had produced over the course of my tenure
at Legal & General.
companies, and in the UK ushered in a period
of quantitative easing combined with public
sector austerity. This sustained for nearly
a decade, until the punctuation of the Covid-19
pandemic, and then the war in Europe, spurred
rising inflation, interest rates and living costs.
It was striking how much had changed.
Legal & General was a part of my life for
14 years, a third of my career. During that time,
we saw transformation on a global, national
and business level, of a scale that none
of us could have predicted.
I joined the Group as Chief Financial Officer,
during the Global Financial Crisis. The ripple
effects of which led to reflection on the role
and responsibilities of financial services
Politics has become more turbulent, in business
‘Big Tech’ has been dominant, and globally
we have recognised the need to transition
to a lower carbon way of life, and the extent
of change and innovation required to deliver
that shift. Developed countries are grappling
with the consequences of a rapidly ageing
population, and looking to square the
opportunities presented by advances such
as AI with the potential for equally transformative
impacts on the labour market.
Our approach
Legal & General has had to be alert and
adaptable in the context of these changing
circumstances. I took over a business which
had lost c.70% of its annuity business in the
face of pension freedom reforms and disposed
of around 20 Legal & General businesses
to allow us to modernise, diversify and grow.
In my early years as CEO, our annual reporting
was led with the tagline ‘stepping up’. This
captured my belief, shared with my colleagues,
that we could both positively advance and
benefit from the changes around us.
I am proud that the business we built together
has shown itself to be not just resilient, but
able to evolve and thrive.
8
Legal & General Group Plc Annual report and accounts 2023
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Strategic report
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Other information
A large part of our success has been driven
by our people, who have seen the opportunity
that sits on the other side of challenge, and
have encouraged and supported others
to do the same.
Over the past 14 years, the make up
of Legal & General has changed. We have
taken informed and rewarded risks; selling,
combining and creating businesses to build
the organisation we have today. This enabled
us to build a global PRT business, delivered
under the stewardship of five talented CEOs:
Simon Gadd, John Pollock, Kerrigan Procter,
Laura Mason and Andrew Kail, whilst building
the UK’s first £1 trillion asset manager under
Mark Zinkula and Michelle Scrimgeour.
Alongside these milestones, through the
creation of Legal & General Capital (LGC),
we have taken a significant share of the UK
housebuilding market, enabled impactful
regional regeneration projects, supported
growing industries and invested in c.700
start-ups under Kerrigan Procter and
Laura Mason’s leadership. Our investment
in Pemberton, for example, has seen it grow
from a small business, when we invested in
2014, to a major mid-market lending platform,
which has raised over €19 billion from 227
investors globally across seven strategies.
Meanwhile, we have internationalised our
operations, opening offices in Bermuda,
Singapore, China, Hong Kong, Japan, Germany,
Italy and Switzerland.
Our constant has been the way we have
chosen to do business, as an organisation
with purpose at its core. Inclusive capitalism
led us to look for opportunities to invest
profitably in productive assets that address
structural societal needs, with the benefits
being felt by the members of the pension
funds and investments we manage,
communities and businesses on the ground,
and our shareholders.
Our reputation for combining values with
expertise has enabled us to work with some
of the most respected universities in the world,
the most exciting new businesses, and the
most innovative investors across the private
and public sectors.
Continued progress
2023 demonstrated the ongoing power of this
approach as we remained on track for the
stretching targets we set ourselves back in
2020. In a challenging economic backdrop, this
is testament to our resilience, competitiveness
and the power of our synergistic business model.
We recorded our largest ever PRT volumes
in both the UK and the US, including the largest
ever single transaction by premium in the market
with our buyout of the Boots Pension Scheme.
In 2023, 99% of our PRT volumes arose from
the conversion of long-standing asset
management clients. In a challenging interest
rate environment, LGIM continued to expand
its client offering and despite significant
inflationary impacts, we have taken action
to keep absolute costs flat.
Our asset origination business, LGC, showed
continued momentum against its five-year
targets including significant ‘crowding in’
third-party capital. In October, we announced
that Greater Manchester Pension Fund, the
UK’s largest local authority pension fund, would
invest in our joint venture, Bruntwood SciTech,
which is leading the way in providing workspace
for innovative UK businesses. We also began
construction on our first US investment with
our joint venture partner, Ancora, a state health
laboratory in Rhode Island.
In our Retail businesses, our annuities arm
delivered its strongest ever results with
a record-breaking £1.43 billion in sales under
Bernie Hickman’s leadership. This reflected our
persistence in building our offering throughout
a time of lower interest rates. Our workplace
pensions business, an increasingly critical part
of the long-term savings market, also continues
to strengthen. In the US, protection sales hit
a record high of $175 million annualised
premium equivalent (APE).
Finally, we have seen real successes, working
with government, to bring forward policy change
to set us up for future growth. In December 2023,
we saw the passage of the first phase of
Solvency UK reforms into law. This is the first
step in delivering a regime that will uphold
policyholder security whilst enabling greater
investment in productive assets.
Moving forward
In closing, I want to thank our shareholders for
their support over the last decade and a half.
Leading Legal & General has been the most
enjoyable and rewarding job of my career.
I am confident that the business will continue
to develop and prosper with António at the
helm, with 11,500 talented and committed
colleagues working alongside him to deliver
terrific outcomes for all our stakeholders.
All the best,
Sir Nigel Wilson
Timeline of
achievements
2009
2012
2013
2014
2016
2017
2018
2019
2020
2021
2022
2023
Joined Legal & General Group
as Chief Financial Officer
Appointed Chief Executive Officer
Invested £250m into 4,000 social
homes with Places for People,
generating long-term income for
Legal & General pension savers
Invested in CALA, now the 10th
largest UK housebuilder by revenue
Invested in the Pemberton platform
and raised over €19bn from 227
investors globally across seven
strategies since Legal & General
first invested
Committed to Cardiff urban
regeneration scheme, having since
invested over £1bn in the city
Created a long-term partnership
with Newcastle City Council and
Newcastle University to deliver
Helix, with 700 residential homes,
office and research space and
a flagship hotel
Awarded Britain’s Most
Admired Leader
Established major partnership with
Bruntwood SciTech to deliver
science and technology real estate
Passed £1tn AUM
Creation of a £4bn partnership with
The University of Oxford to develop
homes for university staff and
students, together with science
and innovation districts
Partnered with Sky to develop Sky
Elstree, the largest independent
film studio in Europe
Combined life insurance, annuities,
and workplace businesses to
create Legal & General Retail
Knighted for Contribution to
Finance and Regional Development
Won Britain’s Most Admired
Company
Established £4bn partnership with
West Midlands Combined Authority
Announced UK’s single largest
PRT buy-in, £4.8bn with Boots,
and strongest ever year for
annuity sales
Sir Nigel Wilson
Legal & General Group Plc Annual report and accounts 2023
9
Our strategy
Our strategy
is driven by six
growth drivers
that affect
everyone.
In responding to these long-term drivers,
our strategic priorities aim to deliver
sustainable profits as well as positive
social and environmental outcomes.
Our business model is aligned with our
strategy, ensuring we derive maximum
benefit for our stakeholders.
Environmental, social and governance
issues are central to inclusive capitalism
and are inherent to all six growth drivers.
Short-term influences
Climate change
2023 has been the hottest year
on record. We continued to see
more extreme weather events,
including several episodes
of flooding throughout the UK
and unprecedented wildfires
in Europe, the US and Canada.
These events demonstrate the
rapid and significant impacts
of climate volatility and
ecosystem health deterioration.
Despite this, 2023 also saw the
rapid increase in deployment
of solar and wind energy.
We are making positive progress
against our Climate transition
plan, and continue to enhance
our risk management framework
to ensure our business remains
resilient against various climate
outcomes.
Geopolitical landscape
Ongoing conflicts in Ukraine
and the Middle East, along with
broader geopolitical tensions,
could significantly disrupt global
economic activity. We are
carefully monitoring these
impacts to ensure we remain
financially and operationally
resilient to adverse events.
Economic outlook
The global economic outlook
remains challenging. While the
market continues to predict falls
in interest rates over 2024
supported by an easing of
inflationary pressures, other
factors may slow this
improvement. This may impact
consumer sentiment, however
we believe that our products
and services are relevant across
a range of economic scenarios
helping our customers to
achieve financial security.
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Strategic report
1
Ageing demographics
As populations live longer, their pensions need
to last longer too. Companies increasingly need
to find solutions to their ongoing pension
commitments. At the same time, individuals
need to ensure that their retirement funds and
other assets can finance longer retirements.
Market opportunity
We participate in the global PRT market,
focusing on corporate defined benefit (DB)
pension plans in the UK, the US, Canada, and
the Netherlands, which together have more
than £6 trillion of pension liabilities.
Strategic priority
We aim to be global leaders in pensions
de-risking and retirement income solutions.
During 2023, we wrote a total of £15.2 billion
of bulk and individual annuity business globally,
up 44% on the previous year. This included
our largest ever single PRT transactions in both
the UK and the US markets at £4.8 billion and
$0.8 billion respectively, whilst individual
annuities increased by 50% over 2022. We also
announced plans to enter into a long-term
strategic relationship with Dutch insurer Lifetri,
putting us in a strong position to capitalise
on expected growth in the Dutch PRT market.
2
Globalisation
of asset markets
Asset markets are increasingly globalised
and growing. North America, Asia Pacific
and Europe are all attractive markets which
continue to expand. We look for selective
opportunities to build and expand our
successful UK business model abroad into
markets where we believe we can thrive.
Market opportunity
As global assets under management
are projected to increase from more than
$115 trillion in 2022 to $147 trillion by
2027, we will continue to innovate in the
US retirement income market, expand into
European wholesale asset management
and increase our presence in Asia Pacific.
Strategic priority
We aim to build a truly global asset management
business, entering new markets and expanding
our existing operations. We continue to expand
our global footprint with international AUM
growing by 81% since 2018 and now representing
40% of our total AUM. New offices opened
in Singapore and Switzerland to support
our growth ambition in Asia and Europe.
Strategic report
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3
Investing in the
real economy
Throughout the UK and beyond, there has been
a long-term trend of under-investment in major
towns and cities, and we continue to experience
a serious housing shortage, while small and
medium enterprises can also struggle to achieve
scale without access to long-term capital.
Market opportunity
The UK’s ‘levelling up’ programme seeks
to leverage private sector institutional capital
to support urban regeneration and drive
economic growth. Regulatory reform is enabling
better deployment of pension funds to growth
opportunities such as building more homes,
creating science parks, and investing in
start-up companies.
Strategic priority
By investing capital over the long term, we aim
to become leaders in direct investments, whilst
investing our assets in an economically,
environmentally and socially useful way.
In 2023, we invested over £1.0 billion in housing
and over £8.5 billion in social infrastructure.
We believe investing to address long term,
enduring societal needs will enable strong
shareholder returns, as well as improve the
lives of our customers.
4
Welfare reforms
There is a continued need to protect people
from financial uncertainty, which includes
helping people take personal responsibility
for retirement savings, and safeguarding
their financial wellbeing and resilience.
Market opportunity
Fiscal pressures, inflation and an ageing
population are placing the state pension and
social security system under strain. This in turn
increases the need for individuals to build and
maintain their financial wellbeing. Workplace
defined contribution (DC) assets are expected
to grow to £1.3 trillion by 2032, with a growing
need for pension decumulation solutions.
Strategic priority
We continue to deliver value for money for our
Workplace DC members, providing a low-cost
pension product to save for their retirement.
Our Retirement Planner tool helps customers
understand their retirement goals and the
launch of our podcast, ‘A Little Bit Richer’,
has improved financial understanding and
awareness amongst a younger audience.
We also offer a range of wider benefits to help
customers manage their physical and mental
health and wellbeing.
5
Technological
innovation
Consumers, clients and businesses look
to digital platforms to help organise their
finances and working lives. Technological
solutions can increase security and improve
the ways we work and access information.
Market opportunity
The market for new individual term life
business in the US is expected to increase
to $3.2 billion over the next three to five years.
We anticipate continued premium growth
across our UK and US protection businesses
as technological innovation makes our
products more accessible to customers and
digital transformation creates competitive
advantage in the US marketplace, while enabling
further product and pricing enhancements.
Strategic priority
We will be enhancing our digital capabilities
in the UK insurance and grow in the US by
expanding into adjacent markets. The US
protection grew APE from $129 million to
$175 million (a 36% increase) in 2023 creating
market differentiation through our US digital
platform, as well as digital distribution
expansion.
6
Addressing
climate change
To minimise the most damaging consequences
of climate change, governments around the world
agree that we must limit global warming to 1.5°C.
This requires a transition to a low-carbon economy
while halting nature and biodiversity loss.
Market opportunity
As global finance supports the changes our
planet needs to address climate change and
prevent nature and biodiversity loss, this creates
a significant shift in investment allocation and
the emergence of new industries in climate
solutions. Despite the short-term uncertainty,
world leaders at COP 28 reaffirmed their
commitment to rapidly expanding investment
in renewable energy supply and recognised the
need for nature-based solutions.
Strategic priority
We are able to support the fight against climate
change and nature loss through the positioning
of our investments, our influence as one of the
world’s largest asset managers and through the
management of our own operational footprint.
In 2023, we issued our first Climate transition
plan and are now focused on delivering against it.
Our strategy
Legal & General Group Plc Annual report and accounts 2023
11
Our business model
What we do
We aim to be leaders in retirement and
protection solutions, investment management
and capital investment. By taking a long-term
approach to inclusive capitalism, our businesses
work together to make a difference.
Institutional
retirement
We provide institutional PRT
solutions, guaranteeing the
retirement income for corporate
pension scheme members.
Provides
capital
Develops assets
that support our
pension liabilities
Generates
income
and AUM
Lifetime
mortgage
origination
Protection
capital
benefits
Annuity
asset
portfolio
management
Provides asset
management
services
Retail
We are a leading provider
of UK retail retirement and
protection solutions and US
brokerage term life insurance.
Contributes
DC and
annuity AUM
Workplace
client
relationships
Asset
management
services
Capital
investment
We use some of our customers’
pension assets, as well as the
Group’s shareholder capital,
to make long-term investments
in assets such as clean energy,
housing and alternative finance.
Provides
asset
management
services and
co-invests
Builds
alternative
assets,
including
clean
energy
assets
Investment
management
We are one of the world’s
largest asset managers
and a major global investor.
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Our synergies in action:
Our biggest
investment in
Leeds to date
Funded by Legal & General, and developed in
partnership with Glenbrook, the Whitehall Riverside
residential complex is Leeds city centre’s largest
BTR funding in 2023.
The Whitehall Riverside scheme
contributes to LGRI’s total direct
investment into BTR, which stood
at in excess of £1 billion at the end
of 2023.
Following the acquisition of our earlier
BTR sites: Mustard Wharf in 2017 and
Tower Works in 2021, Whitehall Riverside
is in addition to almost 500 apartments
already delivered by Legal & General
in Leeds, making us the city’s largest
investor and owner of BTR.
The Whitehall Riverside development
consists of the delivery of 500 new
homes and has been carefully
considered to ensure that residents
benefit from the diverse and growing
employment opportunities, as well as
its cultural destinations, local amenities,
and strong transport links – including
Leeds Central station, which is within
a five-minute walk.
This investment aligns with our
commitment to establish positive
environmental and socio-economic
impact, addressing sustainability
issues and innovating for biodiversity
by including a riverside green and new
trees in the wider public realm, as well
as an ambition to drive down operational
carbon emissions.
With funding provided by LGRI, and
utilising LGIM’s expertise as an asset
manager, this demonstrates how our
businesses work together to make
a difference. The power of responsibly
investing our pension savings in urban
regeneration, thereby transforming
and reshaping cities, creates productive
assets for future generations.
This is inclusive capitalism in action.
Both institutional retirement and
investment management businesses
are being actioned within this investment.
£140m
residential development
500
new homes committed
2026
expected completion date
Our business model
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13
13
Our stakeholders
How we engage with
our stakeholders
The impact of our business is wide reaching
and affects different stakeholder groups.
We place great importance on considering
the needs of all our stakeholders in our
decision making, and actively encourage
their participation.
Our stakeholders
In shaping our strategy, we consider the impact
on our stakeholder groups. Below, we provide
just a few examples of how stakeholder
engagement influences our business
and the associated growth drivers.
Growth drivers
1 Ageing demographics
2 Globalisation of asset
markets
3 Investing in the real
economy
4 Welfare reforms
5 Technological
innovation
6 Addressing climate
change
Shareholders
Customers
Employees
Our shareholders are institutional and
individual investors. We provide them with
honest and transparent information on our
strategy, outlook and business performance
and we generate value through share price
appreciation and a progressive dividend.
Our customers include those saving
for retirement, recipients of retirement
income, insurance policyholders, mortgage
holders, residents of our housing and
retirement villages, and investors. Listening
to our customers helps us to better understand
their needs, and provide suitable, reliable
products and services.
Our employees are based in the UK, the
US and other countries and jurisdictions
in Europe and Asia. We’re working to build
a more diverse workforce and inclusive
workplace, where care is taken to protect
individuals’ wellbeing and resilience.
1 2 3 4 5 6
1 4 5 6
3 5 6
We invest shareholder capital (targeting
returns) and retirement capital (for long-term
income streams to pay retirement benefits)
into environmentally friendly and socially
useful investments, including alternative
assets such as urban regeneration, clean
energy and affordable housing.
Our segmentation model helps us personalise
customer service at key financial moments.
We’ve improved digital journeys like pension
transfer and consolidation. Our Consumer
Duty driven research shaped how we identified
vulnerabilities, developed new products and
services, and supported customers.
We supplemented the data gathered through
our Voice surveys with targeted employee
research using Natter – a tool for collaboration
and discussion provided by an investee of our
capital business – to improve our understanding
of employees’ views of our culture.
In 2023, we achieved record new business
volumes in our institutional and retail annuities
businesses, as well as US protection.
Our store of future profit, comprising CSM and
RA, grew 9% while adjusted operating profit
remained flat demonstrating resilience in the
volatile market environment.
One million people saw our TikTok videos
in the first three months of 2023. Our new over
50s’ lifetime mortgage reimagined retirement
lending and our Focus Fortnight webinars
broadened intermediaries’ knowledge.
Our protection retention project helped people
stay covered despite the cost of living crisis,
and Group protection’s wellbeing guide helped
employees and employers respond to it.
In the UK, we continue to enjoy a productive
partnership with Unite, the union which
represents employees individually and for
collective bargaining, and with our in-house
Management Consultative Forum.
Our Cardiff-based employees moved into our
newly constructed office in the centre of the
city, the latest phase in our investment in the
Welsh capital.
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Our contribution to the United Nations
Sustainable Development Goals
The United Nations Sustainable
Development Goals (SDGs) are focused on
tackling the pressing social, economic and
environmental issues that could threaten the
livelihoods and wellbeing of people worldwide.
Contributing to the SDGs is integral to
inclusive capitalism. It is important that our
business priorities and strategy align with
the goals and that we can demonstrate how
the outcomes we are delivering contribute
to specific SDGs. As our business grows
and evolves, our approach to the SDGs will
progress too.
The following SDGs contribute to many
of our key stakeholder engagements as they
are most heavily aligned to our growth drivers:
3. Good health and
wellbeing
8. Decent work and
economic growth
4. Quality education
9. Industry, innovation
and infrastructure
5. Gender equality
7. Affordable and
clean energy
11. Sustainable cities
and communities
13. Climate action
Regulators
Communities
Suppliers
The Group is subject to financial services
regulations and approvals in all the markets
in which we operate. We maintain a constructive
and open relationship with our regulators
and have a programme of regular meetings
between the Group’s executive and non-
executive directors and our UK regulators.
Our purpose is to improve the lives
of our customers, build a better society
for the long term, and create value for our
shareholders. This inspires us to use our
assets in an economically and socially
useful way, and to engage with civil society,
encouraging our people to get involved
in community causes.
We work with a broad range of suppliers,
from services and material providers to IT
and software suppliers. We strive to work
with like-minded businesses who comply
with our Code of Conduct and business
principles. This includes operating ethically,
taking environmental responsibility and
treating workers with respect and dignity.
1 2 3 4 5 6
1 3 4 6
5 6
We hold regular discussions with our key
regulators on aspects relevant to the evolving
regulatory agenda to ensure our strategic
focus meets the needs of all stakeholders.
We actively engage with regulatory
consultations and calls for evidence across
key areas of regulatory policy and reform.
In 2023, this included engagement on
Solvency UK, the Corporate Governance
Code, the Sustainability Disclosure
Requirements and Diversity and Inclusion.
We liaise with our supervisors to ensure
timely notification of changes to the Group’s
regulated population and accuracy of the
Financial Services Register.
Following the 2022 launch of our place-based
social impact toolkit, 2023 saw us put the
methodology into action. The toolkit helps
us identify local needs and priorities
by working with communities, and to make
positive economic, environmental and social
impacts through our real estate investments.
We expanded our partnership with the charity
RedSTART to deliver age-appropriate
financial education to primary school
children, helping expand the programme into
South Wales and the Brighton and Hove area.
We matched over £452,000 in employee
charitable fundraising and volunteering.
In total, we donated £3.4 million to civil society
sector organisations, including £200,000
through our annual Summer Challenge.
We work with suppliers to deliver value
for money for the organisation, to bring
innovation through best practice and to
support continued growth for Legal & General.
We aim to build diversity and inclusion into
our supply chain to create an equal and fair
marketplace, where opportunities are open to all.
We are committed to protecting the environment
and this year have set a target to encourage our
suppliers to transition to net zero by ensuring
that 80%, by spend, of our suppliers will set
a science-based1 carbon reduction target
by the end of 2026.
1.
We define a target as science based if it is approved by
the Science Based Targets initiative (SBTi) or is aligned
to its criteria i.e. is a mid-term reduction target with
enough ambition to align with the global net zero trajectory.
Our stakeholders
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15
Place making
We are aiming to reverse the trend
of chronic under investment, reduce
economic inequalities and create better
communities in which to live and work.
Creating
better places
1616
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Ancora L&G
Poole
Ancora L&G was formed in 2022,
as a joint venture between the
US-based science and technology
real estate developer Ancora and
Legal & General Capital (LGC).
It was created as a real estate
platform dedicated to driving
science and technology growth
across the US. The partnership
will develop a 210,000 sq. ft.
building designed to provide
essential space for public health
services in Rhode Island, advancing
the state’s critical public health
and safety goals. It will also provide
laboratories for development and
application of cutting-edge new
science, which is anticipated to
make a difference to future public
health and quality of life.
In March 2023, we purchased
a site (Science at Square 10)
near the Yale University campus,
to further our city-approved plan
to build a new 11-storey lab and
office building. It will house
university research, forward-
looking companies, and innovative
entrepreneurs in one vibrant hub
of growth and discovery.
We reinvigorated Kingland high
street in Poole with an innovative
scheme to help Dorset-based
start-ups and independent
businesses during the pandemic.
This has generated £3 million
in direct turnover for operators
since opening in 2021, led to
£2.2 million in additional sales
for operators at LGIM Real Assets’
neighbouring shopping centre in
the first year of opening, created new
jobs and increased footfall by 16%
ahead of its pre-pandemic trend.
We also developed a partnership
of local stakeholders representing
the needs of the community, such
as charities tackling issues including
homelessness, the NHS, and the
local university. Our partnership
with the NHS, who took 20,000 sq. ft.
within the centre to create an
outpatient assessment clinic,
treated over 15,000 patients in
its first 15 months of opening.
We’ve thought hard about
how we can catalyse and
form local partnerships
to create real positive
change, including how
we communicate and
measure social impact.”
Shuen Chan
Head of Responsible
Investment & Sustainability
at LGIM Real Assets
Science at Square 10 to complete in 2026.
Place making
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17
better places
Our climate actions
Climate
and
nature
The need to tackle climate change and nature
loss is becoming increasingly urgent. It is one
of our strategic growth drivers and we aim
to deliver via our three-pillar strategy: Invest,
Influence and Operate.
Climate and nature report
Our material climate
disclosures can be found on
pages 45 to 48 of this report,
with further information in our
2023 Climate and nature report
(including our journey to net
zero): group.legalandgeneral.
com/reports
As purpose-driven, impact-led
investors, we are pleased to provide
funding to our partners ImpactA
as they secure opportunities to
invest in sustainable infrastructure
that offers the potential for
positive financial, social and
environmental returns.”
Laura Mason
CEO, Legal & General Capital
18
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Invest
• Through reducing the intensity
of our financed emissions.
• Through investing
in the transition.
Advanced Electric Machines
(AEM)
We have invested in AEM,
an electric vehicle motor
manufacturer which does not use
rare earth materials, significantly
reducing environmental impact
and reliance on geographically
concentrated supply chains,
without compromising on quality
and performance.
ImpactA Global
We have committed up to
$100 million to women-led impact
investment advisory firm, ImpactA
Global. This investment will be
directed to debt financing for
sustainable infrastructure in
emerging markets, with a focus
on addressing climate challenges
and reducing inequalities.
Legal & General Capital (LGC)
became a significant minority
shareholder of ImpactA Global
when it launched in March 2023.
Influence
• Through the products
we offer our clients.
• Through our engagement
with the real economy.
Clean power infrastructure assets
We have partnered with NTR,
a leading renewable energy
specialist, to launch the L&G NTR
Clean Power (Europe) Fund, which
aims to offer exposure to a
diversified portfolio of clean power
infrastructure assets with attractive
risk-adjusted returns and positive
environmental and social impact.
Operate
• Through our operations.
• Through the businesses
we control.
Our housing businesses
Our housing businesses have been
helping us deliver on our transition
plan. CALA Homes has been
advancing the use of hydrotreated
vegetable oil (HVO) to reduce their
operational carbon footprint and
has developed a pilot net zero
enabled home to test designs and
technology we hope will deliver
further reductions. IVG is continuing
to design and develop energy
efficient homes, in their drive to
deliver net zero enabled retirement
villages, for example by incorporating
heat pumps from our portfolio
company, Kensa. Suburban Build
to Rent (SBTR) beat its target
to have 50% of homes transacted
as gas-free.
Our climate actions
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19
Our people
Working
together
We aspire to empower our employees
to work together to create value for
our customers, shareholders and the
communities we’re here to serve.
Our customers
sit at the heart of
everything we do
Employees on our Consumer Duty Programme
have worked hard together to implement
the new regulations. They have undertaken
targeted monitoring reviews across the Group
to understand how the Consumer Duty
management information will enhance
customer outcomes, or where improvements
are required.
The ongoing collaborative work has enabled
more accurate and effective communications,
enhanced delivery of service and driven
continuous improvement activity. This has
been central to the work undertaken and its
subsequent integration into our governance
and business as usual activity across the teams.
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£59.9bn
of PRT written since the
beginning of 2018
£13.7bn
of global PRT business
written in 2023
A major milestone for our
UK pension risk transfer team
We have secured the benefits of 53,000
members of the Boots Pension Scheme
in a history-making £4.8 billion transaction.
This transaction is the UK’s largest single
buy-in by premium size and, for us, the largest
single transaction by number of members.
This significant achievement is a testament
to the importance of our Legal & General
behaviours – being collaborative, purposeful
and straightforward across divisions, businesses
and external clients. We have shown this
through excellent teamwork and the shared
commitment to our clients and customers.
CCA Awards recognition
Our UK Customer Service team was recently
awarded Global Standard Accreditation from
the Customer Contact Association (CCA) for
the sixth year in a row. This highly regarded
accreditation is a framework that assesses
the reliability and effectiveness of customer
service operations.
Celebrating Retail
annuities success
We had a record year in Retail annuity with
premiums reaching £1.4 billion, an increase
of 50% over 2022. This means we’ve provided
guaranteed income to more than 12,000 new
annuity customers, supporting them in securing
brighter financial outcomes for their retirement.
Despite increased volumes and the
challenges that brings, our teams continue
to focus on helping customers achieve their
desired outcomes. We aim to offer exemplary
service and for the sixth consecutive year,
we have been accredited under the CCA for
service excellence.
I am proud that we
have been able to work
seamlessly across
our insurance, legal,
reinsurance, client
services, finance, risk and
investment management
teams to deliver this
excellent outcome.”
Andrew Kail
LGRI CEO
Our people
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21
Chief Financial
Officer’s Q&A
Our business provides
a number of attractive
growth opportunities.
We are a leader in the
UK PRT market, driven
by our scale and
competitive advantage
in creating, sourcing
and managing assets,
complemented by
a disciplined
pricing approach.”
£1.7bn
adjusted operating profit
£14.7bn
store of future profit
Jeff Davies
Chief Financial Officer
Over the period 2020 – 2024,
our cumulative ambition is for:
• capital generation to significantly
exceed dividends
• dividend to grow at 5% for the year
to 2024
• net surplus generation (including new
business strain) to exceed dividends.
£8 – £9bn
capital generation
(progress to date: £6.8 billion)
£5.6 – £5.9bn
dividends
(progress to date: £4.5 billion)
£0.8bn
net surplus generation
over the dividend (2020 – 2023)
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How did Legal & General approach the
volatile economic backdrop across 2023?
Our diversified business model helped us to
remain resilient despite the volatile economic
environment. The store of future profit (CSM +
RA) grew by 9%, while the adjusted operating
profit result was flat year on year. Growth
opportunities continued, with record volumes
across PRT, Retail annuities and US protection.
The continued higher interest rate environment
has created significant opportunity in the PRT
and individual annuity businesses, demonstrated
by the strong volumes. This was partially offset
by the adverse impacts in the investment
management business, where the lower fixed
income asset values drove a decrease in asset
management revenues and therefore lower
year-on-year profit.
You implemented IFRS 17 this year.
How did the implementation go and how
have analysts and investors responded
to this new accounting standard?
IFRS 17 is a new accounting standard effective
from 1 January 2023. The standard impacts
insurance contracts which, in our case,
represents business written through our
retirement and insurance businesses. LGIM
and LGC are unaffected. As outlined in our
half year 2023 presentation, the introduction
of IFRS 17 only impacts the timing of profit
recognition – the economics of the contract
remain the same. There is no change to our
dividend capacity (or appetite) and no change
to Solvency II capital.
The implementation has gone well and the
response from analysts has been positive,
as IFRS 17 introduces a more stable and
predictable profit profile through the CSM
release. For us, this benefit emerges through
the deferral of new business profit and
demographic assumption changes to the
CSM, which will then be spread and released
into profit consistently over the lifetime
of the contract.
CSM has grown by 9% to £13.0 billion, with
£1.2 billion added from new business in 2023,
an increase of c.33%. CSM performance over
2023 reflects the high volume of PRT and
protection business written, as well as
favourable longevity assumption changes.
How are you performing against
your ambitions?
We are making good progress against our
five-year (2020 – 2024) ambitions. Against
a cumulative ambition of £8 – £9 billion, capital
generation (Solvency II operational surplus
generation) stands at £6.8 billion at the end
of 2023.
With the 2023 interim and final dividend
growing by 5%, cumulative dividends declared
stand at £4.5 billion at the end of 2023, against
an ambition of £5.6 – £5.9 billion over the
five-year period. The Board has agreed that
it aims to continue to grow the dividend at 5%
per annum out to the financial year 2024, which
would add an additional £1.3 billion.
We are also performing well against our ambition
for Solvency II net surplus generation (which
includes setting up capital for new business)
to cumulatively exceed dividends paid over
2020 – 2024. In total, we have created
£0.8 billion surplus to the end of 2023.
This has not been at the expense of ongoing
investment in the business. For example, since
2020, we have written over £40 billion of PRT
and individual annuities.
We remain confident in achieving our ambitions,
with our businesses closely aligned to long
term and strategic growth drivers, which we
expect to persist regardless of any short- or
medium-term market volatility.
The PRT market looks set to continue
to grow at pace. What is your outlook/
ambition in this market over the
medium term?
2023 has seen a large volume of PRT deals
come to market given the favourable
conditions. The high interest rates have led
to materially improved funding positions
for corporate pension funds, that is to say
pension deficits have significantly reduced
and, in many cases, have moved to a surplus
position. This means that a growing number
of corporate pension schemes are able to
consider undertaking a de-risking transaction
with an insurer much sooner than had been
anticipated.
We are a leader in the UK PRT market, driven
by our scale and competitive advantage in
creating, sourcing and managing assets with
relationships across a large percentage
of schemes. This is complemented by
a disciplined pricing approach.
With the acceleration of the UK PRT market,
we increasingly consider our ambition of
writing circa £8 – £10 billion of PRT a year
as ‘business as usual’. In 2023, we wrote
£12.0 billion of UK PRT business at a Solvency II
margin of 7.4%.
We are also seeing similar PRT market
dynamics internationally where we wrote
£1.7 billion in 2023. We surpassed $10 billion
of total written premium with over 100 deals
in the US, since our launch in 2015.
Your Solvency II coverage ratio is strong
– how do you think about capital allocation?
The strength of our capital position provides
us with both a significant buffer, should interest
rates fall, and the scope to continue both
to invest, so as to ensure the long-term growth
profile of the Group, and also to maintain
a progressive dividend. We have a number
of attractive growth opportunities in which
we could continue to invest. These opportunities
include the acceleration of the PRT opportunity
for LGRI, building out our asset origination
capability in LGC, continuing to diversify and
internationalise our investment management
offering in LGIM, and enhancing our accumulation
and decumulation platforms and customer
experience in Retail.
Investing
Chief Financial Officer’s Q&A
Legal & General Group Plc Annual report and accounts 2023
23
Key performance
indicators (KPIs)
We consider that the
measures presented
on these pages are KPIs.
We remain confident
in our ability to deliver
resilient, organic growth,
supported by our strong
competitive positioning
in attractive and
growing markets.”
Jeff Davies
Chief Financial Officer
Guide to symbols used in
these financial results
Alternative performance measure
(APM), see page 270 for definitions
Key measure in the remuneration
of executives, see pages 100 to 102
for definitions
24
Legal & General Group Plc Annual report and accounts 2023
Strategic report
Profit before tax £m
£195m
(2022: £939m)
Purpose: to measure the profit before tax
of the Group.
Despite a resilient adjusted operating profit
performance of £1,667 million, broadly flat on 2022
(£1,663 million), profit before tax of £195 million
(2022: £939 million) was heavily impacted by
longevity assumption changes and the unrealised
mark-to-market impact of higher interest rates
on asset valuations.
Earnings per share p
7.35p
(2022: 12.84p)
Purpose: to illustrate the profitability associated
with each share owned by our investors.
Earnings per share reduced to 7.35 pence (2022:
12.84 pence), primarily influenced by the negative
investment variances noted above.
Return on equity (ROE) %
9.7%
(2022: 15.6%)
Purpose: to show how efficiently we are using
our financial resources to generate a return
for shareholders.
Return on equity of 9.7% is lower than 2022, reflecting
the negative impact of investment and other
variances on our earnings.
Strategic report
Governance
Financial statements
Other information
Purpose: to show the level of distribution
to shareholders.
Purpose: to demonstrate the surplus capital
position over the solvency capital requirement.
Purpose: to demonstrate the balance sheet strength
of the Group.
The Board has recommended a final dividend
of 14.63 pence, giving a full year dividend of
20.34 pence, up 5% from the prior year (19.37 pence).
This is consistent with our stated ambition to grow
the dividend at 5% for the year to 2024.
Solvency II surplus of £9.2 billion (2022: £9.9 billion)
over our capital requirement demonstrates the
continued strength of our balance sheet.
The Solvency II coverage ratio reduced to 224%
(2022: 236%), primarily influenced by record volumes
of new business and the impact of mark-to-market
asset movements as a result of continuing higher
interest rates.
Total shareholder return %
As at 31 December 2023
150%
100%
50%
0%
-50%
Dec 13 Dec 14 Dec 15 Dec 16
Dec 17
Dec 18
Dec 19 Dec 20 Dec 21 Dec 22 Dec 23
Legal & General
FTSE 100
FTSE 350 Life
+8%
(2022: -12%)
Purpose: To measure the total return
to shareholders, including dividends
and share price movements, over time.
In another challenging year for UK
indices, the total shareholder return
(TSR) return of +8% outperformed the
FTSE 100 index (+6%) and the FTSE
350 Life Index (-9%). Over a ten year
period, the TSR performs well (+111%)
against the FTSE 100 index (+68%) and
the FTSE 350 Life Index (+5%).
Key performance indicators (KPIs)
Legal & General Group Plc Annual report and accounts 2023
25
20192020202120222023Full year dividend p19.3720.3418.4517.5717.57Solvency II surplus £bn9.27.47.39.98.220192020202120222023Solvency II coverage %22417517923618720202019202120222023 Tax review
We pay the right tax,
at the right time and
in the right place in line
with our published tax
strategy and wider
commercial purpose.”
We aim for our tax affairs to be well
governed, transparent, and fair to our
customers, shareholders, and the public.
You can read more about our tax strategy,
our governance, and what taxes we pay
in our Tax supplement, which is approved
by the Board and can be found here:
group.legalandgeneral.com/reports.
Grace Stevens
Chief Tax Officer
Our 2023 tax position
We have a tax credit for the year which includes
a material one-off tax credit arising from the
introduction of a new Bermuda corporate
income tax regime. This relates to the
recognition of a deferred tax asset on inception
of the new tax regime and will unwind against
future taxable profits in Bermuda.
The tax credit for the year excluding this
one-off credit is £27m. This is explained
by the varying rates of tax that we pay on our
businesses in different territories and the
mixture of profits and losses across those
territories. Further explanations of our 2023 tax
position can be found in our Tax supplement.
The tax environment
With the global economic outlook remaining
uncertain as people adapt to higher interest
rates and inflation, governments remain focused
on both raising revenues and promoting growth
across the economy, and the tax regime has
a role to play here. In the UK, we’ve seen
a number of changes with these aims in mind
including the ‘super deduction’ being replaced
with ‘full expensing’ of qualifying plant and
machinery, changes to the R&D regime and the
Lifetime Allowance Notification pension rules,
and reductions in the rate of National Insurance
for employees. At the same time, the corporate
income tax rate has been held at 25% and personal
tax thresholds remain frozen. These changes
have an impact across our businesses, our
investments, our employees and our customers.
New accounting standards, tax legislation and
tax reporting requirements continue to add
to the complexities that businesses face.
The introduction of any new taxes or levies must
be clear in its aims and what it is setting out
Tax supplement
Our Tax supplement is available
on our Group website. See:
group.legalandgeneral.com/reports
to achieve. This is particularly important where
the tax regime is being used to target behavioural
change, for example where ‘green’ taxes are
being introduced to incentivise businesses and
wider society to adopt environmentally friendly
behaviours. We continue to contribute to
discussions and research on the tax landscape,
prospective changes and active consultations
on new legislation and guidance, with a view
to the impact across society, our customers
and wider stakeholders.
We recognise that governments, customers,
investors, and other stakeholders have justifiably
high expectations for compliance, risk
management and transparency. Our approach
remains consistent with a focus on engaging
with all our stakeholders and supplementing
our disclosures on tax where we believe this
will add value.
Our purpose is to build a better society and make
a positive difference to people’s lives while
delivering value for our shareholders. We believe
that paying tax is part of the impact we have on
the economy and society and that the tax regime
should endeavour to balance the needs of all
stakeholders across society, whilst ensuring that
policies do not create unintended consequences.
We monitor risks and complexities across all
the territories in which we operate, to ensure
we pay the right tax, at the right time, in the
right place, consistent with our tax strategy.
Further detail on our main risk areas – and how
we manage those risks – can be found in our
Tax supplement.
The new global minimum tax regime
During the year, the UK Government enacted
legislation to apply a global minimum tax
rate of 15% to multinational businesses
headquartered in the UK, under the Model Rules
agreed by the Organisation for Economic
Co-operation and Development (OECD). These
rules apply from 1 January 2024 and will apply
to all of Legal & General’s businesses globally.
In December 2023, Bermuda enacted a new
corporate income tax regime that will apply
from 1 January 2025, with a headline rate of 15%.
These are all new rules and additional guidance
on the implementation of the new regimes and
their interaction is expected and will be kept
under review for any impact.
The Group is expected to be liable to UK top-up
tax in 2024 and Bermuda corporate income tax
from 2025 in respect of profits arising in our
global reinsurance hub in Bermuda.
Changes to accounting standards
impacting the tax we pay
On 1 January 2023, a new global accounting
standard for insurance contracts, IFRS 17, came
into effect. IFRS 17 is an accounting change
only, which does not change the underlying
economics of our insurance contracts. It does
not change our strategy, capital generation,
solvency or dividend capacity.
The introduction of this new accounting standard
impacts the tax we pay in the UK. This is because
the UK tax regime is based on IFRS results
for the companies in our Group and we have
previously paid tax based on our IFRS 4 results.
At transition on 1 January 2022, shareholders’
equity reduced by c.£5.5 billion. Of this,
£5 billion reflects the value taken to the balance
sheet under IFRS 17 as part of the CSM, which
is expected to emerge as future profit.
The remaining balance relates to the
implementation of IFRS 9.
The tax regime requires the reduction in equity
on transition to IFRS 17 to be treated as a tax
credit, which is spread over 10 years. The credit
represents the tax that has effectively been
paid in prior years on IFRS 4 profits that, under
IFRS 17, will now emerge in the income
statement in future years. This ensures
the same profits are not taxed twice.
As a result of the above, our tax payments over
the next 10 years will be reduced.
26
Legal & General Group Plc Annual report and accounts 2023
Strategic report
Strategic report
Governance
Financial statements
Other information
£1,582m
In 2023, our total tax contribution was
£1,582 million (2022: £1,838 million)
of which 93% (2022: 94%) arose in our
UK businesses and 7% (2022: 6%)
in our overseas businesses.
Total tax contribution
Our total tax contribution
is the amount of tax that we pay
together with the amount of tax
that we collect on behalf of our
employees, suppliers, customers
and policyholders. We paid
£461 million (2022: £838 million)
of tax and collected £1,121 million
(2022: £1,000 million).
Our total tax contribution of
£1,582 million is lower in 2023
than in prior years. This reduction
is primarily due to a reduction in
UK corporation tax payable arising
in 2023 as a result of both larger
adverse investment variances in
the year and the release of the tax
credit arising on IFRS 17 transition,
to be spread over 10 years.
Total tax contribution in 2023
Total taxes paid
Total taxes collected
£461m
£1,121m
£0m Profit taxes
£568m UK PAYE deducted from policyholders
£178m Withholding taxes suffered in the UK
£69m UK property and other taxes
£70m UK irrecoverable VAT and premium taxes
£100m UK payroll taxes
£37m Other overseas taxes
£7m Overseas profit tax
£13m UK property and other taxes
£199m UK VAT and premium tax
£274m UK payroll taxes
£67m Overseas taxes
Our total tax contribution over the last six years
The table below shows our total taxes paid and collected over the past six years. For a breakdown
of how we calculate these numbers, please refer to our Tax supplement.
Total tax contribution £m
1,800
1,600
1,400
1,200
1,000
800
600
400
200
782
781
565
700
811
820
1,000
818
835
838
1,121
461
2018
2019
2020
2021
2022
2023
Total taxes paid
Total taxes collected
Tax review
Legal & General Group Plc Annual report and accounts 2023
27
Business review
Continuing to share
our success with
our shareholders,
customers and society.
2023 in review
Our unique, powerful and highly synergistic
business model has delivered another strong
year, enabling our businesses to capitalise on
significant growth across our chosen markets.
Committed to inclusive capitalism, we are
continuously taking action to protect the
retirement income of millions and use
the power of pensions to generate socially
beneficial infrastructure and create
opportunities for the next generation.
With purpose-led expertise across asset
origination (LGC), asset management (LGIM)
and retirement and protection solutions (LGRI
and Retail), alongside our scale and long-
standing relationships, we remain on track
to achieve our five-year ambitions, and
are confident in our ability to deliver resilient,
organic growth.
Outlook
As a leading global player in the pension
risk transfer (PRT) market, our institutional
retirement business (LGRI) is uniquely
positioned to offer holistic, multinational
pension de-risking solutions. Remaining
disciplined in pricing and value creation,
we demonstrate our market leadership
by executing record-breaking, innovative
transactions, and we wrote our largest deal
to date this year. We have now surpassed
$10 billion of international PRT, and will
continue to leverage our brand, scale and
asset origination capabilities to capitalise
on the large global pipeline.
Our capital investment business (LGC) is
committed to deploying shareholder capital
in a range of underserved areas of the real
economy which are backed by long-term
structural trends. In line with our ambition,
we remain focused on seeking incremental
opportunities in clean energy and later living,
expanding our international footprint and
generating long-lasting value for society.
Building on our success to date, our
partnership with Ancora is growing, while our
investment with L&G NTR Clean Power Fund
will help drive Europe’s decarbonisation and
support its energy security agenda.
Underpinned by the impressive growth to date
of Pemberton, we are on track to achieve our
third-party AUM ambition of £25 – £30 billion
by 2025.
The ambition of our investment management
business (LGIM) is to create a better future
through responsible investing. Upheld by three
strategic pillars: modernise, diversify, and
internationalise, we are committed to raising
standards in addressing the environmental and
social challenges arising from a rapidly
changing world. Alongside its core role in the
Group’s successful synergistic business model,
we remain dedicated to broadening our
investment offering, expanding our global
footprint and improving our operational
effectiveness to deliver benefits at scale.
With a mission to reimagine our world to create
brighter financial futures, our Retail business
harnesses technological innovation to provide
our customers with peace of mind. Leveraging
operational strength and deep distribution
relationships, we continue to widen our product
and pricing proposition to ensure we can be
there when it matters most. We are well-
positioned for long-term growth, after
delivering a landmark year for annuities, and
record-setting transaction volumes in the US.
Capital markets event
For full details of our
external ambitions, see
our capitalmarkets event:
group.legalandgeneral.com/CME
28
Legal & General Group Plc Annual report and accounts 2023
Strategic report
£13.7bn
global PRT new
business volumes
£378.1bn
assets managed for our
clients are linked to ESG
8.5%
growth in our alternative
asset portfolio
£412m
protection new
business premiums
Institutional
retirement
Strategic report
Governance
Financial statements
Other information
CEO introduction
We transacted record global volumes
in 2023, including our largest ever deal.
We are seeing continued growth in the US,
where total volumes written to date have
now passed $10 billion. We have developed
innovative solutions to support long-
standing clients to achieve their de-risking
goals, securing 33 transactions in the UK
totalling £12.0 billion, nine in the US
totalling £1.5 billion and a £0.2 billion
transaction in the Canadian market.
We provide income and security
in retirement to more than 600,000
customers, while allowing businesses
to thrive by taking risk off their balance
sheets. With the UK PRT market expected
to exceed £50 billion in 2024 and a
significant global PRT pipeline, our
combination of long-standing expertise,
continued innovation and uniquely global
capabilities positions us well to capitalise
on this opportunity.
Growth drivers
• Ageing demographics.
•
• Addressing climate change.
Investing in the real economy.
2023 key activities
In 2023, we demonstrated how our solutions-
focused expertise can help large pension
schemes to de-risk at scale, transacting the
Boots and British Steel schemes – the UK’s
largest individual transaction and fully insured
scheme respectively – as well as two schemes
with United Utilities. Together, these made
up two thirds of our total volumes and reflect
the strength of our long-standing client
relationships and tailored client solutions.
Excellence in customer service
We pride ourselves on our commitment to
excellent customer service and have attained
the Customer Contact Association’s (CCA)
Global Standard Accreditation for the sixth
consecutive year. In our most successful year
to date, we were shortlisted for eight awards
and won six at the CCA Awards, including
Great Places to Work and 5 Years of Excellence.
New business
During the year, we wrote PRT new business
premiums of £13.7 billion across the UK, US,
and Canada, including record volumes of
£12.0 billion in the UK. Along with LGIM,
we develop strong, long-lasting relationships
with pension schemes to support them through
their de-risking journey. We have a proven track
record of executing ground-breaking transactions
for very large pension schemes, including
through pre-agreed umbrella contracts, while
also preserving a strong presence at the small
and mid-sized end of the market.
£4.8 billion full buy-in for the Boots
Pension Scheme
We agreed a £4.8 billion full buy-in with the
Boots Pension Scheme. This secured the
benefits of all 53,000 members of the Scheme,
making it the UK’s largest single transaction
of its kind by premium size and our largest
by number of members.
Legal & General has a long-standing
relationship with Boots, having provided
investment management services to the
Scheme for over 20 years.
This transaction also represented another
innovative step forward in pension de-risking
by combining investment and insurance
expertise to find solutions for the Scheme’s
Andrew Kail
Chief Executive Officer,
Legal & General Retirement Institutional
illiquid asset holdings. As a result, the Scheme
can achieve the certainty of a transaction and
maximise the value of its assets by transferring
them to us.
£2.7 billion British Steel Pensions Scheme
becomes largest in UK to fully insure its
members’ benefits
In 2023, we completed a further transaction
(four in total since November 2021) with the new
British Steel Pensions Scheme (BSPS), where
the remaining 40% of liabilities were insured.
We have now insured £7.5 billion of BSPS’s
liabilities, securing the benefits of c.67,000
members.
Over an 18-month period, a deficit of c.£800
million was closed by executing transactions
quickly when there were favourable market
conditions. By completing this transaction,
BSPS’s trustees are now able to make
additional payments to members.
Institutional retirement
sales £bn
13.7
£13.7bn
Net promoter score
+73
+71
+70
+70
9.5
7.2
We achieved strong sales of £13.7 billion
in 2023. We transacted 43 deals globally,
achieving £12.0 billion in premiums
in the UK, whilst also growing our
presence in the US market, where
we wrote premiums of £1.5 billion.
Our reinsurance hub also wrote
£0.2 billion of premiums. Premiums
shown exclude longevity insurance.
2021
2022
2023
2021
2022
2023
Net Promoter Score (NPS) is a metric that
is used to measure customer experience on
a scale of -100 to +100. We hold a 12-month
rolling NPS score of +70 which is regarded
as a world-class level of service in the
industry, with the average UK score for
Banking and Financial Services being +34.
We have maintained this world-class level
of service for four consecutive years while
dealing with adverse economic conditions,
demonstrating strong operational resilience
and commitment to our customers.
Institutional retirement
Legal & General Group Plc Annual report and accounts 2023
2929
Institutional retirement
continued
Customer service
We continually seek opportunities
to listen, engage and improve our
service to meet customer needs.
This year we welcomed over 2,500
customers to our flagship
customer event at BBC Gardeners’
World Live, and hosted two
customer roadshows themed
around wellbeing.
Excellence in customer service
is one of the core features of our
proposition, and we typically find
that it is a key consideration for
schemes transacting with us.
We strive for outstanding service
levels for our customers, issuing
98% of customer communications
within five days of the request.
We are committed to developing
our people in the customer service
area, taking on apprentices in
2023 to encourage customer-
focused careers.
£1.8 billion buy-in with United Utilities
We agreed a £1.8 billion buy-in with the trustees
of two pension schemes sponsored by United
Utilities, an existing LGIM client, insuring two
thirds of their liabilities.
We provided a bespoke price lock to the
Scheme’s assets, which gave price certainty
for the trustees while the transaction terms
were agreed.
£500 million buy-in with Deutsche Bank
Pension Scheme
In November, we completed a £500 million
buy-in with the Deutsche Bank (UK) Pension
Scheme, which secured the benefits of around
2,000 members.
This was the Scheme’s third buy-in, extending
coverage to include deferred members for the
first time, and taking the total buy-in to c.£1.5
billion. The Scheme made use of the existing
umbrella contract with Legal & General, allowing
the buy-in to be transacted quickly and efficiently.
£332 million buy-in with Cable and Wireless
Superannuation Fund
We secured the benefits of around 1,800
members as a result of a £332 million buy-in
with the Cable and Wireless Superannuation
Fund. This buy-in marked the fund’s third and
final transaction with Legal & General, following
buy-ins in 2017 and 2019. It is the culmination
of a process of reducing investment and
longevity risk, which began in 2008.
With support from Legal & General, the Trustee
of the Fund was able to react to changing market
conditions and transact at an opportune time.
Opportunities for small pension schemes
Close to 75% of UK DB pension schemes have
assets of £100 million or less and there is
strong demand from these small schemes.
We have a streamlined small scheme proposition
to make the process more efficient for this area
of the market.
In February, we agreed a buy-in with the Amey
Services section of the Citrus Pension Plan,
totalling c.£6.5 million, which secured the
benefits of 70 members. This transaction
demonstrated our ability to carry out fast and
efficient pricing in a busy market as the
transaction was completed within eight weeks
of the trustee sharing the initial data with us.
In 2023, we completed 22 transactions under
£100 million, which secured total premiums
of £391 million, underlining our commitment
to schemes of all sizes.
US PRT deals
Legal & General Retirement America (LGRA)
reached another milestone this year by crossing
$10 billion in total business written and over
100 deals since its inception in 2015. As our US
PRT business continues to grow, so does our
team, with a new office in Stamford, Connecticut
allowing a larger team and greater capabilities.
Adjusted operating profit £m
£886m
(2022: £807m)
We achieved a strong adjusted operating
profit of £886 million driven by releases
of the contractual service margin (CSM)
of £591 million and the risk adjustment
(RA) of £119 million.
Understanding the risks
Taking on the responsibility for pension scheme
liabilities and providing income in retirement transfers
pension-related risks to Legal & General. In particular,
we take on the risk of higher than expected life
expectancy, or that we experience defaults in the
investments backing our obligations.
We remain vigilant to the long-term trends in longevity
in our pricing and use reinsurance to manage selected
risks. Working with our investment management
business’s credit and property experts, we
continuously assess default risks in our investment
portfolio, managing exposures to sectors that may be
at risk in the prevailing economic environment and,
where appropriate, trading out of positions.
30
Legal & General Group Plc Annual report and accounts 2023
Strategic report
Strategic report
Governance
Financial statements
Other information
In 2023, we completed a total of nine deals
totalling $1.9 billion, securing the retirement
of over 27,000 annuitants, including an
individual transaction of nearly $800 million,
which is our largest to date. Of the nine deals
transacted, four were with existing clients,
reflecting the financial security and service
excellence we provide to sponsors and pension
plan members.
As lead administrator, LGRA also completed
two transactions in partnership with
Reinsurance Group of America (RGA), insuring
c.$350 million of a total c.$1 billion premium
and jointly protecting the retirement benefits
of more than 6,000 members.
Other International PRT deals
In the Canadian market, we have executed
a reinsurance transaction of CAD$350 million
with a Canadian regulated insurer which brings
our total premium to date to over CAD$1.5 billion
in Canada. There continues to be significant
opportunity in the US and Canadian markets,
and we are well positioned to execute deals
using our global pensions de-risking expertise.
We formed a strategic relationship with Lifetri
in the Netherlands which presents an exciting
opportunity for Legal & General to offer PRT
expertise and secure the benefits of more
international customers.
Our wider contribution
We have a major impact on wider society
through the financial security we provide
to pension scheme members and the capital
we direct to investment assets, but also
through the direct contribution our people
make to the community. For example, this year
LGRA held its first community day with teams
in Maryland and Connecticut volunteering
in their local communities to plant trees
and clean up a park in partnership with
the Chesapeake Bay Foundation.
Residential investment in Northern Ireland
This year, we funded a £150 million residential
development in Belfast, committing to the
largest real estate investment in the region
for 20 years which will fund the development
of 627 new homes. This investment will help
address soaring rental demand and drive
economic growth in the region.
the country’s biodiversity and environmental
capital. We also helped fund the world’s largest
debt-for-nature swap which is linked to the
conservation of the Galapagos Islands, where
we were the largest investor in the deal.
Outlook
The UK PRT market continues to grow, and
we expect increasingly large transaction sizes
in the future, with projections of £360 billion
of new business to be written over the next
five years.
On completion, the build-to-rent scheme will
be managed by LGIM Real Assets as we continue
to support Legal & General’s commitment
to levelling up towns and cities.
As we proceed to execute deals globally, we
will utilise our PRT expertise to identify and
transact on favourable deals both in the UK
and abroad as we leverage our international
experience and long-term relationships.
Leeds city centre
In April, we agreed to invest £140 million
for a residential development in Whitehall
Riverside in Leeds, committing to the delivery
of 500 new homes which will again be
managed by LGIM Real Assets.
This marks the third scheme funded by
Legal & General in Leeds and will bring the
number of new rental homes it has delivered
in the City to over 1,000. The development will
help residents benefit from growing employment
opportunities and strong transport links in the
area, showcasing our commitment to delivering
positive social outcomes.
Development and conservation
This year, we invested in a number of impactful
initiatives including a senior secured loan to the
Republic of Senegal, where funding will span
45 development projects around health, education
and transportation. We invested in a ‘debt-for-
nature’ swap (Gabon blue bond) to fund marine
conservation in Gabon, aimed at conserving
We are continuing to
see an unprecedented
acceleration in demand,
driven by more pension
schemes being closer to
buyout than ever before.
Against this backdrop,
we have posted a record
year with £13.7 billion
of global PRT written.”
Andrew Kail
Chief Executive Officer,
Legal & General
Retirement Institutional
Investment solutions
for large schemes
In 2023, we were able to assist
four pensions schemes with
illiquid assets using these solutions,
allowing them to secure full buy-in
transactions within their preferred
time frame.
Working alongside LGIM, we have
developed a range of solutions
for pension schemes with illiquid
asset holdings that are looking
to secure a bulk annuity.
This includes accepting assets
as part of the premium payment
or deferring part of the payment
to align with asset sales to provide
the potential customer with the
most flexible arrangement.
Institutional retirement
Legal & General Group Plc Annual report and accounts 2023
31
Capital
investment
Growth drivers
• Ageing demographics.
• Globalisation of asset markets.
•
Investing in the real economy.
• Welfare reform.
• Technological innovation.
• Addressing climate change.
CEO introduction
Our purpose-driven capital investment
business, LGC, has long been investing
in alternative asset classes and partnerships
that drive superior financial returns with
positive social and environmental outcomes.
As we look to grow our business in the UK
and internationally, we will continue to deploy
catalytic capital, alongside an increasing
number of third-party partners. These partners
will gain access to our unique pipeline of assets
and investments that create long term, secure
income streams, underpinned by societal
demand.
Laura Mason
Chief Executive Officer,
Legal & General Capital
2023 key activities
In 2023, LGC’s alternative asset portfolio grew
as we continued to deploy capital into new and
existing investments in the UK and internationally,
further strengthening our capabilities across
a diversified range of alternative assets that
are underpinned by structural growth drivers.
Through our ability to manufacture bespoke
assets tailored to create attractive long-term
investments, our unique asset origination
capabilities continue to be a key differentiator
for our Institutional Retirement business when
competing in the PRT market.
Significant third-party capital was secured
by our partnership with Bruntwood SciTech,
the UK’s leading specialist property provider,
as well as Kensa, the UK’s leading ground
source heat pump provider.
In 2023, Bruntwood SciTech, our joint venture
with Bruntwood, secured £500 million of
additional investment and welcomed Greater
Manchester Pension Fund (GMPF), the UK’s
largest local authority pension fund, to the
partnership. The funds will be used to expand
and redevelop existing science and technology
campuses and city centre innovation hubs
across the UK, facilitating the UK’s ambition
to become an internationally recognised
science and technology superpower by 2030.
LGC’s 50:50 partnership with Ancora, a US real
estate developer and asset manager dedicated
to driving life sciences, research, and technology
growth in North America, continues to expand
with three sites across the US, providing
a valuable ecosystem for universities including
Yale, Brown and Georgia Tech, all of which are
within close proximity to the sites.
Specialist commercial real estate
Across the UK and the US, we are investing
in specialist commercial real estate (SCRE),
including laboratory and flexible best-in-class
facilities for innovation-focused high-growth
start-ups, scale-ups and global businesses
in the life sciences and technology sectors.
Additionally, construction of a new 210,000
square feet life-and-health sciences building
in Rhode Island is underway. When complete,
it will provide essential space for public health
services, advancing the state’s critical public
health and safety goals. It will also provide
laboratories for the development and
application of cutting-edge new science, which
is anticipated to make a difference in future
public health and quality of life.
We continue to build on our track record of
place-based regeneration through ECF, a joint
venture with Homes England and Muse, and
also with Oxford University Development (OUD),
a joint venture with the University of Oxford.
With the land provided by Oxford University
and the investment and development
management skills of Legal & General, the
partnership aims to drive investment into
world-leading innovation to attract and retain
talent on a global playing field. OUD expects
to have generated over 1.5 million square feet
of life science and university space and 3,000
new homes for the Oxford community. Marking
a significant milestone for the partnership
during 2023, the 270,000 square feet Life and
Mind building and the two 135,000 square feet
new Begbroke Science Park buildings reached
their halfway point in construction. Begbroke
Science Park will complete in Q1 2024. These
three buildings will provide asset backing for
our annuities’ pipeline.
Direct investments £bn
4.5
4.1
3.4
£4.5bn
As we continued to strengthen
our capabilities across a diversified
range of alternative assets, our
direct investment portfolio grew
by 8.5% in 2023 to £4.5 billion
(2022: £4.1 billion).
Adjusted operating
profit £m
509
510
461
£510m
Despite the challenging market
conditions, we achieved operating
profit of £510 million in 2023, flat
versus 2022 (£509 million).
2021
2022
2023
2021
2022
2023
32
Legal & General Group Plc Annual report and accounts 2023
Strategic report
Strategic report
Governance
Financial statements
Other information
Bruntwood SciTech
Our joint venture with Bruntwood
stands as a pivotal initiative
to reshape the UK’s innovation
landscape, contributing to the UK’s
‘levelling up’ agenda. Bruntwood
SciTech has now attracted an
additional £500 million investment,
with the Greater Manchester
Pension Fund being the first local
authority pension fund to actively
participate in a UK-wide science,
technology, and innovation
property platform.
Over the last five years, Bruntwood
SciTech has proven its ability to
create places that nurture and
grow innovation-based businesses,
especially those working within the
life science and technology
sectors. Now the UK’s largest
innovation property platform,
Bruntwood SciTech aims to create
a £5 billion UK-wide portfolio that
can support 2,600 high-growth
businesses by 2032.
Digital Infrastructure
Since LGC’s initial investment in 2019, Kao
Data, our specialist developer and operator
of high-performance data centres, has grown
from a single-site data centre to a multi-site
platform, with three operational sites. In 2023,
Kao Data secured a further site in Greater
Manchester for redevelopment. As a compelling
strategic growth opportunity, we have provided
further investment into Kao Data, to facilitate
its plans to scale across the UK.
In January 2024, Kao Data secured a £206
million debt facility, provided by Deutsche
Bank. This further demonstrates its growth
from a start-up to a scale-up, its industry-
leading reputation, and both the scale and
demand for world-class infrastructure that
is engineered for AI.
Clean energy
We see a huge market opportunity for reliable
and effective solutions to deliver the transition
to a low-carbon economy. Our focus is on
selective investing in attractive growth equity
and clean technology businesses where we
have identified the potential for rapid and
substantial growth alongside investment
into both new and established clean energy
infrastructure assets. As of 31 December 2023,
we had invested over £400 million into clean
energy infrastructure and technology.
In May 2023, Kensa (the UK’s leading
manufacturer and installer of ground source
heat pumps), secured an additional £70 million
investment and welcomed Octopus Energy
as partners alongside LGC.
Recognising the market opportunity and social
benefits that decarbonising residential real
estate presents, we have now committed
£49 million in a breadth of investments from
reducing construction emissions to the
technology and support needed to retrofit
existing housing stock.
In our clean energy infrastructure portfolio,
we continue to scale our strategic partnership
with NTR, leveraging LGIM’s distribution
capabilities and NTR’s sector expertise to raise
and deploy significant capital into new and
existing renewable energy projects. We provided
seed capital to back the first close of the
LGIM-managed L&G NTR Clean Power (Europe)
Fund, which successfully raised €390 million
in April 2023. This deployment will accelerate
the construction and operation of clean power
infrastructure, facilitating Europe’s
decarbonisation and energy security.
Alternative Finance
Venture capital
Our venture capital platform remains committed
to investing in innovation and growth companies
across the UK and internationally through our
Fund of Funds and direct investment programmes
as well as our venture capital platform.
Through these, we have now provided funding
to c.700 businesses.
Third-party capital £bn
18.1
16.6
£18.1bn
12.9
Our third-party capital grew
to £18.1 billion in 2023 (2022:
£16.6 billion) as we further expanded
our portfolio alongside like-minded,
purpose-driven capital partners.
2021
2022
2023
Capital investment
Understanding the risks
Our early-stage investments through
Legal & General Capital are inherently
exposed to the risk that they do not
perform as anticipated. Where we
undertake construction activity, we
are also directly exposed to health
and safety, and environmental risks.
We seek to closely manage our real
estate and housing market risk
exposures, including development
costs and changes in property
valuations. Site health and safety
is a core focus area across all our
property development and operating
activities.
Climate and nature report
Our 2023 Climate and nature report
is available on our Group website. See:
group.legalandgeneral.com/reports
LGC capital markets event
group.legalandgeneral.com/CME
Legal & General Group Plc Annual report and accounts 2023
33
Capital investment
continued
Socially oriented
investing and choosing
the right type of capital
can directly address some
of the most pressing
demands of our time,
whether at a local,
national or international
level, while delivering
superior risk-adjusted
returns.”
Laura Mason
Chief Executive Officer,
Legal & General Capital
The university spin-out market is an area of
particular focus for us, and a sector where we
are seeing increasing appetite from third-party
capital partners to invest alongside us.
Our unique proposition benefits from long-
standing relationships with the UK’s leading
research institutions that help create the
outstanding businesses of the future.
General partner investing
Pemberton, our leading European private credit
manager, continues to innovate and add new
products to its platform, with success in the
launches of its European Alternative Credit
Fund and Working Capital Finance strategy,
which hit the $1 billion of committed funds
milestone in 2023. We continue to support
the UK and European lending market through
Pemberton, which delivered revenue of
€108 million in 2023 (2022: €99 million),
with fee earning AUM of €13.6 billion (2022:
€12 billion) now deployed across 178 companies.
In March 2023, we announced our investment
in ImpactA Global, a women-led impact asset
management firm established to help address
the sustainable infrastructure deficit in emerging
markets. ImpactA Global will provide debt
financing for sustainable infrastructure assets,
helping to bridge funding gaps in transformational
projects. In October 2023, we committed up
to $100 million to support its growth strategies.
Our partnership with ImpactA Global is indicative
of those we seek through our General Partners
Investing Programme due to its close alignment
with Legal & General’s focus on delivering
commercially attractive financial returns
alongside creating a positive environmental
and socio-economic impact.
Housing
Build to Sell
Our Build to Sell business, CALA, gave
a resilient performance in the face of a
challenging market, achieving an adjusted
operating profit of £112 million (2022:
£169 million) and delivering 2,917 units.
Later Living
Inspired Villages, our Later Living business,
backed by a £500 million 15-year partnership
with NatWest Group Pension Fund, has continued
to expand its village offering. In 2023, it opened
its ninth village in Millfield Green, Bedfordshire.
Significantly, this will be the UK’s first
operationally net zero retirement community.
Affordable Homes
Our Affordable Homes business has established
itself as one of the UK’s leading institutional
developers and managers of affordable
housing, having increased its total number
of homes over 2023 to 4,026, with new builds
targeted to be operationally net zero by 2030.
Modular Homes
In the first half of 2023, we announced our
intention to cease production at our Modular
Homes factory. Unfortunately, long planning
delays meant that we were not able to secure
the necessary scale in our pipeline.
Traded portfolio
Our diversified traded portfolio has reduced
in size after a strategic reallocation of funds
in favour of direct investments. This year,
the traded portfolio exceeded expectations
primarily driven by strong overall market
performance across equities, multi-asset
and short-dated private credit investments.
The traded portfolio helps support the wider
Group’s sustainability objectives by backing
funds that support renewables and clean
energy stocks through our Climate Impact
Portfolio.
Outlook
We remain well positioned to drive long-term
growth in our diverse portfolio as we continue
to scale up our businesses by leveraging our
strong balance sheet, pursuing international
expansion, and attracting further third-party
capital to invest in attractive high-yield
opportunities.
The ambition to build LGC’s diversified AUM
to c.£5 billion (2023: £4.5 billion) across the
UK and internationally by 2025, with a blended
portfolio return target of 10% – 12% (2023: 8.7%)
continues to progress. For investors looking
to access investment classes that create long
term, secure income streams that tackle some
of the major social, environmental, and
economic issues society is facing,
Legal & General is an attractive partner.
As we continue to scale our impact in 2024,
we will bring like-minded, purpose-driven
capital partners searching for private market
solutions to invest alongside us into alternative
asset classes and partnerships that drive
superior financial returns with positive social
and environmental outcomes.
34
Legal & General Group Plc Annual report and accounts 2023
Strategic report
Investment
management
Strategic report
Governance
Financial statements
Other information
CEO introduction
2023 was another challenging year for
the asset management industry, a year
characterised by geopolitical conflict, macro
uncertainty and volatile markets. Against this
backdrop, our AUM and consequently
operating profit declined. However, asset
management is a long-term business and
we remain confident in our strategy, which
positions LGIM for sustainable future growth.
Our strategy is centred around our three pillars
– to modernise, diversify, and internationalise
the firm. We’ve expanded into new markets and
have been investing in our capabilities
to achieve resilience and global scalability.
During 2023, many of our investment strategies
delivered strong relative performance across
a range of asset classes, as we continued
to pursue our purpose: creating a better future
through responsible investing.
Growth drivers
• Globalisation of asset markets.
•
Investing in the real economy.
• Addressing climate change.
• Welfare reforms.
• Ageing demographics.
2023 key activities
Against the challenging economic backdrop,
we are maintaining a disciplined approach
to cost management whilst continuing to invest
deliberately and for the long term. We took
expense actions over 2023, including selective
reshaping of the workforce and restraint
on recruitment and variable compensation.
These actions led to lower costs in 2023
compared to the prior year, despite significant
inflationary pressure.
Delivering on Purpose:
responsible investing
We are committed to raising standards at the
companies and markets in which we invest,
on behalf of our clients, to address the
challenges of a rapidly changing world.
As at 31 December 2023, we managed
£378.1 billion (2022: £332.2 billion) in
strategies explicitly linked to ESG criteria.
Responsible investing innovation remains core
to our product agenda. In 2023, we launched
a developed world, fossil fuels exclusion index
fund, developed in collaboration with the
National Trust, Europe’s largest conservation
charity. We also launched a global diversified
credit fund aligned to the UN SDGs, as well
as a suite of net zero, Paris-aligned and
bespoke funds to help clients meet their
climate commitments.
Our approach continues to receive industry
recognition: we recently won the Sustainability
Provider of the Year award at the Pensions Age
Awards. Last year, we also added dedicated
investment stewardship resource in the Asia
region, as we extend our reach and influence.
Delivering on our strategy
Our strategic pillars of modernising, diversifying
and internationalising the business remain
a key focus. We continue to make progress
on our five strategic growth initiatives (SGIs)
to expand our investment offering and build
our distribution footprint. Two SGIs are focused
on internationalising our business, by expanding
in Asia and Europe. Two SGIs diversify our
investment capabilities by expanding in private
markets and active fixed income, whilst our
final initiative looks to maximise our offering
to the UK defined benefit (DB) pension market.
LGIM plays a key role within Legal & General
Michelle Scrimgeour
Chief Executive Officer,
Legal & General Investment Management
alongside our sister divisions, and it is the
collaboration between divisions that lies
at the heart of our growth agenda.
Modernising
We are shaping the future of the business
by investing in our platform, data and people
to enhance our efficiency and leverage our
scale. Our plan is driven by our strategic target
operating model programme, where we are
working with State Street and Charles River
to create a global platform for investment and
middle-office operations to deliver a best-in-class
client service. This partnership will help us
to offer a more automated, consistent and
seamless experience for all of our clients
across the world. In the first half of 2023,
172 employees moved to State Street and
the first stage of the Charles River roll out
went live in January 2024.
External net flows £bn
49.6
34.6
0
(38.4)
£(38.4)bn
External net flows of £(38.4) billion
primarily reflects the re-balancing
of 2022 inflows into UK Defined
Benefit as clients adjust their
portfolios in response to improved
funding ratios.
Excluding UK Defined Benefit,
LGIM’s external net flows were
positive at £0.9 billion.
Assets under
management (AUM) £bn
1,421
1,196
1,159
£1,159bn
AUM decreased by 3% to £1,159 billion
(2022: £1,196 billion), reflecting the
impact of higher interest rates on
the portfolio.
2021
2022
2023
2021
2022
2023
Investment management
Legal & General Group Plc Annual report and accounts 2023
35
Investment management
continued
As the defined benefit market continues
to mature in the UK, we are supporting clients
to achieve their ‘endgame’ objectives through
modern solutions and enhancements to our
platform. With over 75% of schemes now
recognising buy-out as their likely ultimate
end state, we expect to increase revenue from
providing a full range of investment solutions
along the de-risking journey. In the US, improved
funding ratios due to higher interest rates have
increased demand for customised liability
hedging strategies.
Given our holistic ‘One Legal & General’
approach, we expect many of our DB clients
to choose our institutional retirement business
(LGRI) as a PRT partner.
Diversifying
By selectively adding to our investment offering,
with a focus on higher-margin areas, such
as private markets and active fixed income,
we are building on our core capabilities
to improve the business mix. To meet client
objectives, we also are increasingly integrating
ESG factors into our portfolios, with around
89% of new pooled products developed in 2023
related to responsible investing.
In 2023, we continued to focus on attracting
business into our smart beta and active
capabilities, generating positive flows and
annualised net new revenue (ANNR) into
exchange traded-funds (ETFs), multi-asset
and real assets. Our defined contribution (DC)
business continues to attract new assets,
also generating positive flows and ANNR
in the period, as does our wholesale business,
which ended the year with record levels
of client AUM of £68 billion.
Internationalising
We are continuing to expand beyond the UK,
with international AUM having grown by 81%
since 2018 to £465 billion, representing 40%
of our total AUM.
In the US, we are a leading corporate pension
manager, working with clients to implement
pensions de-risking strategies. We have
refocused our index capabilities, leading
to early success with $8.1 billion (£6.4 billion)
in higher-margin index plus mandates in 2023.
In Europe, AUM increased 11% as we expanded
the number of relationships with clients,
consultants and intermediaries in our core
markets of Germany, Italy, the Nordics
and Switzerland.
In Asia, AUM grew by 12% in the year, with new
mandates in Thailand, South Korea and Taiwan.
We also opened an office in Singapore to serve
clients in the region and to build connectivity
with our London and Zurich offices in serving
the important global financial institutions
channel. In Japan, our AUM has almost doubled
since 2019 and we are now Japan’s seventh
largest asset manager.
Outlook
We remain confident that our three-pillar strategy
positions us well to deliver sustainable future
growth. Following the success of the first
phase of our strategic target operating model
programme, the key foundation of our plan to
modernise the business, in 2024 we will build
on this success and continue to invest in both
our people and technology to lay the
foundations towards a wider rollout.
We will look to build on our successes as part
of our diversify and internationalise agenda,
expanding into higher-margin product areas
and global markets where our strengths best
align to client demand, whilst maintaining
a sharp focus on our core markets.
Our partnership
with NTR
In April, we announced that we had
successfully raised €390 million in
committed capital and co-investment
opportunity in the first close of our
L&G NTR Clean Power (Europe) Fund.
The fund, built in partnership with NTR,
a leading renewable energy specialist,
is designed for institutional investors
with a focus on pension funds, insurers
and endowments.
The partnership demonstrated its
potential in July, completing the financing
of three Spanish solar projects in
partnership with NordLB. When fully
operational, these will have a combined
capacity of 115MWp, producing enough
clean power to serve over 50,000 homes.
Adjusted operating
profit £m
422
£274m
340
274
2021
2022
2023
Operating profit of £274 million (2022:
£340 million) reflects the impact
of higher interest rates on AUM, with
average AUM 12% lower year-over-
year. Revenue of £902 million (2022:
£970 million) has been impacted
to a lesser extent reflecting LGIM’s
shift towards higher-margin business.
We are maintaining a disciplined
approach to cost management, whilst
continuing to invest deliberately for
the long term.
Understanding the risks
We are exposed to changes in the underlying
value of the assets under our management,
as a result of either market moves or flows
into and out of funds. Operational risk losses
can occur where services performed do not
meet expectations of clients and regulators.
Having a strong control framework within
which all our risks are managed is integral
to attracting new funds under management,
minimising fund outflow and operational
errors, and managing regulatory and
reputational risks. Our continued investments
in systems, processes and people ensures
our control environment aligns with risk
exposures across our global operating model.
The market challenges
we’ve seen over the past
year have not changed the
fundamentals of LGIM’s
long-term growth strategy.
We are well positioned
for the future.”
Michelle Scrimgeour
Chief Executive Officer, Legal & General
Investment Management
36
Legal & General Group Plc Annual report and accounts 2023
Strategic report
Retail
Strategic report
Governance
Financial statements
Other information
CEO introduction
As a leading provider of savings, protection,
and retirement products, we are committed
to reimagining our world to create brighter
financial futures for our customers. Meeting
the needs of over c.14 million people through
our Retail division, our technological innovation
enables us to be at the forefront of customer
experience and product diversity.
Our diverse portfolio of businesses means we
have been able to weather some of the adverse
effects of the current macroeconomic
environment. We delivered record-setting
transaction volumes in our US protection and
UK individual annuities businesses. We have
continued to deliver against our ambition –
providing better financial outcomes for our
customers, value for our partners and returns
for our shareholders.
Growth drivers
• Welfare reforms.
• Ageing demographics.
•
• Technological innovation.
• Addressing climate change.
Investing in the real economy.
Bernie Hickman
Chief Executive Officer,
Legal & General Retail
UK Retail Protection
Our dedication to helping our 5.5 million
customers plan for the unexpected was
recognised as we collected five industry
awards in 2023 and achieved a record-breaking
NPS of 54. With the introduction of the
Consumer Duty regulation, we have reinforced
our commitment to improving customer
outcomes by upgrading our online platform,
MyAccount, to give clearer functionality, whilst
still maintaining our traditional channels of
contact. Customers can now securely upload
their documents and track progress, reducing
the timeline of their claims. Additionally, our
retention programme is delivering results for
us and our customers by ensuring they are
informed of their options.
This year we partnered with Co-op and HSBC
to offer their customers life and critical illness
cover, providing them with peace of mind and
reaffirming our mission to create brighter
financial futures for both our existing and
new customers.
UK Group Protection
We are committed to serving over 1.8 million
employees and safeguarding their financial
futures as demonstrated through our strong
retention of existing mandates and winning
new business from both large corporates
and small and medium-sized businesses.
Our successes include winning a £12 million
life assurance benefit scheme with a significant
financial services FTSE 100 company.
Over 900 new SME employers joined us through
Onix, our online quote and buy self-service
platform, as we continued to invest in digital
enhancements for our customers and reaffirmed
our position as a digital transformation pioneer.
During 2023, we further ingrained our health
and wellbeing framework: ‘Be Well, Get Better,
Be Supported’. Our intervention and rehabilitation
services start as soon as we are notified and
in 20% of cases the employee can return
to work even before the wait period on the
policy has expired.
US Protection
In the US, we serve over 1.5 million customers,
and we are well positioned to capitalise
on further growth opportunities. We have
outperformed the market in 2023 and became
the third largest term insurance provider
in the US.
Our commitment to digital transformation
has been the key to delivering record-setting
transaction volumes this year. Since its launch
in 2019, our innovative online quote and buy
platform has focused on streamlining the
customer and advisor experience, with more
than one in three applicants receiving an
instant decision. By reimagining the way life
insurance is bought in the US, we have been
able to amplify our positive track record and
drive increased market share whilst keeping
our customers at the forefront of our decisions.
Individual annuity
sales £m
1,431
957
954
£1,431m
We had a very strong year with new
business volumes of £1,431 million
despite the volatile macroeconomic
environment impacting individuals’
retirement plans. The rise in interest
rates led to increased annuity sales
in 2023.
Protection new
business premiums £m
379
382
412
£412m
We have consolidated our competitive
advantage with a focus on effective
use of data and technology resulting
in new business premium growth
of 7% driven by our best ever single
year sales in the US of $175m (£141m).
2021
2022
2023
2021
2022
2023
Retail
Legal & General Group Plc Annual report and accounts 2023
37
Retail
continued
Bank of Family
Our ‘Bank of Family’ research
uncovered a record number
of property transactions being
supported by family gift in 2023,
highlighting the affordability
challenges embedded within
the UK housing market.
The Bank of Family looked set
to gift £8.1 billion to homebuyers
during the year, contributing
towards 47% of all homes
purchased by buyers under the
age of 55. We reinforced the value
of advice for those considering
providing financial help, and those
looking for support to take their
first step, or a step up, on the
property ladder.
We help customers
manage their assets and
income to achieve their
life goals. Whether that
is helping to protect their
income when life gets
tough or to grow their
pension pots to enjoy
retirement.”
Bernie Hickman
Chief Executive Officer,
Legal & General Retail
Workplace pensions
Throughout 2023, our Workplace Savings
business performed strongly, growing to over
5 million members saving for their retirement
with our trusted brand. Legal & General remains
the largest commercial Mastertrust in the UK
market, offering members value for money with
best-in-class governance.
Our research has shown that younger people
have low awareness about their workplace
pension. Nearly one in five young people with
a workplace pension have no idea how much
is being contributed to it each month and
a third have never checked how much they are
paying in. To help bridge this knowledge gap,
we have created a series of engaging content
pieces and have launched them on social
media platforms in line with our commitment
to helping the next generation understand the
importance of their financial futures.
Retirement income
In 2023, we have continued to invest in our
pricing and underwriting capability, achieving
record annuity sales of £1.4 billion this year.
To highlight our commitment to providing
excellent service and value, we were ‘highly
commended’ in the Best Annuity Provider
category of the Investment Life & Pensions
Moneyfacts Awards.
We appreciate that customers have different
retirement plans and have experienced both
strong demand for our Lifetime annuities and
increased interest in our Fixed-term annuity
products, which can provide a bridge to any
potential income gap in retirement and give
customers financial security.
Building on the already successful long-term
relationships we have with Aegon and
Prudential, we have extended our annuity
partnerships with both providers for five years
through to 2028, working together to continue
helping people plan their finances in retirement.
Adjusted operating profit £m
£408m
(2022: £415m)
Despite challenging market conditions, our well
diversified businesses performed well in 2023 and
our profits were resilient. Whilst insurance operating
profit was up 22% driven by ongoing profit releases
in the UK and US, total adjusted operating profit was
down 2% given the lower contribution from Fintech,
as valuation uplifts from 2022 did not repeat.
Understanding the risks
As a provider of life insurance, workplace savings,
retirement income and lifetime mortgage products,
we make assumptions around changing customer
health profiles, consumer behaviours, distribution
dynamics and forecast lifespans, as well as economic
factors including long-term housing market
performance. We use our expertise to understand
these risks, and price and underwrite our products
to take account of them, where appropriate using
reinsurance to manage significant exposures.
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Strategic report
Governance
Financial statements
Other information
Retirement lending
We remain a significant lender and innovative
influencer in the later life mortgage market,
having supported more than 116,000
customers to date. During 2023, we introduced
a first-of-its-kind payment term lifetime mortgage
(PTLM) for borrowers over 50. PTLM helps
borrowers access higher amounts of property
wealth by committing to pay interest for an
initial term, especially helping customers who
need to borrow into retirement and are not well
served by existing products.
In 2023, we enhanced our lifetime mortgage
range and made the decision to allow new
Flexible Lifetime Mortgage customers to make
up to 12 repayments each year, up from four,
and make repayments by standing order.
We have also reduced the minimum drawdown
amount to £1,000 allowing customers to easily
access their lifetime mortgage funds as and
when they need and giving them more control
over their finances.
We received five stars at the Financial Times
FASA awards and won Best Equity Release/
Lifetime Lender at the Mortgage Strategy, TMA
Mortgage Club and AiR Mortgage Club awards,
reinforcing why we are trusted by our customers
to be with them at every stage of life.
Fintech solutions
Moneyhub
Moneyhub is a provider of open data solutions
for the UK financial services market. In 2023,
the platform was the winner of multiple awards
including Best App and Best Open Finance
Platform at the Open Banking Expo Awards
and won Open Banking Provider of the Year
at the Alt-fi Awards for the second year running.
The influential CBInsights named Moneyhub
amongst its 100 leading fintech businesses
worldwide.
theidol
Our wholly owned subsidiary theidol provides
digital development services to several internal
teams, annuity comparison services for our
customers and comparison technology to UK
price comparison websites. During 2023 theidol
experienced robust growth, particularly in travel
insurance, where revenues increased mainly
due to higher sales driven by changing
consumer habits.
Onto
An unprecedented fall in the value of used
electric vehicles led to liquidity challenges
in the funding arrangements of Onto and
we wrote down the full value of our investment
at half year. The business has since gone
into administration.
Mortgage services
As a pioneer of digital evolution, our Mortgage
Club is well established in the UK, facilitating
around one in four of all mortgages, and one
in three of all intermediated mortgages.
Since 1995, we have facilitated £978 billion
of mortgages and during 2023 we worked
closely with a broad range of lenders as we
transacted £103 billion of lending.
Mortgage technology
We have advanced our position as a leading
provider of research technology through our
mortgage platform, Ignite, helping advisors
find the best mortgage for their customers
with access to 130 lenders.
Surveying services
As one of the largest market participants,
managing over 290,000 valuations, we invested
in new technology and in refining our digital
valuation proposition.
Outlook
We plan to focus on our long-term growth
opportunities and build across our core
markets, with a continued focus on our
customers, and to harness data and technology
to deliver excellent client outcomes. We remain
intent on delivering the best results for our
Retail customers, helping them navigate
through challenging economic times and
providing them with peace of mind that they
are being looked after by a trusted brand and
market leader.
Climate and nature report
Our 2023 Climate and nature report
is available on our Group website.
See: group.legalandgeneral.com/reports
Digital Transformation
Our US protection business has
had a record-setting year for sales
volumes, exceeding the previous
annual record, and becoming the
3rd largest term provider in the US
by doing so.
Our success has arisen from our
commitment to digital
transformation with our online
platform providing an innovative
underwriting process and offering
a hassle-free digital buying
experience for advisors and their
qualified applicants.
Since its launch in 2019 the
platform has helped streamline
the customer and advisor
experience through a thoughtful,
reflexive digital application that
can be completed in as little
as 15 minutes. Today more than
1 in 3 applicants receive an instant
decision and more than 70%
of applicants receive an exam-
free offer.
Retail
Legal & General Group Plc Annual report and accounts 2023
39
A sustainable
business
Being a sustainable business
defines our role in society
and the value we create.
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Sustainability approach
Our purpose is to build a better society while
creating value for our shareholders.
We’re conscious of the impact we have
on the environment, the economy and society.
We acknowledge that we have a duty to
maximise the benefits and minimise any
negative effects our business could cause.
Our strategic growth drivers on pages 10
and 11 have a high degree of overlap with
environmental and social themes. This,
together with awareness of our responsibilities,
means that we see the sustainability agenda
as central to our business.
We know that our social and environmental
impact goes beyond simple adherence
to the requirements of ESG considerations.
We also see the sustainability agenda and
its components as a source of commercial
potential for the Group. The transition to net
zero, the housing crisis and the need to invest
in healthcare and other infrastructure all
present opportunities for the long-term
investment of capital against our future
pension liabilities.
Impacts, risks and opportunities
(IRO) assessment
During 2023, we reviewed the areas of focus for
our sustainability strategies and assessed their
fitness to respond to a taxonomy of over 200
sustainability-related topics. The findings of
this IRO assessment were presented to the
Group Environment Committee (GEC), one of
our senior management committees, in early
2024.
We concluded that the nine most material
sustainability topics identified were, overall,
adequately addressed in our strategies.
Further information on this process, and its
findings, can be found in our supplementary
Climate and nature and Social impact reports
(on pages 46 and 7 respectively).
At Legal & General
a sense of responsibility,
commercial opportunity
and motivated people
combine. These
ingredients enable us
to keep creating value
for society and
our shareholders.”
António Simões
Group Chief Executive Officer
On each page of this section,
we show which UN SDGs our
work supports.
Our sustainability strategy areas of focus
We will promote long-term
financial wellbeing
We will create better
communities in which
to live and work
We will invest in game-changing
environmental solutions
We will engage our customers
and employees with our impact
We will promote people’s long
term and lifelong financial
security by providing good value,
simple, inclusive, accessible
products and education.
We will build better communities
by delivering socially and
environmentally positive housing
and workplaces at scale. We will
create long-term economic
prosperity by engaging
thoughtfully with communities
to meet their needs.
We will play our part in tackling
the climate and biodiversity crisis
by investing in leading-edge
environmental technology
and solutions. We will continue
delivering low-carbon energy
and environmentally beneficial
infrastructure and housing, while
reducing environmental harm.
Growth driver alignment:
Growth driver alignment:
Growth driver alignment:
1 Ageing demographics
1 Ageing demographics
4 Welfare reforms
5 Technological
innovation
2 Globalisation
of asset markets
3 Investing in the
real economy
4 Welfare reforms
2 Globalisation
of asset markets
5 Technological
innovation
6 Addressing
climate change
We will make sure our customers
and employees know that, by
being part of Legal & General,
they have a positive social and
environmental impact. We will
meet demand for positive social
and environmental impacts by
placing these at the centre of how
we do business and how we
design our products.
Growth driver alignment:
1 Ageing demographics
3 Investing in the
real economy
4 Welfare reforms
5 Technological
innovation
6 Addressing
climate change
Supporting our work in the above four areas is our commitment to run our business in a responsible way. This includes supporting mental and physical health
and wellbeing, promoting diversity and inclusion, and enabling social mobility – both in our own business and in how we influence and interact with others.
We will role model what it means to be a responsible business
A sustainable business
Legal & General Group Plc Annual report and accounts 2023
41
Reporting our progress
We make sustainability-related disclosures
across three main publications. We recommend
that readers who want to understand our
approach to the whole range of sustainability
issues – environmental, social and governance
– read these publications together.
In this section of our Annual report and
accounts, we set out some of the basic
reporting that is required under regulation
and legislation. Elsewhere in this document,
we outline our approach to sustainable
business, comment on how our commercial
activities have contributed to positive
environmental and social outcomes,
and describe our governance practices.
Our Climate and nature report, prepared in line
with the recommendations of the Task Force
on Climate-related Financial Disclosures
(TCFD), describes our climate and environment
strategy, scenario planning, risk management,
metrics and governance. This report contains
detailed data on our carbon emissions and
other environmental metrics.
Our Social impact report describes the
commercial and not-for-profit actions we’ve
taken in the reporting year in pursuit of our
sustainability areas of focus. It also contains
people-related disclosures, including workforce
data; diversity and inclusion data and targets;
and pay gap information by gender and, for the
first time, ethnicity.
Long-term financial wellbeing
Long-term financial wellbeing is important to
us because we want our customers and society
to feel financially confident and resilient.
At a human level, this is about the security
of being able to pay the bills today, deal with
the unexpected, and take steps to ensure
a healthy financial future. Conversely, financial
difficulties can affect all aspects of human
health, especially when unexpected challenges
arise, such as recent cost of living pressures.
As a leading insurance and retirement product
provider, we influence people’s long-term
financial wellbeing. We are committed
to creating a better financial future for the
customers and the communities whom
we serve.
Our Retail business offers products, services
and tools which support individuals’ and
society’s long-term financial wellbeing.
We enhance these with extra services and
not-for-profit activities aimed at improving
our customers’ ability to cope with difficult
times, creating additional, targeted value for
customers who need it most. We also invest
capital in ways which look to generate
long-term economic value.
Chapter two of our Social impact report gives
more detail on this.
Better communities
Access to quality jobs, decent housing, thriving
communities and economic prosperity are key
to helping people live longer, healthier, happier
lives. Our Rebuilding Britain Index – which ran
from 2021, when the UK and other economies
were still firmly in the grip of Covid-19, until
May 2023 – showed the scale of the challenge.
Among the impacts of the pandemic were
a decline in GDP and declining health and
educational outcomes, with those communities
already experiencing some of the poorest
outcomes in the UK being the hardest hit.
A sustainable business
continued
SDG contribution
Climate and nature
and Social impact reports
Our 2023 Climate and nature and Social
impact reports are available on our Group
website. See: group.legalandgeneral.com/
reports
A great
start with
RedSTART
As part of our three-year
partnership with financial
education charity RedSTART, we
welcomed 158 Year 6 pupils into
our London office for an immersive
day of activities aimed at helping
them build their knowledge, skills
and confidence in handling money.
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As a global investor, we
have a vital role to play in
supporting the transition
and in helping to protect
nature.”
Carl Moxley
Group Climate Director
SDG contribution
As well as our actions to address climate
change, we also seek to do business in ways
which reduce wider environmental harms, both
through our investment policies and strategies
in how we operate our business, particularly
in the construction field.
Our Climate transition plan is clear that
addressing climate change must be pursued
in tandem with halting nature and biodiversity
loss. During 2023, business and finance
increasingly recognised the impacts and
dependencies we have on nature. We
welcomed the release of the Taskforce on
Nature-related Financial Disclosures (TNFD)
global framework for nature. We are building
our approach to nature on the three pillars of
our climate strategy, while recognising the
unique challenges involved with integrating
nature into decision-making.
For in-depth information about our
performance and plans in these areas, please
refer to our 2023 Climate and nature report and
our Climate transition plan.
Engaging customers and employees
The positive impact a company has on the
world remains important for many
stakeholders, including customers and
employees. Our guiding principle is to create
a better society, and value for shareholders,
by investing in long-term assets that benefit
everyone, from housing to renewable energy.
This ethos shapes the way we invest, plan, hire
and do business.
We’re a market leader in life insurance,
workplace pensions and retirement income,
meeting the needs of c.14 million people
through our Retail division.
We employ over 11,500 people globally.
Legal & General customers and employees
are from all walks of life and many different
backgrounds. As a business whose products
are so connected to the way people live, we can
have a material impact on looking after our
vulnerable stakeholders and supporting them
during the cost of living crisis.
In chapters four and five of our Social impact
report, we describe the steps we take to engage
customers and employees, as well as our
control framework which ensures we adhere
to high standards in the ways we do business.
As an investor in towns and cities through our
capital and real assets business, as well as
a major housebuilder, we have an opportunity
to use capital in ways which benefit society.
During 2022, we developed a model that
we employ throughout the lifecycle of an
investment, from design and construction
to the asset’s impact on end users and
surrounding communities. 2023 saw us begin
to put its principles into practice: driving not
only economic, social, and environmental
benefits for the people and communities where
we invest, but also helping ensure investments
maintain long-term relevance.
Chapter three of our Social impact report sets
out how we have done this.
Climate and environment
Climate change is a systemic issue, impacting
the economies and societies in which we
operate. Addressing it is central to our purpose.
We see climate change not only as a risk to be
managed, but also as an opportunity to invest
in the solutions that society needs to manage
the transition to net zero.
We believe that despite the turbulence of the
past five years, addressing climate change is
the right thing to do, not just for our business,
but for the many different stakeholder groups
our business impacts. Therefore, our long-term
strategic response does not change in the face
of specific short-term shocks.
By investing our long-term assets to support
decarbonisation, we are working to protect
our shareholders’ and customers’ returns while
helping to create a more sustainable future.
Our approach to climate change is built on
three strategic pillars:
•
•
invest: through reducing the intensity of our
financed emissions and through investing
in the transition
influence: through the products we offer
and our engagement with companies,
governments and policymakers
• operate: through our operations, our
purchased goods and services, and the
businesses we control.
We believe our strategic response to climate
change will support our resilience and allow
us to take advantage of the opportunities
presented by the transition to a net zero
economy. It is set out in full detail in our
Climate and nature report and our Climate
transition plan, which was presented to, and
approved by, our shareholders in 2023.
A sustainable business
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43
For more on our approach
to addressing climate change,
read our 2023 Climate and
nature report
A sustainable business
continued
More information about our
environmental KPIs and reporting
FCA Listing Rule 9.8.6R(8)
A summary of our climate-related
financial disclosures is set out
on page 45. Our disclosures
are consistent with the
recommendations of the Task
Force on Climate-related Financial
Disclosures and can be found on
pages 45 to 48 of this report, with
additional information available
in our separate Climate and
nature report.
Transition plan: response to FCA
requirement 2021/61 9.8.6FG
Our Climate transition plan was
presented to, and approved by, the
2023 Annual General Meeting of
Legal & General plc shareholders.
The plan assumes, and sets out
our proposed role in bringing
about, the economy reaching net
zero carbon emissions by 2050
in line with the UK Government’s
Climate Change Act 2008 (2050
Target Amendment) Order 2019.
Companies Act 2006 and SECR
In building our footprint, we have
reported on the emission sources
for January to December 2023
required under the Companies Act
2006 Strategic report and Directors’
report regulations 2013 and have
followed the requirements of the
Streamlined Energy and Carbon
Reporting (SECR) framework.
In line with the Greenhouse Gas
protocol, our scope 1 and 2 is the
annual carbon emissions of the
whole Group. We apply the
operational control approach,
i.e. we include all operations which
we directly control, such as the
energy from our core occupied
offices, landlord activities, as well
as the construction of new homes
within our housing businesses and
joint ventures.
Environmental system
We manage our business
in accordance with ISO14001
certification.
Our sustainability KPIs
Climate
Other
Operational footprint
(scope 1 and 2 (location))
Employee satisfaction index (‘eSat’)
27,722 tCO2e1
(2022: 30,062 tCO2e)
79%
(2022: 78%)
Measures the greenhouse gases (GHG) associated with
our direct operations. Scope 1 emissions are direct GHG
emissions occurring from sources owned or controlled
by the company. Scope 2 emissions are indirect GHG
emissions from consumption of purchased electricity,
heat or steam.
Measures the extent to which employees report that they
are happy working at Legal & General (or their named
employing entity).
Investment portfolio economic GHG
emission intensity
Median gender pay gap
56 tCO2e/£m
(2022: 62 tCO2e/£m)2
23.6%
(2022: 22.4%)
This is made up of our ownership share of the emissions
related to the assets we invest in within the Group
proprietary asset portfolio, as explained on pages 39 to 40
of the 2023 Climate and nature report. It includes bonds,
equities, and investment property but excludes cash,
derivatives, or any assets already covered in our operational
footprint. It is measured per unit of investment.
Measures the difference between median pay per hour for
women and men, expressed as a percentage of the latter.
This KPI relates to UK-based employees only.
Implied temperature alignment
Management roles held by women
2.5°C
(2022: 2.6°C)2
37.2%
(2022: 38%)
This measures the implied warming potential of the Group
proprietary asset portfolio (where we have the relevant
data) aggregated from its individual components,
calculated in line with LGIM’s methodology.
Measures the percentage of management-grade roles held
by women. We have set the objective of 40% of such roles
being held by women by 31 December 2025.
For further information on our GHG emissions,
and steps taken to reduce them, please see
our separate 2023 Climate and nature report.
For more information on our employee
satisfaction index, representation data and pay
gap, please see pages 49 to 51 of this report
and our Social impact report.
1.
Carbon dioxide (CO2) is the most significant contributor to global anthropogenic GHG emissions, which also includes
other gases such as methane and nitrous oxide. The equivalent warming impact of non-CO2 GHG emissions
are measured as tonnes of CO2 equivalent (tCO2e).
2. Metrics have been re-baselined through a combination of methodology and data sourcing changes. Figures from
the 2022 report, with an associated impact assessment, are provided in the 2023 Climate and nature report on page 55.
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Strategic report
Governance
Financial statements
Other information
Summary disclosure against TCFD recommendations
We have continued to disclose in line with the
pages in this report, and to our Climate and
TCFD recommendations. We have complied
nature report for supplementary information.
with the FCA listing rule 9.8.6R(8) and have
This additional report provides us with the
considered relevant and material elements
space we require to provide sufficient detail
of the recommended TCFD disclosures.
of our approach to addressing climate change,
The table below gives a summary of our material
as we do with our disclosures on risk, tax and
disclosures and directs readers to the relevant
social issues. In response to FCA guidance
9.8.6FG, we have also produced a Climate
transition plan which was published in April
2023 and was taken to our Annual General
Meeting for approval. Our plan sets out our
role in aligning our business with a 1.5°C net
zero outcome, consistent with the UK
government’s targets.
Strategy
Additional information is provided on pages 6 to 18 of our Climate and nature report
Climate-related risks and
opportunities
We have integrated climate risk management into our overall risk management framework and are well placed to play a role in the
decarbonisation of the economy. Our climate-related opportunities and risks and the time periods to which they are assessed are
described on page 46.
Impact on our businesses,
strategy and financial planning
Based on our scenario analysis, our business model is not expected to be significantly disrupted by climate change, however it does
impact how we execute our strategy. As one of our six strategic growth drivers, we have built a three-pillar approach to address climate
change: how we invest our assets, how we influence as an asset manager and how our businesses operate. Our proprietary model on
climate change is used to quantify the potential impacts of climate change on our portfolio. Page 47 shows our key commitments and
interim milestones under each of these pillars, and descriptions of our climate action statements.
Resilience based on scenarios,
including a 2°C or lower
scenario
Our climate scenario analysis helps us to identify and quantify the sources and magnitude of potential climate-related risks that will
emerge as the world transitions to a low-carbon economy. We describe our resilience to these scenarios, including a 2°C or lower
scenario, on page 48, and climate considerations are also highlighted in the Group Board viability statement on page 55.
Governance
Additional information is provided on pages 26 to 29 of our Climate and nature report
The Board’s role in oversight
The Board is accountable for the long-term stewardship of the Group. It has delegated oversight of the management of climate-related
risks to the Group Environment Committee (GEC). We describe the governance structure in more detail on page 47.
Management’s role in
assessing risks and
opportunities
We have appointed a Group Climate Director, who chairs the GEC, and we set out the senior managers’ responsibilities through the
committees and overall risk and governance framework on pages 47 and 48. The link between executive remuneration and progress
against climate commitments is set out in our Annual report on remuneration on page 106.
Risk management
Additional information is provided on pages 30 to 35 of our Climate and nature report
Processes for identifying and
assessing climate-related risks
Climate risk management has been integrated into our risk and governance framework, our approach is described on pages 47 and 48.
Scenario analysis is a key tool to assess the potential impacts from climate risk, referenced above and described on page 48.
Processes for managing
climate-related risks
We deploy a range of management actions to manage our exposure to climate-related risks associated with our investments
and operations, to meet our risk management objectives, including: an established framework for climate commitments; exclusions
and high-carbon escalation; physical risk controls; review our existing tolerance framework to incorporate climate considerations;
and active engagement.
How we integrate these risks
into our overall risk
management
The Group’s climate governance has been designed to ensure that the management of the financial risks from climate change
are integrated across the whole governance system and embedded into the existing risk management framework.
Metrics and targets
Additional information is provided on pages 36 to 44 of our Climate and nature report
Internal metrics
Our metrics support our commitment to align with the 1.5°C ‘Paris’ objective, and our key sustainability performance indicators for
managing the risks and opportunities from climate change are disclosed on page 44. We focus on our investment portfolio economic
carbon intensity, implied portfolio temperature alignment and operational carbon footprint. We also measure our engagement with
investee companies.
Greenhouse gas emissions
Our scope 1 and 2 (location) operational emissions were 27,722 tCO2e. Our scope 3 non-investment emissions (fuel and energy-related
activities, waste, business travel, working from home and serviced offices) were 20,316 tCO2e. Our scope 3 downstream leased assets
were 0.3 million tCO2e. Our scope 3 investment emissions were 5.0 million tCO2e. Additional metrics are disclosed on page 44.
Targets
We have set our climate targets across our three-pillar climate strategy to align with the ‘Paris’ 1.5°C objective. Our key climate
commitments, and interim milestones are on page 47. Our Climate transition plan, issued in April 2023, is also available online.
A sustainable business
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45
Climate and nature report
Our 2023 Climate and nature report
is available on our Group website.
See: group.legalandgeneral.com/reports
A sustainable business
continued
Climate and nature-related opportunities and risks
While there are manifestly risks from climate
change, the transition to net zero also creates
opportunities. The table highlights material
climate and nature-related opportunities and
risks that Legal & General has identified.
The impacts of climate change are different
across our businesses, reflecting the nature
of each business. They are also likely to shift
over time and we have assessed levels
of impact as well as a time horizon to try
to illustrate this.
Opportunities
Strategic pillar
Potential opportunities
Business area
most impacted
Horizon term
Short Med Long
Invest
Investing in the technology and infrastructure needed to transition away from carbon
emissions, such as renewable energy sources, low-carbon properties, low-carbon heating,
electrification of transport and nature-based solutions.
LGRI, LGIM,
LGC, Retail
Attracting and retaining clients by supporting their needs to decarbonise their investment
portfolios, for example through net zero-aligned investment products and funds, and provision
of data and analytical tools.
Influence
Managing funds that provide clients with access to financing opportunities in transition
technologies and infrastructure and nature-positive outcomes.
LGIM
Engaging with companies and governments to encourage a fast and orderly ‘just transition’,
which also enhances trust in our brand.
Enhanced returns from investing in homes and commercial properties by enabling them
to operate with net zero carbon emissions.
Operate
Increasing our market differentiation through reduced embodied carbon in construction.
LGRI, LGIM, LGC
Protecting our long-term returns by developing real assets with high levels of climate
resilience.
Risks
Strategic pillar
Potential risks
Business area
most impacted
Horizon term
Short Med Long
Investments in sectors or companies which are adversely exposed to a transitioning economy
lose value or are downgraded.
Invest
Disruptive technology may affect the value of our investments.
LGRI, LGIM,
LGC, Retail
Increased frequency or severity of extreme weather events may impact on the value
of physical assets or the value of companies with high exposures to these risks.
Loss of market share should investment solutions be perceived as not meeting rapidly
evolving client needs.
Influence
A breach of evolving legislative or regulatory requirements may expose us to litigation,
regulatory sanction and damage to our brand.
LGIM, LGC
Reputational risk from not meeting our own commitments, or if activities across the Group
are not aligned.
High delivery costs of low-carbon solutions for residential and commercial properties
may impact viability.
High delivery costs due to changing weather patterns disrupting our supply chain, leading
to increased costs and material shortages.
Property values fall due to increased risk of extreme weather impacts, higher insurance costs
or poor energy efficiency.
Inherent exposure to the risk that key personnel may leave the Group, with an adverse effect
on performance.
LGRI, LGIM,
LGC, Retail
Operate
Key
High impact Medium impact Low impact
46
Legal & General Group Plc Annual report and accounts 2023
Strategic report
Short, medium and long term
• Our short-term horizon looks at a three-year period.
• Our medium-term horizon looks forward up to 10 years.
• Our long-term horizon looks at the time horizon up to 2050.
This strives to challenge and shape the very nature of our
business as well as the overall strategy.
Strategic report
Governance
Financial statements
Other information
Our approach to climate change and our targets
Invest
Influence
Operate
We are incorporating climate
considerations into how
we invest our £92.5 billion
of proprietary assets1.
We are using our influence as an
asset manager with £1.2 trillion
of AUM to promote a 1.5°C net
zero transition.
We are changing the way
we operate to decarbonise
our business.
We are doing this through…
•
•
reducing the intensity
of our financed emissions.
investing in the transition.
the products we offer our clients.
•
• our engagement with the real economy.
• our operations.
•
• our purchased goods and services.
the business we control.
Strategic commitments
Net zero
asset portfolio aligned with
a 1.5°C ‘Paris’ objective, with
a 50% reduction in GHG emission
intensity by 2030 from a 2019
base year.
100%
of AUM in alignment with net zero
by 2050, working in partnership
with clients to reach net zero
alignment across 70% of AUM
by 20302.
Net zero
scope 1 and 2 GHG emissions
by 2050, with an absolute reduction
of 42% by 2030 from our 2021
science-based target base year3.
Governance of
environmental risks
The Board is ultimately accountable for
the long-term stewardship of the Group.
Responding to climate change and addressing
nature-loss and the opportunities and risks
associated with these issues are of significant
importance to the Board. Nilufer von Bismarck,
a non-executive director, has a responsibility
to give specific focus to climate change
in her role.
The Board has delegated oversight of the
management of environmental risks to the
GEC, through the Group Risk Committee,
Executive Risk Committee and Group
Management Committee. The GEC
is responsible for providing strategic direction
of the Group’s environmental response,
including to climate change, with reference
to the Group’s broader sustainability strategy.
Our Group Climate Director has responsibility
for coordinating the Group’s response
to climate change and incorporating nature
and biodiversity opportunities and risks.
The role has responsibility for ensuring that
an appropriate strategy is in place to understand,
identify, measure, monitor, control and report
the opportunities and risks from climate change,
in line with the risk strategy and risk appetite
parameters set by the Board. The Group
Climate Director also supports management
in the development of appropriate processes
to monitor and report exposures to the risks
arising from climate change and in benefiting
from strategic opportunities arising from
climate change.
The GEC is chaired by the Group Climate Director
with membership including: the Group CFO, Group
HR Director, Group CRO, Group Corporate Affairs
Director, LGRI CEO, LGC CEO, LGIM CIO and
with the Head of LGIM’s Investment Stewardship
team in attendance. The level of seniority
in its membership and attendees helps ensure
that there is a single forum to provide oversight
on our response to environmental issues,
ensures consistency, encourages debate
and demonstrates the importance we place
on our response to these issues.
1.
2.
3.
We define proprietary assets as total investments
to which shareholders are directly exposed, minus
derivative assets, loans and cash and cash equivalents.
Excludes sovereigns and derivative securities until such
time as agreed methodologies exist.
To account for the impact of the pandemic our 2021
base year includes estimated emissions data from our
Real Assets portfolio based on 2019 data. All other base
year emissions are from 2021.
A sustainable business
Legal & General Group Plc Annual report and accounts 2023
47
A sustainable business
continued
Climate risk management
Our risk management approach to the financial
risks arising from climate change reflects our
climate strategy, the materiality of the exposures
and how we operate. When assessing materiality,
we consider both how the Group is affected
by climate change, as well as the Group’s
own impact on the climate.
The risks arising from climate change to which
we are exposed to fall into three broad categories:
transition risks, physical risk, and corporate
risks. The risks from climate change and
nature-loss are far-reaching, uncertain and
broad-ranging. As much of our balance sheet
is based on assumptions and expectations
of future experience, risks can materialise
through both actual change in experienced
profits or losses, as well as changes in those
future expectations.
Climate risk management is integrated into
our existing risk and governance framework
and have carried out a detailed assessment
of how we could expect climate risk to emerge
across our business model. Given our business
model (see page 12), we assess the most
material financial risks from the potential impact
of climate change on the value and credit rating
of our assets.
Transition risks are primarily measured
in relation to our carbon exposures, both for
our operational footprint (scope 1 and 2), and
of our investment portfolio GHG emissions
intensity to align with the ‘Paris’ objective.
We deploy a range of management actions
to manage these exposures including: our
established framework of climate commitments;
exclusions and high-carbon escalation;
physical risks controls; review of our existing
tolerance framework; and active engagement
with investees.
Climate scenario analysis
Our scenario analysis enables us to assess how
the impacts from climate change may emerge
under a range of climate scenarios and time
horizons. Our scenario analysis focuses on
the financial risks from climate change, both
physical and transitional risks, across our
major risk categories of credit, longevity and
market risk. We have developed four scenarios:
Inaction (approximate warming 3 – 4°C) – failure
to act means emissions continue to grow
at historical rates
Below 2°C (approximate global warming of less
than 2°C) – immediate ambitious policy and
investment actions to address climate change
Net Zero 1.5°C (approximate global warming
of 1.5°C) – immediate, highly ambitious actions
to address climate change reduces emissions
to net zero by 2050
Delayed Below 2°C (approximate global warming
of less than 2°C) – policy and investment action
to limit warming to well-below 2°C is delayed to
2030 resulting in much more disruptive change.
Scenario results for our Group portfolio are
produced for the three pathways which are
based on transition risks (Below 2°C, Net Zero
1.5°C and Delayed Below 2°C). We do not apply
the inaction scenario to our portfolio.
We expect most of the associated impact
to be driven by physical risks, which tend to be
highly localised and manifest further into the
future and are hence more uncertain. As part
of our assessment of viability we include the
impact of the Group’s net zero ambitions, and
the Group’s ability to adapt its operations and
business strategy to address the financial risks
arising from both the physical risk of climate
change and the transition to a low-carbon
economy. The Board regularly considers the
potential financial and reputational impact
of the Group’s principal risks, which includes
failure to respond to the emerging threats from
climate change for our investment portfolios
and wider businesses.
The nature of our business means we have
identified four broad mitigations to our
transition risk exposure.
1. Our exposure is largely through financial
assets, many of which are listed, so we have
significant flexibility to adapt by trading
to the desired carbon position. This is the
expected outcome should active
engagement fail.
2. We hold mainly investment grade bonds,
which are matched against liabilities such
that we are not materially exposed to price
risk compared to investors who regularly
trade their bond portfolios or those holding
greater exposures to equities.
3. We continue to carefully manage our
balance sheet and our credit portfolio.
We continually analyse our credit exposures
and where appropriate, seek out
opportunities to improve credit quality
at attractive pricing levels. We have
incorporated climate considerations within
our credit and market risk management
and expect these to develop over time.
We manage our transition risk from climate
change through setting our portfolio
decarbonisation targets. These pre-emptive
management actions are expected to reduce
the credit risk of the portfolio and are
expected to reduce the impact of the credit
stresses presented in these scenarios.
Our decarbonisation strategy also covers
our equity portfolio.
4. The balance sheet is well-diversified across
different sectors of the economy. Our initial
assessment of our implied portfolio
temperature alignment indicates that
we do not have an over-weight allocation
to the highest carbon intensity names within
the market sectors.
See our 2023 Climate and nature
report for additional information.
Internal risk management landscape
(risks and strategy)
External risk management landscape
(impacts and considerations)
Climate risk categories
Transition risks
The move to a
low-carbon economy
Physical risks
The direct impacts of
a warming world on assets
and liabilities
Corporate risks
Reputational and
regulatory risks/ fines
Climate strategy
Invest
• Reducing the intensity
of our financed emissions
• Investing in the transition
Influence
• Products we offer
• Active engagement
Operate
• Our operations
• Businesses we control
• Our purchased goods
and services
Identification
Measurement
Monitoring
Risk
management
actions
Our external focus
Climate science
Time horizons
Sectoral pathways
Climate scenarios
External drivers
Scientific
understanding
Policy and regulation
Market demands
Environmental solution
innovation
Global decarbonisation
progress
Weather events
Climate sentiment
48
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Strategic report
Governance
Financial statements
Other information
We remain committed
to delivering on our
workforce diversity goals.
We also recognise the
value of a culture which
promotes belonging and
encourages everyone to
contribute and progress.
Together, these represent
commercially logical
outcomes.”
Emma Hardaker-Jones
Group Human Resources Director
SDG contribution
A responsible business
Our commercial success depends on a strong
and economically resilient society in which
companies act with integrity and responsibility.
Legal & General is no exception. Our impact is
far reaching, and strong business ethics
are central to making that impact positive.
Governing our business in a responsible
manner is part of our promise to stakeholders,
including our employees. Therefore, we hold
ourselves and our employees to high standards
of conduct. Our culture is all-important,
and it plays a role in attracting and retaining
employees who have the skills and motivation
to do excellent work for our stakeholders.
Diversity and inclusion (D&I)
Our commitment and strategy
Addressing the challenges identified in our
Group strategic growth drivers (see pages 10
and 11) requires us to build a culture which
fosters collaboration, constantly improves
employees’ decision making, and moves
quickly to solve problems in innovative ways.
We believe that diversity of experience brings
diversity of thought and perspective, which in
turn drives greater proximity to customers,
better-informed decisions, and a culture which
more readily embraces innovation.
Our D&I strategy, which seeks to build such
a culture, has been in place for two years.
We have strong foundations, built on a much-
improved understanding of our people’s lived
experience and of our organisational culture.
Our focus
Through our D&I strategy, we have committed
to two outcomes: a more diverse workforce
and a more inclusive culture.
We have three strategic priorities:
recruit and retain diverse talent
•
•
invest in line manager capability
• create opportunities for everyone
at Legal & General.
We measure our success by tracking data
about the representation of minority or
underrepresented groups at various levels
of seniority in our business. We also use data
from our listening programmes, such as our
Voice survey, to inform our understanding.
We have set certain representation goals
which we publish externally. We believe that
the actions taken to increase the diversity
of our workforce will, in time, have the effect
of progressively narrowing pay gaps because
they are aimed at improving representation.
For more on our strategy, objectives and
performance, please see chapter six of our
2023 Social impact report.
Our goals
We remain committed to our goals for
improving representation of people from
minority or underrepresented groups in our
organisation. Importantly, this applies at all
levels of the Company.
Goal
50% of workforce
to be female
17% of workforce
to be from ethnic
minorities
40% of senior roles
held by women
17% of senior roles
held by people from
ethnic minorities
40% of Board roles
held by women
17% of Board roles
held by people from
ethnic minorities
Target
date
31 Dec
2025
31 Dec
2027
31 Dec
2025
31 Dec
2027
31 Dec
2025
31 Dec
2027
2023
46.5%
2022
45%
16.9%
16%
37.2%
38%
17.3%
17%
42%
42%
25%
25%
Our performance: pay gap data
In 2023, we saw a slight widening of our
median gender pay gap, from 22.4% to 23.6%,
the first such year-on-year widening since
we began to report pay gap data. We remain
committed to a progressive narrowing
of the gap as a consequence of our ambition
of increased representation of women
in senior roles.
2023 saw us publish our ethnicity pay gap data
for the first time. We have a negative median
gap of -32.1%, meaning that the median pay for
individuals from an ethnic minority background
is, in aggregate, higher than that of our white
employees.
For more information on our pay gaps, including
commentary and our full statutory gender pay
gap disclosure, please see chapter six of our
2023 Social impact report.
Gender
pay gap
2023
Mean
2023
Median
2022
Mean
2022
Median
Hourly pay
21.3%
23.6%
20.9%
22.4%
Bonus
45.4%
41.2%
48.5%
37.6%
Ethnicity
pay gap
2023
Mean
2023
Median
Hourly pay
-9.8%
-32.1%
Bonus
9.4%
-15.7%
A sustainable business
Legal & General Group Plc Annual report and accounts 2023
49
A sustainable business
continued
We all have mental health,
just as we do physical
health. Throughout our
lives, there are times
where our mental health
is in peak condition, and
other times where we
struggle. I’ve experienced
both ends of this range –
so I know just how
important it is to feel
supported and safe. I am
committed to creating
a culture where everyone
at Legal & General has
access to the support they
need and someone to talk
to when they need it.”
António Simões
Group Chief Executive Officer
SDG contribution
Engaging and developing our people
Engagement
Our work to build a strong culture is based
on thoroughly understanding our people
and involving them in shaping our Company.
We do this in several ways, with the insights
we gain informing the actions we take.
•
investing in our senior leaders via a new
executive development programme called
Leading through Connection
• helping our people to develop their
understanding and use of our behaviours,
in support of our culture and of individual
performance.
During 2023, through our Voice survey,
we requested feedback from our entire
permanent employee base on two occasions.
Voice measures employee sentiment
on a range of issues and the data gathered
are an important indicator of organisational
culture. Employee satisfaction in September
2023 was 79, up one point year-on-year and
four points above the industry benchmark.
This was based on a 79% response rate.
While there is always further progress to be
made, overall the strong score in satisfaction,
along with a score of 81 on ‘intent to stay’,
were particularly reassuring given the challenges
in attracting talent in current markets.
Please see pages 36 and 37 of our Social
impact report for more information on how we
engage our people, including information on
collective bargaining arrangements, and more
detail on the findings of our Voice surveys and
other engagement mechanisms used in 2023.
Development
We are committed to providing our employees
with opportunities to enhance their skills,
enabling our business to stay competitive
in a rapidly evolving world. Our approach
to development is to enable employees
to perform in their roles today, develop their
skills for the future, and connect with the
developmental content and experiences
to help keep these skills relevant.
Please see page 38 of our Social impact report
for more information on our approach
to learning and development.
Employee wellbeing
We are committed to protecting the physical,
mental, financial, and social wellbeing of our
employees. We want to create a healthy and
safe organisation that brings together healthy
people and healthy work, fostering a positive
work culture, improving morale and benefiting
both our people and our Company.
We take our employees’ safety, wellbeing and
ability to thrive at work extremely seriously. We
recognise the importance of ‘psychological safety’
– creating a safe and open environment where
people can be themselves – in achieving this.
Jeff Davies, our Chief Financial Officer, was
named as our executive sponsor for wellbeing
and mental health during 2021, with accountability
for our strategy in this area. He remained in this
role throughout 2023.
During 2023, we developed a new strategy for
employee wellbeing, based on the importance
of resilience. We believe resilience forms the
foundation of wellbeing and that one of the
best ways we can support our people is by
helping them to build and maintain their
resilience. As a more resilient firm, we can
respond to change faster while ensuring
we continue to deliver for our stakeholders.
In 2023, we invested over £5.3 million in people
development. We offer targeted development
opportunities for all employees, for managers
and for senior leaders. These are delivered
through a blend of in-house and external
training opportunities.
Our strategy is based on data about our
workforce’s needs, gathered through sources
including employee surveys and sickness data.
We use this to define our approach to promoting
better employee wellbeing and in designing
services and benefits for our people.
We focused on:
• enhancing learning accessibility: simplifying
our core programmes and making it easy for
our people, regardless of location, to identify
what’s relevant to them and how to access
it. This included running sessions virtually
and in-person and across multiple time zones
increasing our ‘in-the-moment-of-need’
learning offerings: providing easy access
to content such as videos, top tips and
how-to guides, which are quick to digest
and simple to apply in order to help our
people perform when they need it most
•
We continue to offer such services and benefits
across mental, physical, social and financial
wellbeing. A full list of these, as well as more
detail on our wellbeing strategy, can be found
on pages 39 to 41 of our Social impact report.
Health and safety
The operation of our core offices is managed
through a health and safety system aligned
with ISO45001 and our offices are audited
by a leading health and safety consultancy.
We have a well established and documented
process for identifying health and safety
hazards and risks, and responding to incidents
and near misses. We continue to review and
update our risk assessments, which are the
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Other information
cornerstone of our management system.
We also use our assessments to form policy,
processes and guidance for our people.
Procedures and processes are reviewed regularly
to ensure compliance with law and best practice.
All employees are required to complete a health
and safety training module. During 2023, we
created a new strategy for health and safety,
with a vision to ‘protect people and places and
promote safer and healthier lives’.
More detail on this strategy and the steps we are
taking to implement it, along with data relating
to health, safety and sickness, can be found on
pages 42 and 43 of our Social impact report.
Modern slavery and human rights
As a leading financial services company
and major global investor, we have a duty
and commitment to uphold human rights
throughout our operation and value chain.
We have zero tolerance of labour abuses,
including modern slavery.
Our main annual disclosure on the issue
of modern slavery and human rights is our
modern slavery statement, which can be found
on our corporate website. The statement
covers, among other matters, how we assess
modern slavery and human rights risk in our
operations and value chain; the due diligence
we perform; and our policies and practices.
We are committed to maintaining high
standards when it comes to the protection
of human rights – including a commitment
to play our part in eradicating modern slavery.
We base our approach on standards set by
various bodies, including the United Nations,
the International Labour Organization, the
Gangmaster and Labour Abuse Authority,
the Living Wage Foundation and the Ethical
Trading Initiative.
In 2023, we undertook work in several areas
to improve our management and mitigation
of modern slavery and human rights risk. We:
•
joined the UN Global Compact’s Modern
Slavery Working Group, enabling us to
undertake further training on this topic
and learn from peers in the industry
• became a member of Unseen, a UK charity
that supports survivors of trafficking
and modern slavery as well as providing
expert support
• focused our activity on training; securing
external counsel and support; and undertaking
audits across our owned and managed
sites, looking for evidence of any breaches
of modern slavery and human rights.
Please see our human rights policy and our
2023 Modern slavery statement for more
information about our approach.
Our supply chain
We have a complex global supply chain and
understand that our actions have far-reaching
consequences. We recognise the importance
of balancing financial considerations with
promoting sustainability both within our
operations and within our supply chain.
Our procurement approach allows us to engage
with our supply chain effectively and fairly, in
a manner that manages risk and promotes value
in the best interests of our customers, employees,
regulators and shareholders. As part of that
framework, our contracts set out the commercial
and legal parameters of our engagements with
our suppliers, including compliance with laws
and regulations, and provisions to ensure
continuity of services and the security of data.
Our Supplier Code of Conduct sets out our
ambition and defines how we expect our
suppliers to play their part. The Code focuses
on areas like wages, environment and climate
change, human rights and modern slavery, and
diversity, equity and inclusion.
We continuously adapt our practices to align
with evolving sustainability expectations and
requirements. We modify supplier evaluation
and monitoring processes to ensure compliance
with our sustainability standards. This includes
assessing suppliers’ environmental practices,
labour conditions and adherence to human
rights principles. Through regular audits and
assessments, we aim to maintain a responsible
and ethical supply chain.
For more information on how we manage our
supply chain to promote sustainability, please
see page 47 of our 2023 Social impact report.
Anti-bribery and corruption
We will not tolerate any person acting on behalf
of the Group participating in any form of
corrupt practice, including the acceptance,
promise, offer or giving of anything that may
be considered a bribe. Our financial crime risk
policy applies across the Group and mandates
that controls are put in place to prevent and
detect such activity.
Controls include an annual bribery and
corruption risk assessment; regular training;
due diligence measures; reporting of
suspicions of bribery and corruption; and the
control and approval of giving and receiving
of gifts and hospitality, political and charitable
donations, and corporate sponsorship.
Modern slavery statement
Our Modern slavery statement
is available on our Group website.
See: group.legalandgeneral.com/
ModernSlavery2023
Non-financial and sustainability
information statement
Under sections 414CA and 414CB
of the Companies Act 2006, we are
required to include in our Strategic
report a non-financial and
sustainability information statement.
This section of the Strategic report
(pages 40 to 51) provides the
following information required
to be included in the non-financial
and sustainability information
statement:
• environmental matters
• our employees
• social matters
• human rights
• anti-corruption and bribery.
In addition, other required
information can be found
on the following pages:
• business model (pages 12
to 15)
• principal risks and how they are
managed (pages 52 to 59)
• non-financial key performance
indicators (page 44)
• Climate-related financial
disclosures align to the
Taskforce on Climate-related
Financial Disclosure (TCFD)
requirements (pages 45 to 48).
Details of relevant policies, due
diligence processes and the
outcome of these policies and
processes, are contained
throughout the Strategic report.
Our non-financial and
sustainability information
statement focuses on the
stakeholders and issues that are
important for us to deliver on our
purpose of inclusive capitalism.
SDG contribution
A sustainable business
Legal & General Group Plc Annual report and accounts 2023
51
Managing risk
Our risk management
approach supports
informed risk taking
by our businesses.”
Chris Knight
Group Chief Risk Officer
Overview
Understanding the risks that we are exposed
to and deploying strategies to ensure residual
exposures remain within acceptable parameters
is an integral part of our business. Our risk
management approach supports informed risk
taking by our businesses, setting out those
rewarded risks that we are prepared to be
exposed to, together with risk limits and required
standards of internal control to ensure exposures
remain within our overall risk appetite.
As well as managing financial and non-financial
risks to our businesses, our risk framework
considers broader factors including the delivery
of good customer outcomes and the threats
from climate change. In focusing beyond pure
financial measures of risk, we enable our
businesses to fulfil their social purpose.
We seek to deeply embed the necessary
capabilities to assess and price for those risks
that we believe offer sustainable returns within
each of our operating businesses, as well
as ensuring the skill sets to closely manage
those risk factors which could otherwise lead
to unexpected outcomes.
Our straightforward, collaborative and
purposeful behaviours underpin the operation
of our risk framework, and support a culture
of openness and transparency in how we make
decisions and manage risks, balancing
performance with principles to do what is right.
Finding what you need online
Detailed information can be found
in our risk management supplement.
Please visit:
group.legalandgeneral.com/reports
Our risk section is organised into the following subsections:
Our risk landscape
Risk appetite
The risks that are inherent in our business
arising from:
•
•
•
the products we write
the investments we hold to meet
our obligations
the business environment in which
we operate.
Our quantitative and qualitative
expressions for the types of risk to which
we are prepared to be exposed.
Alongside the minimum capital
requirements that we wish to maintain and
the degree of volatility of earnings we wish
to avoid, we set a range of tolerances and
limits for our material financial and
non-financial risk exposures.
Risk management
framework
Our formal framework for monitoring our
risk landscape and ensuring that we are
only exposed to those residual risks for
which we have an appetite.
Our framework seeks to reinforce the
parameters of acceptable risk taking,
allowing business managers to make
decisions and take opportunities that
are consistent with our risk appetite.
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Our risk landscape
Our risk landscape comprises asset, insurance, non-financial and
strategic risks. Our largest risk exposures, measured by undiversified
solvency capital, are to credit and longevity.
Asset risks
Market, credit and counterparty risks arise from holding portfolios
of assets, including property, to meet our obligations to our customers
and to deliver returns to shareholders. Liquidity risks also arise from
holding illiquid assets and from investment market conditions. Interest
rates and inflation are also risk factors.
Insurance risks
Longevity, mortality and other insurance risks are transferred to us
by the customers of our PRT, individual annuities and protection
businesses. The period that customers continue their policies is also
important for profitability, as is our ability to control expenses in line
with pricing assumptions.
Credit risk largely arises in our portfolio of corporate bonds and
within our direct investment portfolio. As an investor for the long term,
assessing and managing credit risk is a core competency, and
alongside setting a range of tolerances to diversify our portfolios,
we seek to continuously track a variety of risk factors that could
adversely impact credit markets.
Longevity risks arise in our PRT and retail annuity businesses. Over the
years we have built significant expertise in understanding and pricing
for longevity, with a range of disciplines including actuarial, medical,
public health, statistical analysis and modelling. Mortality,
morbidity and policy lapse are inherent risks to our protection
businesses, which we assess and price for.
Our risk
management
approach
See page 54
Where our businesses directly engage in house building and
property development, we are exposed to risks associated with
the management of construction projects, including health and
safety risks. Alongside construction-related risks, wider safety risks
arise in the operation of retirement villages and our affordable homes
businesses. The management of health and safety and the broader
risks of building safety are an integral part of our wider risk framework,
with expertise in risk management embedded across our business
operating model.
We manage a diversified portfolio in which we accept risk in the normal course of
business and aim to deliver sustainable returns on risk-based capital in excess of the
cost of capital.
Monitoring metric: minimum return on capital over the planning cycle.
We have an appetite for risks we understand and are rewarded for, and which are
consistent with delivery of our strategic objectives.
Monitoring metric: maximum risk-based capital to be deployed over the planning cycle.
We aim to maintain an appropriate buffer of capital resources over the minimum
regulatory capital requirements.
Monitoring metrics: capital coverage ratios.
We expect to be able to meet our payment and collateral obligations under extreme,
but plausible, liquidity scenarios.
Monitoring metric: minimum liquidity coverage ratio.
We have a low appetite for volatility of earnings; in particular volatility arising from risks
where Legal & General has more exposure than the wider market.
Monitoring metric: maximum acceptable variance in earnings compared to plan.
We manage our businesses to align with the mitigation of climate change and to be
resilient to the risk of different climate outcomes.
Monitoring metrics: investment portfolio decarbonisation and operational footprint
decarbonisation.
Non-financial and strategic risks
Non-financial risks arise in respect of our business processes
and IT systems, as well as broader regulatory and legislative
risks that can arise in the environments in which we operate.
All our businesses have inherent exposure to non-financial risk.
Our risk management and internal control framework seeks to identify
areas of potential weakness that could otherwise lead to customer
detriment, reputational damage or financial loss and ensure that
appropriate measures are in place to mitigate adverse outcomes.
Risk appetite
Strategy
Our risk appetite sets the ranges and
limits of acceptable risk taking for the Group
as a whole. We express our overall attitude
to risk using the statements and measures
in the table opposite.
Beneath this, we set further risk tolerances
covering our specific exposures to market,
credit, insurance, and operational risks
including, where appropriate, limits on
concentrations and significant aggregation
of risks. Our risk appetite is used to govern
the nature and quantity of risks that we are
exposed to.
Whether we are making a direct property
investment or pricing a PRT deal, we use
our risk management framework to assess
the risk profile and potential rewards
to ensure we continue to operate within
the ranges of acceptable risk taking that
we have set.
Capital
Liquidity
Earnings
Climate
Reputation
We seek to treat stakeholders with integrity and act in a matter that protects and
enhances the Group franchise.
Monitoring metric: reputation risk dashboard.
Compliance and
conduct
We have no appetite for action that is likely to result in poor customer outcomes or
regulatory non-compliance, however where this arises, we will address it quickly. We
accept compliance and conduct risk can arise in the pursuit of strategic objectives, but
we aim to minimise this as much as possible.
Monitoring metric: Consumer Duty outcomes and compliance with regulatory requirements.
Managing risk
Legal & General Group Plc Annual report and accounts 2023
53
Managing risk
continued
Risk management framework
Our risk management framework is summarised below.
Risk appetite
Risk taking
authorities
Risk policies
The documenting of the Group’s overall attitude to risk and the ranges and limits
of acceptable risk taking.
The formal cascade of our risk appetite to managers, empowering them to make
decisions within clearly defined parameters.
Our strategies for managing the risks in the environments in which we operate,
so as to ensure residual risk exposures are those within appetite.
Risk identification
and assessment
Tools that help managers identify and evaluate the risks to which we may be exposed
so that they can be managed in line with our risk policies.
Risk management
information
How we report and review ongoing and emerging risks, and assess actual risk positions
relative to the risk targets and limits that we set.
Risk oversight
Review and challenge, by the Group and divisional chief risk officer teams,
of how we identify and manage risk.
Risk committees
Our structure of Group-level Committees oversees the management of risks and
challenges how the risk framework is working. The role of the Risk Committee is set
out on pages 92 and 93.
Culture and
reward
Performance measures that focus on the delivery of effective risk management,
business and customer strategy, and culture.
We operate a three lines of defence risk
governance model:
• first, our operating businesses are
responsible for risk taking within the
parameters of our risk appetite and
accountable for managing risks in line with
risk policies. The skills to assess and price
for risk form part of our first line business
management activity
• second, our risk oversight function under
the direction of our Group Chief Risk Officer.
The team of risk professionals provides our
businesses with expert advice and guidance
on risk and capital management, alongside
ensuring risk taking remains within
acceptable parameters
third, our Group Internal Audit function
provides independent assurance on the
effectiveness of business risk management
and the overall operation of our risk
framework.
•
Own risk and solvency assessment (ORSA)
Our ORSA process is an ongoing analysis
of the Group’s risk profile and the sufficiency
of capital resources to sustain our business
strategy over the plan horizon. The process,
which covers the whole Group, considers how
the financial and broader business risks to
which we are exposed may evolve over the
planning cycle. Stress and scenario testing
is an essential element of the ORSA process.
It is used to show us how key risk exposures
respond to different risk factors, together with
the sensitivity and the resilience of capital and
earnings to a range of extreme but plausible
events. The stress testing component of our
framework assesses the effect of a move in
one or more risk factors at a point in time.
The scenario element considers group-wide
multi-year projections of capital and earnings
across a range of downside conditions in
financial markets, demographics and the
broader economy. The ORSA process is
integrated into our business risk and capital
management activities and aligned with the
strategic planning process to inform forward-
looking decision making. As such, it is a key
business management tool.
Capital management
Our risk-based capital model seeks to provide
a quantitative assessment of the Group’s risk
exposures. It forms part of the suite of tools
we use to evaluate our strategic plans, set risk
appetite, allocate capital and evaluate product
pricing. Our model is also used to assess
significant transactions, including large
PRT deals.
Our principal risks
Our principal risks and uncertainties reflect those factors that may threaten the Group’s business
model, future performance, solvency or liquidity.
Our risk landscape
Principal risks and uncertainties
Asset risks
Investment market performance and conditions in the broader economy may
adversely impact earnings, profitability or surplus capital.
In dealing with issuers of debt and other types of counterparty, the Group is exposed
to the risk of financial loss.
We fail to respond to the emerging threats from climate change for our investment
portfolios and wider businesses.
Insurance risks
Changes in experience, regulation or legislation may require revisions to our reserves
and capital requirements, and could also impact our reported solvency position and
dividend policy.
Non-financial and
strategic risks
Failure to effectively implement financial services regulatory or legislative change
in a timely manner could lead to regulatory censure, reputational damage and
deteriorating customer outcomes.
New entrants and/or new technology may disrupt the markets in which we operate.
A material failure in our business processes or IT security may result in unanticipated
financial loss or reputational damage.
The successful delivery of our strategy is dependent on the ability to attract and retain
highly qualified professional people.
54
Legal & General Group Plc Annual report and accounts 2023
Strategic report
Group Board
viability statement
Strategic report
Governance
Financial statements
Other information
Group Board viability statement
The Group’s strategy is developed, and
economic decisions are made, around meeting
the long-term protection and savings needs of
its customers, and around creating long-term
value for customers and shareholders over a
period of many years. This reflects the Group’s
business and investment models which
combine managing credit, longevity and
market risks over long-term relationships.
The Group’s long-term prospects
The Group’s prospects are primarily assessed
through our strategic and planning processes.
Performance against our annual strategic
planning process is continuously monitored,
and it underpins our business planning model.
We consider the sustainability and resilience
of our business model over the long-term,
including the strategic growth drivers detailed
on pages 10 and 11, and longer-term trends in
areas such as technology and climate change,
as our investment and insurance products and
customer relationships are long-standing ones.
The Group is also subject to regulation and
supervision, which requires us to manage and
monitor solvency, liquidity and longer-term
risks, to ensure that we can continue to meet
our policyholder obligations.
This long-term prospect assessment is over
a longer period than that over which the Board
has assessed the Group’s viability.
Period of viability assessment
While the Board has considered adopting a
longer period, it believes that five years is the
most appropriate time frame over which they
should assess the long-term viability of the
Group, as required within provision 31 of the
UK Corporate Governance Code. The following
factors have been taken into account in making
this decision:
• we have reasonable clarity over a five-year
•
period, allowing an appropriate assessment
of our principal risks to be made
the assessment is underpinned by our
business planning process, and so aligns
to the period over which major strategic
actions are typically delivered, and takes
account of the economic environment and
evolving political and regulatory landscape
during the relevant period.
Our business planning process is an annual
process and culminates in the production and
review of the Group’s business plan. Our plan
is built up from divisional submissions, and
considers the profitability, liquidity, cash
generation and capital position of the Group.
This projection process involves setting
a number of key assumptions, which are
inherently volatile over a much longer reporting
period, such as foreign exchange rates, interest
rates, economic growth rates, the continued
optimisation of capital strategies for Solvency
II, and the impact on the business environment
of changes in regulation or similar events.
The Board carries out a detailed review of the
draft plan during the Group Board’s annual
strategy assessment, and amendments are
made accordingly. Part of the Board’s role
is to consider the appropriateness of any key
assumptions made. The latest annual plan was
approved in December 2023, resulting in our
current five-year business plan.
How we assessed our viability
In making its assessment of viability, the Board
has considered a number of factors, including
but not limited to:
•
• a robust and detailed assessment of the
Group’s risk profile and both material and
emerging risks (see below for further detail),
in particular those risks which could have a
material impact on the Group’s future
operations, financial conditions or regulatory
expectations
the impact of various stress scenarios on
both the Group’s viability (see further detail
below), as well as the operational resilience
of the Group
the stability of major markets in which the
Group operates and material known
regulatory changes
the sustainability of any future capital
distributions
the impact of the Group’s net zero
ambitions, and the Group’s ability to adapt
its operations and business strategy to
address the financial risks arising from both
the physical risk of climate change and the
transition to a low-carbon economy.
•
•
•
The Board regularly considers the potential
financial and reputational impact of the Group’s
principal risks (as set out on pages 56 to 59)
on our ability to deliver the business plan, and
we regularly review and refresh our principal
risks to reflect current market conditions and
changes in our risk profile. In its assessment
of viability, not just long-term prospects, the
Board has taken into consideration all of the
Group’s principal risks, as any significant
change in the risk profile or outlook of those
principal risks, or inadequate mitigation, could
have a significant impact on the Group’s
viability over the assessment time frame.
Quantitative stress and scenario testing
is undertaken to enable the Board to consider
the Group’s ability to respond to a number
of plausible individual and combined shocks,
both financial and non-financial, which could
adversely impact the profits, capital and
liquidity projections in the Group plan.
For example, during 2023, the Board
considered the impacts of a severe market
event. The severe market event was set with
reference to the Bank of England’s latest
‘Annually Cyclical Scenario’, but modified
to reflect the Group’s underlying risk profile.
The scenario is broadly based on the Global
Financial Crisis of 2008 for market risks
exposures and 2002 experience for rating
transitions (downgrades and spreads).
The scenarios tested showed that the Group
would continue to have sufficient headroom
to maintain viability over the five-year planning
period, after taking into account mitigating
actions to manage the impacts on capital and
liquidity. The Group maintains buffers and a
suite of management actions to maintain
resilience to adverse scenarios and preserve
the Group’s viability. It is clearly possible that
shocks could be more severe, occur sooner
and/or last longer than we have currently
considered plausible.
Additionally, reverse stress testing and
contingency planning gives the Board a solid
understanding of the Group’s resilience to
extremely severe scenarios which could
threaten the Group’s business model and
viability. This analysis assists in identifying
any mitigating actions that could be taken now,
or triggers to put in place for future actions.
Potential scenarios that were explored included
severe capital market stresses, adverse
regulatory changes, reputational and internal
or external events causing falls in business
volumes, and severely adverse claims
experience. The results confirmed that the
Group remains resilient to extreme stresses
as a result of the risk management system
in place and the diverse range of mitigating
actions available, including raising of capital
or reduction in the level of dividends.
Our conclusion on viability
Following this assessment, taking into account
the Group’s current position and principal risks,
the Board can confirm that it has a reasonable
expectation that the Group will continue
in operation and meet its liabilities, as they
fall due, over a viability horizon of five years.
The Board’s five-year viability and longer-term
prospects assessment is based upon
information known today.
Group Board viability statement
Legal & General Group Plc Annual report and accounts 2023
55
Principal risks and uncertainties
The directors confirm that they have carried out a robust
assessment of the emerging and principal risks facing the
Group, including those that would threaten its business
model, future performance, solvency or liquidity.
The principal risks are set out below including details of how they have been managed
or mitigated. Further details of the Group’s inherent risk exposures are set out at Notes 7
and 15 to 17 of the financial statements.
Risks and uncertainties
Risk management
Outlook
Investment market performance and conditions
in the broader economy may adversely impact
earnings, profitability or surplus capital.
The performance and liquidity of financial and
property markets, interest rate movements and
inflation impact the value of investments we
hold in both shareholders’ funds and to meet
the obligations from insurance business; the
movement in certain investments directly
impacts profitability. Interest rate movements
and inflation can also change the value of our
obligations and although we seek to match
assets and liabilities, losses can still arise from
adverse markets. Falls in the risk-free yield
curve can also create a greater degree of
inherent volatility to be managed in the solvency
balance sheet, potentially impacting capital
requirements and surplus capital. Falls in
investment values can reduce our investment
management fee income.
In dealing with issuers of debt and other types
of counterparty, the Group is exposed to the risk
of financial loss.
Systemic corporate sector failures, or a major
sovereign debt event, could, in extreme
scenarios, trigger defaults impacting the value
of our bond portfolios. Under Solvency II,
a widespread widening of credit spreads and
downgrades can also result in a reduction in our
balance sheet surplus, despite already having
set aside significant capital for credit risk.
We are also exposed to default risks in dealing
with banking, money market and reinsurance
counterparties, as well as settlement, custody,
and other bespoke business services. Default
risk also arises where we undertake property
lending, with exposure to loss if an accrued debt
exceeds the value of security taken.
We cannot completely eliminate the downside
impacts on our earnings, profitability or surplus
capital from investment market volatility and
adverse economic conditions, although we seek
to position our investment portfolios and wider
business plans for a range of plausible economic
scenarios and investment market conditions to
ensure their resilience across a range of
outcomes. This includes setting risk limits on
exposures to different asset classes and where
hedging instruments exist, we seek to limit our
exposures on a financial reporting basis.
Our ORSA process is integral to our risk
management approach, and includes an
assessment of the financial impacts of risks
associated with investment market volatility
and adverse economic scenarios for our
solvency balance sheet, capital sufficiency, and
liquidity requirements.
We manage our exposure to downgrade and
default risks within our bond portfolios, through
setting selection criteria and exposure limits,
and using LGIM’s global credit team’s
capabilities to ensure risks are effectively
controlled, where appropriate trading out to
improve credit quality. In our property lending
businesses, our loan criteria take account of
borrower creditworthiness and the potential
for movements in the value of security.
We manage our reinsurer exposures tightly,
with the vast majority of our reinsurers having
a minimum A- rating, setting rating-based
exposure limits, and where appropriate taking
collateral. Similarly, we seek to limit aggregate
exposure to banking, money market and service
providers. Whilst we manage risks to our
balance sheet, we can never eliminate
downgrade or default risks, although we seek
to hold a strong balance sheet that we believe
to be prudent for a range of adverse scenarios.
The global economic outlook remains uncertain, with the
potential for interest rates to remain at current levels for
longer than anticipated by the markets, and longer than
required to subdue inflation. This could lead to significant
unintended damage to the broader economy, including
a sustained period of low investment and growth, reduced
consumer spending and higher unemployment. Our
businesses are primarily exposed to the UK and US
economies.
Asset values, including commercial and residential property
prices, remain susceptible to reappraisal should the current
economic outlook deteriorate, as well as from a range of
geopolitical factors including the ongoing war in Ukraine and
conflict in the Middle East. Towards the end of 2023,
commercial property markets stabilised to an extent and
some confidence returned. Within our construction
businesses’ supply chain, cost inflation and labour shortages
continue to present risk.
The risk of credit default increases in periods of low economic
growth, and we continue to closely monitor the factors that
may lead to a widening of credit spreads including the outlook
for the real economy, and fiscal and monetary policy.
Although real incomes in the UK have risen in 2023, any
reversal of this would particularly impact economic activity
in sectors reliant on discretionary spending.
We remain vigilant, closely monitoring all the names or assets
in our portfolio in the short term, as well as forming views
on the medium to long-term outlook. Our credit portfolio
remains 99% investment grade, and our office property
lending continues to focus on high-grade assets let to
investment grade or government tenants.
Details of our credit portfolios are on pages 195 to 197.
56
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Strategic report
Strategic report
Governance
Financial statements
Other information
Risks and uncertainties
Risk management
Outlook
Changes in experience, regulation or legislation
may require revisions to our reserves and
capital requirements, and could also impact our
reported solvency position and dividend policy.
The pricing of long-term business requires the
setting of assumptions for long-term trends in
factors such as mortality, lapse rates, expenses,
interest rates and credit defaults. Actual
experience may require recalibration of these
assumptions, changing the level of provisions
and impacting reported profitability.
Regulation defines the overall framework for the
design, marketing, taxation and distribution of
our products, and the prudential provisions and
capital that we hold. Significant changes in
legislation or regulation may increase our cost
base, reduce our future revenues, impact
profitability or require us to hold more capital.
The prominence of the risk increases where
change is implemented without prior
engagement with the sector. The nature of
long-term business can also result in some
changes in regulation, and the reinterpretation
of regulation over time, having a retrospective
effect on in-force books of business, impacting
future cash generation.
Changes in these areas can affect our reported
solvency position and dividend policy.
We undertake significant analysis of the
variables associated with writing long-term
insurance business to ensure that a suitable
premium is charged for the risks we take on,
and that provisions continue to remain
appropriate for factors including mortality,
lapse rates, expenses, valuation interest rates
and credit defaults in the assets backing our
insurance liabilities.
We seek to have a comprehensive understanding
of longevity, mortality and morbidity risks, and
we continue to evaluate wider trends in life
expectancy. However, we cannot remove the risk
that adjustment to reserves may be required,
although the selective use of reinsurance acts
to reduce the impacts to us of significant
variations in life expectancy and mortality.
We actively engage with government and
regulatory bodies to assist in the evaluation
of regulatory change to promote outcomes that
meet the needs of all stakeholders. To influence
policy, our interactions with government and
policy teams at regulators, include face-to-face
and virtual meetings, written responses to
discussion papers and consultations, ad-hoc
communications and attendance at
roundtables with industry peers. With our
experience in various sectors, we can explain
how proposed policy translates into practice
and identify potential issues or unintended
consequences that might arise.
When such regulatory changes move to the
implementation stage, we undertake detailed
gap analysis work and depending on the scale
of the work required, establish project
management arrangements with first- and
second-line teams working together. This is to
ensure we deliver regulatory change effectively
and efficiently, minimising disruption to our
operations.
We have seen continued elevated levels of mortality in both
the UK and the US. The causes are unclear, but may reflect
indirect impacts of Covid-19 related illness, and the deferral
of diagnostics and medical treatments for other conditions.
There remains continued uncertainty as to the impacts of
“long Covid”. Continued cost of living pressures and
government spending decisions also have the potential to
affect mortality outcomes.
Along with the emergence of new diseases and changes in
immunology impacting mortality and morbidity assumptions,
other risk factors that may impact future reserving requirements
include significant advances in medical science leading to
more effective treatments, beyond that anticipated, requiring
adjustment to our longevity assumptions.
Whilst at present we do not believe climate change to be a
material driver for mortality and longevity risk in the medium
term, we continue to keep this under review.
Beginning 2024, the UK will enforce a 15% global minimum tax
to multi-national firms, following OECD rules. Bermuda’s new
Corporate Income Tax will be effective from 1 January 2025.
The Group is expected to be liable to UK top-up tax in 2024
and Bermuda corporate tax from 2025 on profits arising from
its Bermuda reinsurance hub. We are actively working with
relevant bodies on the implementation of these new
legislations.
Changes in capital standards, both in the UK and elsewhere,
could impact our reported solvency position and dividend
policy.
Post-Brexit, the UK is reforming its capital regime to move from
Solvency II to Solvency UK. The key changes are designed
to enable annuity product providers to invest more broadly
to diversify risk and support investment in the UK economy.
A reduction in the risk margin took effect at the end of 2023,
with reform of the matching adjustment due in 2024. We are
actively engaging with the PRA on the new regime’s details
and working to implement the required changes.
The Bermuda Monetary Authority (BMA) revised its capital
regime for life insurers in 2023, with changes effective from
March 2024. The impact of the proposed changes on
Legal & General’s business is expected to be modest.
The International Association of Insurance Supervisors (IAIS)
is finalising the Insurance Capital Standards (ICS), a global
minimum capital standard for Internationally Active Insurance
Groups (IAIGs). The ICS is expected to be adopted end-2024.
Legal & General, designated an IAIG by the PRA, has actively
participated in consultations on the standard. If Solvency UK
is considered as strong as the ICS, it may be used for ICS
compliance and therefore would result in little impact on the
Group. We will continue to engage with both the PRA and the
IAIS during this period.
Principal risks and uncertainties
Legal & General Group Plc Annual report and accounts 2023
57
Principal risks and uncertainties
continued
Risks and uncertainties
Risk management
Outlook
We fail to respond to the emerging threats from
climate change for our investment portfolios
and wider businesses.
As a significant investor in financial markets,
commercial real estate and housing, we are
exposed to climate-related transition risks.
Abrupt shifts in the political and technological
landscape could impact the value of those
investment assets associated with higher levels
of greenhouse gas emissions.
Physical risks, stemming from extreme climate
outcomes, could impact the valuation of at-risk
assets, for example floods could impact the value
of our property assets; and could also potentially
have longer-term effects on mortality rates.
We are also exposed to reputation and
climate-related litigation risks should our
responses to the threats from climate change
be judged not to align with the expectations
of environmental, social and governance (ESG)
groups. Our risk management approach is also
reliant upon the availability of verifiable
consistent and comparable emissions data.
Failure to effectively implement financial
services regulatory or legislative change in a
timely manner could lead to regulatory censure,
reputational damage and deteriorating
customer outcomes.
We are exposed to several risks where effective
identification and implementation of regulatory
changes are particularly important. These
include changes relating to our management of
operational risk, conduct risk, climate risk, and
health and safety risk. The magnitude or scope
of some regulatory changes can have a bearing
on our ability to deliver our overall strategy.
Regulatory or legislative changes can have
a significant impact on our business. Such
changes could limit our ability to operate in
certain markets or sectors, potentially leading
to a reduction in our customer base and
revenue.
There is a risk that regulatory policies could
develop in a manner that is detrimental to our
business and/or customers. Alternatively,
it could develop in a way that presents
opportunities, but we fail to revise our strategy
and adapt quickly enough to benefit.
Non-compliance with new regulations or
legislation could potentially damage our
reputation. This could lead to a loss of customer
trust and result in regulatory sanctions.
We recognise our scale brings a responsibility
to act decisively in positioning our balance
sheet in addressing climate change risks. We
assess climate risks in our investment process,
including in the management of real assets, and
measure the carbon intensity of our investment
portfolios. Along with specific investment
exclusions for carbon intensive sectors, we
have set overall reduction targets aligned with
the 1.5°C ‘Paris’ objective. This includes
defining near term science-based targets to
support our long-term emission reduction goals
in line with our Climate transition plan.
We continue to develop how we incorporate
the potential physical impacts of climate
change on both assets and liabilities into our
modelling and projections work, while also
evolving our approach to include nature and
biodiversity in our climate risk work.
Alongside managing exposures, we closely
monitor the political and regulatory landscape,
and as part of our climate strategy, we engage
with regulators and investee companies in
support of climate action. As we change how
we invest, the products and services we offer,
and how we operate, we are mindful of the need
to have the right skills for the future.
Over the next decade, the change necessary to meet global
carbon reduction targets will require societal adjustments on
an unprecedented scale. The events of 2023, particularly the
increasing frequency of record-breaking heat events and the
extreme summer weather events experienced in the northern
hemisphere, have demonstrated that the impacts of increased
climate volatility can be significant and may emerge rapidly.
If governments fail to ensure an orderly transition to
low-carbon economies, it increases the risk of sudden late
policy actions and large, unanticipated shifts in the asset
values of impacted industries. Our Climate transition plan
aims to minimise exposure to this risk, but its success
is dependent on the delivery of the policy actions and the
climate reduction targets of the firms we invest in. The
actions governments take will also significantly impact our
ability to meet our climate-related targets, and as the science
of climate change evolves, we may need to adapt our actions.
Anti-ESG sentiment, particularly within countries with a high
dependency on fossil fuel-related industries, may also limit
global efforts to address climate change and investment
opportunities.
Although a broad set of actions to limit global warming
is underway, we are moving to a situation where the path
to achieving a sub-1.5ºC temperature increase is becoming
narrower. This could have an impact on our ability to meet
the climate-related targets we have set ourselves. We expect
a continuing and increased focus on nature and biodiversity
risks going forward.
We identify, track and review the impact of
regulatory change through our internal control
processes, with material updates being
considered at the Executive and Group Risk
Committees and the Group Board. Our
processes are designed to ensure compliance
with all new and developing regulation.
The volume and burden of regulatory change remains high
across the sectors we operate in. We analyse, interpret and
implement all relevant financial services legislation and
regulation impacting our business units ensuring appropriate
levels of governance and assurance.
Key forthcoming developments in our risk areas include:
We actively engage with appropriate regulatory
bodies to ensure we maintain high standards
of business and deliver for our customers.
Operational risk: work is underway to comply with the UK’s
new operational resilience rules by 31 March 2025 and similar
developing rules in other jurisdictions.
In 2023, we successfully implemented the
Consumer Duty for open products, with our
work on legacy products well underway.
We have also made progress on our
implementation of the UK’s operational
resilience rules which are due to come into
force in March 2025.
We seek to influence the direction of travel on
various regulatory policy themes at government
and regulator level for the benefit of our
customers and other stakeholders. We have
advocated on the development of the Consumer
Duty, pension reforms, sustainability and
diversity and inclusion.
Conduct risk: the FCA continues to focus on Consumer Duty,
with closed book products in scope from 31 July 2024.
Discussions are ongoing about the advice/guidance boundary
and a proposal for ‘targeted support’ to close the advice gap.
In 2024, new rules on diversity and inclusion in financial
services are expected, likely leading to increased data
collection, disclosure and reporting requirements. We
maintain a focus on minimising the risks of financial crime
for our customers and on our financial results.
Climate risk: there are a variety of moving pieces in the
development of climate regulation at the UK, the US and
EU level. We anticipate more focus on scenario testing
and scrutiny on sustainability claims following the FCA’s
new anti-greenwashing rule and Sustainability Disclosure
Regulations effective from 31 May 2024. We are awaiting
the UK Green Taxonomy and implementation of International
Sustainability Standards Board (ISSB) disclosure standards.
Health and Safety: we have enhanced our governance
processes and developed a three-year strategy focusing on
culture, quality, consistency, technology, and keeping pace
with change. Registration requirements for the new Buildings
Safety Act were met by the October 2023 deadline.
Strategic risk: we continue to follow the development of the
government’s Mansion House reforms and wider pensions
reforms, such as the Pensions Dashboard work.
58
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Strategic report
Governance
Financial statements
Other information
Risks and uncertainties
Risk management
Outlook
New entrants and/or new technology may
disrupt the markets in which we operate.
There is already strong competition in our
markets, and although we have had
considerable past success at building scale
to offer low-cost products, we recognise that
markets remain attractive to new entrants.
We are also cognisant of competitors who may
have lower return on capital requirements or be
unconstrained by Solvency II.
The continued evolution of AI has the potential
to be a significant disrupting force across our
businesses, for example by enabling new
entrants to compete with potentially lower
costs, and more efficient processes. The
technology itself could have an impact on asset
valuations, and on our liabilities including
through its impact on the effectiveness of life
sciences and health care systems.
We continuously monitor the factors that may
impact the markets in which we operate,
including evolving domestic and international
capital standards, and are maintaining our
focus on our digital platforms.
We have responded to the rapid advancement
and accessibility of generative AI capabilities
from third parties by launching a central AI
Accelerator programme. This initiative brought
together colleagues across the Group to shape
and incubate our generative AI approaches,
raise awareness and educate our business, and
deliver a secure environment for internal test
and learn use cases.
Our regulatory developments team keeps
a close watch on the AI landscape across
all our regulators. We are actively engaged
in numerous consultations in relation to AI
and generative AI.
A material failure in our business processes or
IT security may result in unanticipated financial
loss or reputational damage.
We have constructed our framework of internal
controls to minimise the risk of unanticipated
financial loss or damage to our reputation.
However, no system of internal control can
completely eliminate the risk of error, financial
loss, fraudulent actions, or reputational
damage. We are also inherently exposed to
cyber threats including the risks of data theft
and fraud and more generally, it is imperative
that we maintain the privacy of our customers’
personal data. There is also strong stakeholder
expectation that our core business services
are resilient to operational disruption.
The successful delivery of our strategy is
dependent on the ability to attract and retain
highly qualified professional people.
The Group aims to recruit, develop and retain
high quality individuals. We are inherently
exposed to the risk that key personnel or teams
of expertise may leave the Group, with an
adverse effect on the Group’s businesses.
As we increasingly focus on the digitalisation
of our businesses, we are also competing for
technology and digital skill sets with other
business sectors as well as our peers.
Our risk governance model seeks to ensure that
business management are actively engaged
in maintaining an appropriate control
environment, supported by risk functions led by
the Group Chief Risk Officer, with independent
assurance from Group Internal Audit.
We continue to evolve our risk management
approach to IT, operational resilience and data
access and privacy.
Whilst we seek to maintain a control
environment commensurate with our risk
profile, we recognise that residual risk will
always remain across the spectrum of our
business operations and we aim to develop
response plans so that when adverse events
occur, appropriate actions are deployed.
We seek to ensure that key personnel
dependencies do not arise, through employee
training and development programmes,
remuneration strategies and succession
planning.
Our processes include the active identification
and development of talent within our workforce,
and the highlighting of our values and social
purpose, promoting Legal & General as a great
place to work. As well as investing in our people,
we are also transforming how we engage and
develop capabilities, with new technologies and
tools to support globalisation, increase
productivity and provide an exceptional
employee experience.
We observe a continued acceleration of a number of trends,
including greater consumer engagement in digital business
models and on-line servicing tools. In the current operating
environment, businesses like ours have transformed working
practices, and we anticipate further investment in automation,
using robotics and machine learning to enhance business
efficiency. We are deepening our understanding of the
impacts of AI on our businesses and in the wider sector.
Our businesses are also well positioned for changes in the
competitive landscape that may arise from pensions-related
changes. We welcome innovation in the market, such as the
proposed roll out of defined benefit ‘superfund’ consolidation
schemes, as long as the security of members’ benefits is
prioritised. We may see alternative de-risking offerings
coming to the market targeting a similar segment to
superfunds.
The pension dashboards initiative will also be a positive
development. Legislation is being introduced in 2024 to make
providing a qualifying pensions dashboard service a regulated
activity, and it is likely we will see firms apply for this.
On the ‘collective’ defined contribution reform, while we have
seen limited demand for this to date, it holds the potential to
disrupt both the workplace and retirement income market.
We continue to remain alert to evolving operational risks and
invest in our system capabilities, including those for the
management of cyber risks, to ensure that our business
processes are resilient. We also remain cognisant of the risks
as we implement a new global operating model and IT
platform for LGIM and have structured the migration
in phases to minimise change risks.
Competition for talent remains strong with skills in areas such
as technology and digital particularly sought after across
many business sectors, including those in which we operate.
We also recognise the risks posed by the outlook for inflation
in salary expectations across the wider employment market,
and internally we have taken steps to help our employees
through direct financial support and by providing advice and
resources to help them manage their financial wellbeing.
Principal risks and uncertainties
Legal & General Group Plc Annual report and accounts 2023
59
Investing in our people
We offer a range of different
programmes suitable for
university graduates
and school leavers.
In particular, we provide
apprenticeship pathways,
alongside an intern and graduate
placement programme, in
business areas spanning data
analysis, finance, project
management, IT and more.
We are proud to provide a range
of opportunities for first time
employment along with a culture
of encouraging development and
rotation to empower our future
leaders. Our business is proof that
these programmes are a great
foundation to a successful career.
60
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Governance
Strategic report
Governance
Financial statements
Other information
Governance
Letter from the Chair
Board of directors
Group Management Committee
Governance report
Employee engagement
Section 172 statement and stakeholder
engagement
Data and Technology Committee report
Nominations and Corporate Governance
Committee report
Audit Committee report
Risk Committee report
Directors’ report on remuneration (DRR)
DRR quick read summary
Summary of remuneration policy
Annual report on remuneration
62
64
66
67
74
76
79
80
86
92
94
97
100
104
Reporting against the 2018 UK
Corporate Governance Code (the ‘Code’)
Compliance with the Code
Details of how we have applied the principles, and
complied with the provisions, of the Code are set
out within this report, the Directors’ report on
remuneration and the Directors’ report. For more
information on our compliance, please visit the
relevant sections outlined below. Our compliance
statement can be found on page 67 of this report.
1. Board leadership and company purpose
Board’s role
Purpose and culture
Resources and controls
Stakeholder engagement
Workforce engagement
67 to 68
70
68, 70
76 to 78
74 to 75, 78
2. Division of responsibilities
Role of the Chair
Composition of the Board
Role of the non-executive directors
Effective and efficient functioning
69
68, 82
67
69, 70
3. Composition, succession and evaluation
Appointments to the Board and
succession planning
Skills, experience and knowledge
of the Board
Board evaluation
70, 80 to 83
64 to 65, 82
84 to 85
4. Audit, risk and internal control
Internal and external audit
Fair, balanced and understandable
assessment
Risk management and
internal control framework
5. Remuneration
Remuneration policies and practices
Executive remuneration
Remuneration outcomes
and independent judgement
88 to 89
87, 267
88, 92 to 93
94 to 103
104 to 112
94 to 119
Governance
Legal & General Group Plc Annual report and accounts 2023
61
Letter from the Chair
Our governance framework
is the foundation upon
which we remain confident
in our decision making
across the Group as we
continue to navigate
challenges presented by
ever-changing market
conditions.”
Dear shareholders,
Introduction
2023 has been another year where the Board’s
role in monitoring and managing emerging
risks in the macro-economy, and in markets,
has been critical. The UK has continued to face
a number of challenges and global market
conditions have continued to be volatile during
the period. Throughout this, Legal & General
has remained robust and resilient, and we have
much to be positive about going into 2024.
As a Board we remain confident in our strategy
and in our ability to deliver resilient growth,
supported by our strong competitive positioning
in attractive and growing markets. Our strategy
positions us well to navigate the prevailing
market environment. We are confident we
can continue to deliver profitable growth as
we execute on our strategy and deliver on our
purpose to improve the lives of our customers,
create value for our shareholders and build
a better society.
Our 2023 half year results were the first under
a new accounting standard for insurance
contracts. IFRS 17 was first conceived in the
late 90s, but for most insurers significant work
started in earnest in 2017. I would like to express
my gratitude to everyone that contributed
to the IFRS 17 programme across the
Company. More detail on the implementation
of this standard can be found in the Audit
Committee report on pages 86 to 91.
As shareholders will be aware, in January 2023,
Sir Nigel Wilson informed the Board of his
intention to retire from executive life after
14 years with Legal & General, 11 of those years
as Group Chief Executive Officer. Nigel’s
achievements over those years, and the
leadership qualities he brought to the Company,
are immense. Nigel has successfully navigated
significant geopolitical changes as well as
challenges in the regulatory and market
environments of each of our core businesses
and has steered the Group into a position of
strength from which it can continue developing
on behalf of its shareholders, customers and
people. These achievements were rightly
recognised, not only by Nigel’s knighthood, but
also when we were voted Britain’s Most
Admired Company by our fellow FTSE 100 and
FTSE 250 companies last year. Under his
stewardship, the Group has consistently
delivered profitable, sustainable and inclusive
growth. Nigel has been a tireless champion for
investment-led growth and responsible
investment. On behalf of the Board, I thank
Nigel for his significant contribution and
leadership of the Company and wish him well
for the future.
Following Nigel’s decision to retire from
executive life, the Nominations and Corporate
Governance Committee led a rigorous, global,
selection process which led to the appointment
of António Simões, who joined us on 1 January
2024. I look forward to working with António
over the coming years. Further detail on the
selection process can be found in the
Nominations and Corporate Governance
Committee report on page 81.
As a Board we continue to oversee and test the
Company’s strategy. The development and
delivery of that strategy falls to our executive
colleagues, led by our new Group Chief
Executive Officer, António Simões, our Group
Chief Financial Officer, Jeff Davies, and the
heads of our four business divisions: Laura
Mason, Andrew Kail, Michelle Scrimgeour and
Bernie Hickman, each in turn supported by their
management teams.
They are highly effective, individually and
collectively, and there were a number of major
successes across the Company during the
period, which you will read about throughout
this report. Our divisions work best when they
work together: Legal & General Capital (LGC)
creates real assets to support the
Legal & General Retirement Institutional (LGRI)
buy-out deals and fund annuities.
Legal & General Investment Management
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Strategic report
Strategic report
Governance
Governance
Financial statements
Financial statements
Other information
Other information
(LGIM) helps clients de-risk in preparation
for buy-out – the majority of LGRI clients have
been LGIM clients first. We are also a UK market
leader in Retail for life insurance, workplace
pensions and retirement income, and our
divisions continue to work together to drive
synergies to help us maintain excellent customer
service, competitive market positions and
business growth. Our collegiate and collaborative
approach is crucial for maximising opportunities.
I would also like to note the opening of Calon,
our new office in Cardiff. ‘Calon’ translates
to ‘Heart’ in English and was chosen as the
preferred name in a vote by our employees.
The development of Calon and the wider
investment into the Central Square of Cardiff
has drawn upon the input of many key
stakeholder groups. In addition to surveying
our own people to understand their
requirements, Legal & General fostered close
relationships with local partners, suppliers and
communities throughout the development
process to ensure that the investment in the
office benefits the local community as well as
our employees. The office has been designed
to operate with a lower carbon footprint than
a standard office and is a key milestone towards
Legal & General’s commitment of achieving net
zero carbon emissions from our occupied
offices (where we control the management
of utilities) by 2030. More information about
Calon can be found on page 77.
Our approach to governance
As a Board, it is our role to promote the highest
levels of corporate governance and ensure
these values are embedded within our culture
and throughout the organisation. As our
business continues to evolve and as we pursue
our strategic objectives in an ever-changing
environment, our strong governance framework
supports the Board in ensuring that across the
Group we make decisions in the right way.
The Board has worked closely with the executive
team throughout the year as the business has
continued to navigate the challenges presented
by volatile market conditions to ensure our
business can continue to flourish.
Ahead of 2024, a group-wide project was
initiated which has led to the optimisation
of our executive decision making across the
Group through the implementation of a new
executive governance framework, which took
effect from 1 January 2024. More information
on this new enhanced framework can be found
on page 66.
For the year ended 31 December 2023, we were
required to measure ourselves against the
Code. The Board has considered carefully the
requirements of the Code and I am pleased
to report that we have complied with all
provisions of the Code throughout the year.
Further details on our compliance with the
Code and how we have applied the various
principles can be found on page 67.
Stakeholder engagement
As a Board, we are very focused on the impact
that our business and decisions have on our
stakeholders, as well as our wider societal
impact. Our stakeholders are key to our
decision making and it is hugely informative
for us to hear the viewpoints from a variety
of parties with an interest in the Company.
We were able to conduct a number of
face-to-face interactions this year, including
site visits to our offices in Hove and Cardiff.
I am always impressed during our Board site
visits how evident our purpose is and how our
values are demonstrated every day in ensuring
we are doing the right thing for our customers.
I would like to thank all of our colleagues for
their significant contribution to our business.
Through their roles as Designated Workforce
Director and Consumer Duty Champion,
non-executive directors Nilufer von Bismarck
and Laura Wade-Gery have also conducted
a number of meetings and site visits. We view
these visits as an important way to meet with
our partners and employees and experience
Legal & General’s culture first hand.
We presented our Climate transition plan at our
2023 AGM, and I was pleased this was supported
by 97.7% of our shareholders. The Climate
transition plan sets out our climate
commitments and how we plan on achieving
them. We spoke with a range of our major
institutional investors about the plan who
provided useful feedback during its development.
Our Climate transition plan details how we are
going to make our ambitions a reality, organised
under three pillars: invest, influence and
operate. It is important that we make our plans
for addressing climate change public and
ensure that our shareholders are supportive
of them. More about our progress against
the Climate transition plan can be found
on page 43.
Board changes and succession planning
Legal & General continues to benefit from an
outstanding Board with a diverse range and
depth of expertise and skills.
The Nominations and Corporate Governance
Committee spent a considerable amount
of time this year focusing on executive
succession planning, particularly in relation
to the Group Chief Executive Officer. Each year,
the Nominations and Corporate Governance
Committee also considers the Board’s skills
and experience to support discussions around
non-executive succession planning, which
once again was a focus for the Nominations
and Corporate Governance Committee in 2023.
In September 2023, Lesley Knox succeeded
Philip Broadley as the Board’s Senior Independent
Director. Philip remains a non-executive
director of the Company and as a member
of all five of its Committees. In February 2024,
Laura Wade-Gery succeeded Lesley Knox
as Chair of the Remuneration Committee.
Lesley remains as a member of the
Remuneration Committee.
Annual General Meeting (AGM)
The 2024 AGM will be held on Thursday 23 May
at 11am at the British Medical Association,
BMA House, Tavistock Square, Bloomsbury,
London WC1H 9JZ, once again in a hybrid
format, with additional facilities for shareholders
to join and vote electronically. Full details of the
business to be considered at the meeting will
be included in the Notice of Annual General
Meeting that will be sent to shareholders
by their chosen communication means and
published on our website: group.
legalandgeneral.com/AGM.
Board effectiveness
During 2023, we conducted an external
effectiveness review of our Board and its
Committees. Following a tender process,
Clare Chalmers Limited was appointed as the
preferred provider to facilitate the review, which
consisted of one-to-one interviews with Board
members and observations at a series of Board
and Committee meetings. The output of this
review was considered by the Nominations and
Corporate Governance Committee and the
Board, and I am pleased to report that the
conclusion was that the performance of the
Board and each of its Committees continues
to be highly-rated. Further details of the process
and outcome of the external evaluation can be
found on pages 84 to 85.
Conclusion
I would like to take this opportunity to thank my
fellow Board members and colleagues at Legal
& General for their dedication to the business
and our customers. I have confidence that in
the coming years Legal & General will continue
to adapt, and grow, thanks to our greatest
asset, our people.
Sir John Kingman
Chair
Letter from the Chair
Legal & General Group Plc Annual report and accounts 2023
63
Board of directors
Committee membership key
Audit
Data and Technology
Nominations and Corporate
Governance
Remuneration
Risk
Committee Chair
Other Board members during
the year were:
Sir John Kingman KCB FRS
Chair
Appointed October 2016
António Simões
Group Chief Executive Officer
Appointed January 2024
Jeff Davies
Group Chief Financial Officer
Appointed March 2017
Sir Nigel Wilson (retired from the Board
on 31 December 2023).
Gender
As at 31 December 2023 the Board comprised:
42% Women
58% Men
Tenure
As at 31 December 2023 the length
of tenure of the Board varied:
42% Over 6 years
25% Between 3 – 6 years
33% Between 0 – 3 years
Ethnicity
As at 31 December 2023 the Board comprised
individuals from the following ethnic groups:
17% South Asian
8% Black
75% White
Skills and experience:
John brings financial sector, government
and regulatory experience to the Board.
John previously served as Second
Permanent Secretary to HM Treasury,
where he was closely involved in the UK
response to the 2007 – 2008 financial
crisis. He was the first Chief Executive
of UK Financial Investments Ltd; and from
2010 – 2012, John was Global Co-Head
of the Financial Institutions Group at
Rothschild. From 2016 – 2021 he was the
first Chair of UK Research & Innovation,
which oversees government science
funding of around £8 billion a year.
In 2018, John undertook a highly critical
independent review for the UK government
of the Financial Reporting Council.
Other appointments:
• National Gallery (Deputy Chair
and Trustee)
• Barclays Bank UK PLC (Chair)
• Barclays PLC (Non-Executive Director)
Skills and experience:
António has extensive financial services
experience, spanning over 25 years. Prior
to his appointment, he was CEO of Banco
Santander Spain and Regional Head of
Europe. Before joining Santander, António
spent 13 years at HSBC in various
executive positions in London and Hong
Kong; starting with strategy and M&A
before leading different businesses as UK
and European CEO and finally, global CEO
of private banking. Prior to that, he was a
partner at McKinsey & Company. António
studied in Lisbon (Nova School of Business
and Economics), Milan (Bocconi) and New
York (MBA from Columbia University).
In 2009, he was appointed a Young Global
Leader of the World Economic Forum.
António was previously a member, and
Chair, of the Practitioner Panel of the FCA.
He was also a member of the Practitioner
Panel of the PRA.
Other appointments:
• Prince’s Trust International (Trustee)
Skills and experience:
Jeff was appointed Group Chief Financial
Officer in March 2017. He brings a wealth
of insurance experience, having previously
served as a senior partner of Ernst & Young
LLP (EY) and led its European risk and
actuarial insurance services. Prior
to joining EY in 2004, he held a number
of senior actuarial roles at Swiss Re
Life & Health. Jeff is a Fellow of the
Institute of Actuaries.
Other appointments:
• Ethniki Hellenic General Insurance
Company S.A. (Non-Executive
Director)
Philip Broadley
Independent Non-Executive Director
Appointed July 2016
Henrietta Baldock
Independent Non-Executive Director
Appointed October 2018
Nilufer von Bismarck OBE
Independent Non-Executive Director
Appointed May 2021
Skills and experience:
Philip has over 30 years experience in the
insurance industry, including 6 years as
Group Finance Director of Old Mutual plc
and prior to that 8 years in the same role
at Prudential plc. He is a former Chair of
the 100 Group of Finance Directors. Philip
graduated from St Edmund Hall, Oxford,
where he is now a St Edmund Fellow.
Philip is a Fellow of the Institute
of Chartered Accountants in England
and Wales.
Other appointments:
• AstraZeneca PLC (Senior Independent
Director)
• Lancashire Holdings Limited
(Non-Executive Director)
• Eastbourne College (Chair
of Governors)
• London Library (Treasurer and
Trustee)
Skills and experience:
Henrietta has extensive knowledge of the
financial services and insurance sectors
through her 25 years’ experience
in investment banking, most recently
as Chair of European Financial Institutions
at Bank of America Merrill Lynch.
Other appointments:
• Legal and General Assurance Society
Limited (Chair)
• Investec PLC and Investec Limited
(Non-Executive Director)
• Investec Bank Plc (Non-Executive
Director)
• Hydro Industries Limited (Non-
Executive Director)
• Rathbones Group plc (Non-Executive
Director)
Skills and experience:
Nilufer was previously the Head of the
Financial Institutions Group and the Equity
Capital Markets practice at Slaughter
and May and has spent a large part of
her 34-year career working with major
international financial institutions. As well
as a deep and extensive understanding
of the financial services sector, Nilufer has
considerable experience across a range
of other industries and sectors, including
real estate, green infrastructure and
fintech. Nilufer is the Designated
Workforce Director and Non-Executive
Director for Climate.
Other appointments:
• IntoUniversity (Trustee)
• Oxford University Law Faculty
(Visiting Professor)
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Lesley Knox OBE
Senior Independent Director
Appointed June 2016; Senior Independent
Director from September 2023
Skills and experience:
Lesley brings a wealth of international,
strategic and financial services
experience having spent over 18 years
in senior roles in financial services,
including with Kleinwort Benson, the
Bank of Scotland and British Linen
Advisors. Lesley previously served
as Chair of Alliance Trust Plc and as
Senior Independent Director at Hays Plc.
Other appointments:
• Legal & General Investment
Management (Holdings) Limited
(Non-Executive Director)
• 3i Group Plc (Senior Independent
Director)
• Genus Plc (Senior Independent
Director)
• Dovecot Studios Limited (Non-
Executive Director)
• Grosvenor Group Limited Pension
Fund (Trustee)
Carolyn Johnson
Independent Non-Executive Director
Appointed June 2022
George Lewis
Independent Non-Executive Director
Appointed November 2018
Ric Lewis
Independent Non-Executive Director
Appointed June 2020
Skills and experience:
Carolyn has extensive knowledge
of the insurance and financial services
industries following a 30-year executive
career in the United States. Carolyn has
deep experience in the life insurance
market and is an accomplished business
leader and experienced board member.
She has previously held senior roles
at AIG, Voya Financial and Protective
Life Corporation.
Other appointments:
• Kuvare Holdings (Director)
• Beazley Plc (Non-Executive Director)
Skills and experience:
George has significant executive and
professional experience in financial
services, with a strong focus on global
asset management from experience
in Canada, Asia, the US and UK. George
joined the Royal Bank of Canada in 1986,
serving in various financial and wealth
management roles. He was a member
of RBC’s Group Executive Board from
2007 – 2015, with responsibility for
RBC’s wealth, asset management
and insurance segments.
Other appointments:
• Legal and General Assurance
Skills and experience:
Ric has significant experience
in investment management and,
in particular, a focus on the real estate
sector where he has more than 25 years
of experience, including as the founder
and Executive Chair of Tristan Capital
Partners, an investment manager
specialising in real estate investment
strategies across the UK and continental
Europe.
Other appointments:
• Dartmouth College (Trustee)
• Royal National Children’s SpringBoard
Foundation (Director)
(Pensions Management) Limited
(Chair)
• Black Heart Foundation (UK) Limited
(Trustee, Chair and Founder)
• Ontario Teachers’ Pension Plan
• Black Equity Organisation
(Non-Executive Director)
(BEO) (Trustee)
• AOG Group (Non-Executive Director)
• Imperial College London (Council
Trustee)
Tushar Morzaria
Independent Non-Executive Director
Appointed May 2022
Laura Wade-Gery
Independent Non-Executive Director
Appointed January 2022
Geoffrey Timms
Group General Counsel and
Company Secretary
Geoffrey has been the Group General
Counsel since 1999 and, in addition, the
Group Company Secretary since 2008.
Skills and experience:
Tushar is a chartered accountant and
brings a wealth of financial services
experience to the Board and has extensive
knowledge of strategic financial
management, investment banking and
operational and regulatory relations.
Tushar was previously Group Finance
Director at Barclays PLC and prior to that,
he was the Chief Financial Officer of
Global Investment Banking at JP Morgan
Chase & Co.
Other appointments:
• BP Plc (Non-Executive Director)
• Barclays PLC (Chair of Global
Financial Institutions Group)
Skills and experience:
Laura has extensive knowledge of digital
transformation, business strategy and
customer experience transformation.
Her previous executive roles include
her position as Director of Multi-Channel,
a main board member at Marks and
Spencer Group Plc and as Chief Executive
Officer of Tesco.com. Laura served
as the Chair of NHS Digital from 2021 –
February 2023 and was a Non-Executive
Director of NHS England from 2018 –
2023. She was previously a Non-Executive
Director of the John Lewis Partnership.
Other appointments:
• The British Land Company PLC
(Non-Executive Director)
• Moorfields Hospital Foundation Trust
(Chair)
• Britten Pears Arts (Trustee and Chair
of Trading Subsidiary)
Board of directors
Legal & General Group Plc Annual report and accounts 2023
65
Group Management Committee
Our Group
Management
Committee has the
appropriate balance
of skills, knowledge
and experience to
successfully lead the
execution of the
Group’s strategy.
António Simões
Group Chief Executive Officer
Jeff Davies
Group Chief Financial Officer
Emma Hardaker-Jones
Group HR Director
Bernie Hickman
Chief Executive Officer,
Legal & General Retail
Andrew Kail
Chief Executive Officer,
Legal & General Institutional Retirement
Chris Knight
Group Chief Risk Officer
Laura Mason
Chief Executive Officer,
Legal & General Capital
Michelle Scrimgeour
Chief Executive Officer, Legal & General
Investment Management
Geoffrey Timms
Group General Counsel and
Company Secretary
Our executive governance framework
Towards the end of 2023, a group-wide project was initiated to explore how we could best optimise executive decision making across the Group and
enhance collaboration across executive management, whilst simultaneously promoting appropriate divisional and functional accountability and
autonomy. Following this, a new executive governance framework was implemented from 1 January 2024.
Group Chief Executive Officer (Group CEO)
Group Management Committee (GMC)
The GMC is a formal committee of the Group CEO. Its purpose is to support the Group CEO in the discharge of those things within his authority as delegated
to him by the Group Board, in particular in relation to group-wide strategic and material matters, and identify matters required for escalation to the Board.
Investment Committee
Provides oversight and, where appropriate,
approval of Group transactions.
Executive Risk Committee
Provides oversight of the management of key
risks, sets risk appetites and mandates, and
identifies matters which require escalation
to the Group Risk Committee.
Disclosure Committee
Oversees the management of inside information,
and manages the content and requirements
of material announcements to the market.
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Strategic report
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Other information
The 2018 UK Corporate Governance Code (the ‘Code’) – 2023 Compliance Statement
The Code emphasises the role of good corporate governance in achieving long-term sustainable success. The principles of the Code are the
standards against which we are required to measure ourselves. Each year, the Board reviews the Group’s governance framework and compliance
with the Code. We are pleased to report that we have applied the principles and complied with each of the provisions of the Code for the year ended
31 December 2023. A Code compliance reference table can be found on page 61. Following the publication of the 2024 UK Corporate Governance
Code in January, the Board is in the process of conducting a gap analysis against the new requirements to ensure that we are in a position to comply
from the relevant effective dates.
Our governance framework
Our governance framework supports robust decision making by providing a clear framework of delegations and responsibilities within which
decisions can be made to deliver our strategy. Our framework also ensures that decisions remain within the risk appetite set by the Board and
are undertaken with appropriate Board oversight.
Board of Legal & General Group Plc
The Board is collectively responsible for the long-term sustainable success of the Company.
Chair
Leads the Board and,
in consultation with the
Group CEO, sets the
agenda. Creates the
conditions for overall
board and individual
director effectiveness,
both inside and outside
of the boardroom.
Senior Independent
Director (SID)
Acts as a sounding board
for the Chair, as well
as being available
to shareholders and
independent directors
if they have concerns
which cannot be
resolved through
the normal channels.
Independent
Non-Executive Directors
Scrutinise and hold to
account the performance
of the executive against
agreed goals and
objectives. Non-executive
directors constructively
challenge and contribute
to the development
of strategy.
Group Chief
Executive Officer
The Board has delegated
the day-to-day
management, and the
responsibility of the
successful execution
of the strategy, to the
Group CEO.
Group Chief
Financial Officer (CFO)
The Group CFO
is responsible for
supporting the Group CEO
in establishing group-wide
financial and strategic
objectives.
Committees of the Board
Each Committee Chair reports to the Board on key discussion topics and decisions taken after each meeting.
Audit Committee
Responsible for oversight
of the Group’s financial
statements and reporting
and the adequacy and
effectiveness of the internal
control environment,
including financial control.
Oversees the relationship
with the external auditor
and the activities of the
Internal Audit function.
Data and Technology
Committee
Responsible for oversight
of all aspects of
information technology,
cyber security (including
IT and information
security) and data
and analytics across
the Group.
Nominations and
Corporate Governance
Committee
Responsible for the overall
composition of the Board
and its Committees.
Oversees Board and
executive succession
planning. Responsible for
overseeing the Group’s
governance framework.
Remuneration
Committee
Responsible for
overseeing the
remuneration of executive
directors and other
designated individuals,
as well as the Group’s
remuneration policy.
Risk Committee
Provides guidance to the
Board on the Group’s risk
appetite, advice on what
constitutes acceptable
risk taking and oversight
of the Group’s risk
management policies
and procedures.
Read more on pages
86 to 91
Read more on page 79
Read more on pages
80 to 85
Read more on pages
94 to 119
Read more on pages
92 to 93
UK Corporate Governance Code (2018)
A full version of the Code can be found on the
Financial Reporting Council’s website: frc.org.uk
More information on the roles and responsibilities
of our Chair, SID and Group CEO can be found on
page 69.
Governance report
Legal & General Group Plc Annual report and accounts 2023
67
Governance report
continued
Role and leadership
The Board is responsible for the overall
leadership of the Group; it is charged with setting
the Group’s values and standards. The role
of the Board is to promote the long-term
sustainable success of the Company, whilst
simultaneously generating value for
shareholders and contributing to wider society;
how the Board achieved this throughout 2023
is outlined in greater detail in our s.172 statement
on pages 76 to 78. The Board is committed to
maintaining the highest standards of corporate
governance across the Group to support the
delivery of our strategy, the fostering of positive
stakeholder relationships and the creation of
long-term sustainable value for our
shareholders.
The specific parameters of the Board’s role
and responsibilities are set out in the Matters
Reserved for the Board and are separated into
eight categories:
risk and internal control
• strategy and management
• structure and capital
• financial reporting and dividends
•
• corporate governance
• key personnel and remuneration
• product distribution and pricing
• brand.
The Matters Reserved for the Board outline the
decision-making powers reserved for the Board
and underpins the governance framework
across the Group. It is reviewed and approved
as part of an annual corporate governance
review, and otherwise as required, to ensure the
role and responsibilities of the Board remain
appropriate and up to date.
The Board, as well as the boards of the Group’s
principal subsidiaries, operate within a clearly
defined, and fully embedded, delegated
authority framework. The delegated authority
framework ensures that there is an appropriate
level of Board oversight of, and contribution to,
key decisions and that the day-to-day business
is managed effectively. It also enables an
appropriate level of debate, challenge and
support in the decision-making process.
Those matters which are not reserved for
the Board’s consideration are delegated
by the Board to Group-level Committees and
the Group CEO. The Board has delegated the
day-to-day management of the Company, and
the responsibility of the successful execution
of the strategy, to the Group CEO. Throughout
2023, the Group CEO, Sir Nigel Wilson,
delegated further decision making onward
to the Group Capital Committee, an executive
decision-making forum, as well as to his direct
reports. Following the appointment of António
Simões as Group CEO on 1 January 2024,
a new governance framework has been
implemented. Further information on the
changes is outlined on page 66.
Although the Board delegates the day-to-day
management of the Company, it is accountable
for the long-term sustainable success of the
Company and must continue to oversee the
Group’s strategic objectives and monitor
performance against those objectives.
The Board meets formally on a regular basis
and at each meeting considers business
performance, strategic proposals, material
transactions and critical projects in the context
of the Group’s strategy, risk appetite, the
interests of the Group’s stakeholders and our
wider social purpose.
The Board is supported in its work by its
Committees, each of which is governed
by its own terms of reference, which clearly
outline its remit and decision-making powers.
The Committees of the Board, and their core
responsibilities, are set out in the governance
framework outlined on page 67, and each
of the respective Committee reports on pages
79 to 119.
Composition, independence, and
effectiveness
As at the date of this report, the Board
is comprised of the independent non-executive
Chair, two executive directors and nine
independent non-executive directors. At least
half of the Board, excluding the Chair, are
independent non-executive directors, in
accordance with provision 10 of the Code.
Upon appointment, the Chair was identified
by the directors as being independent
in accordance with provisions 9 and 10
of the Code.
When considering the appointment of new
directors, the Board is mindful of the
contribution and skillset that each new
appointee will bring to the Board; the Board
has an established skills matrix which supports
Board succession planning. The Board
continues to focus on maintaining a well-
balanced and diversified Board, with the right
mix of individuals who can apply their wider
business knowledge and experiences to the
setting and oversight of delivery of the Group’s
strategy. More information on the Group’s
Diversity and Inclusion Policy can be found
on pages 82 and 83.
In January 2023, Sir Nigel Wilson announced
his intention to retire from his role as Group
CEO after over a decade in the role. Following
a rigorous, global, selection process managed
by the Chair, António Simões was appointed
as Group CEO with effect from 1 January 2024.
Prior to joining Legal & General, António was
CEO of Banco Santander Spain and Regional
Head of Europe, and previously spent 13 years
at HSBC in various roles including CEO of UK
and Europe and CEO of Global Private Banking.
António strengthens the Board’s experience
having worked across complex, global
organisations and brings a formidable
leadership track record at the most senior level
of financial services. António will help ensure
that Legal & General continues to deliver on its
enormous potential for its shareholders,
employees, customers and the communities
of which it is a part, through his executive
leadership and strategic direction. More
information on the Group CEO appointment
process can be found on page 81.
A board effectiveness review is conducted
on an annual basis. In line with the
requirements of the Code, this review was
externally facilitated in 2023. As part of this
review, board dynamics and board decision-
making, including non-executive directors’
engagement, constructive challenge and
contribution to board discussions, is assessed.
Throughout the year, there were no concerns
as to the operation of the Board or management
of the Company.
Further information relating to the external
effectiveness review can be found on pages
84 to 85.
68
Legal & General Group Plc Annual report and accounts 2023
Governance
Committee terms of reference
All Committee terms of reference can
be found on our website at group.
legalandgeneral.com/committees.
Strategic report
Governance
Financial statements
Other information
Division of responsibilities
In line with the provisions of the Code, a clear division of responsibilities between the leadership of the Board and the executive leadership of the
Company’s business has been established and, in particular, set out in writing between the Chair, Group CEO and the Senior Independent Director,
as illustrated in the table below. Each of these role and responsibility statements is reviewed and approved by the Board as part of an annual
corporate governance review, to ensure they remain relevant and accurately reflect the requirements of the Code, the Companies (Miscellaneous
Reporting) Regulations 2018 and industry best practice.
Role on the Board
Responsibilities
As Chair, Sir John Kingman is responsible for:
• Establishing a close relationship of trust with
the Group CEO and providing support and advice
• Upholding the highest standards of integrity and
probity and setting clear expectations concerning
the style and tone of Board discussions
• Ensuring the Board has effective decision-making
processes and applying sufficient challenge
to major proposals
• Ensuring the Board receives accurate, timely, high
quality and clear information, with the support
of the Group Company Secretary
• Ensuring effective communication with shareholders
and stakeholders, as well as ensuring an appropriate
balance is maintained between the interests
of shareholders and other stakeholders
As Group CEO, António Simões is responsible for:
• Proposing the Group strategy and delivering
the strategy as agreed by the Board
• Upholding the highest standards of integrity
and probity and thereby setting the style and tone
for the Group Management Committee
• Embodying the Group’s three behaviours and
promoting an inclusive culture across the Group
• Promoting the highest standards of corporate
governance and managing a clear legal and
operating structure that reports to the Group
Board and its Committees
• Promoting a culture of openness and debate
• Promoting effective relationships and open
communications between directors, and building
effective relationships based on mutual respect
and open communication
• Promoting the highest standards of corporate
governance and ensuring that all directors are
aware of their responsibilities
• Ensuring a clear structure for the effective running
of the Board’s Committees.
• Ensuring that the Group maintains high standards
of adherence to, and alignment with, regulatory
requirements and standards
• Developing and retaining the confidence of the Board,
the executive and all other stakeholders.
As Senior Independent Director, Lesley Knox is responsible for:
• Providing support to the Chair in the delivery
of their objectives and being a trusted channel
of communication to the Chair for the other directors
• Being available to shareholders and other non-
executive directors for any concerns which cannot
be resolved through the normal channels
• Attending meetings with major shareholders to listen
to their views and develop a balanced understanding
of issues and concerns and ensure that they are being
considered by the Chair
• Leading the annual evaluation of the performance
of the Chair.
Sir John Kingman,
Chair
António Simões,
Group CEO
Lesley Knox,
Senior Independent Director
You can read more about the skills
and experience of the Board in
their biographies on pages 64
to 65.
The Role and Responsibilities
document can be viewed on our
website: group.legalandgeneral.com/
en/about-us/corporate-governance/
group-board-roles-and-responsibilities
Governance report
Legal & General Group Plc Annual report and accounts 2023
69
Governance report
continued
Conflicts of interest and time commitment
The identification and management of Board
members’ conflicts of interest is defined and
governed by the Company’s Articles of
Association, law and regulation, best practice
and a number of internal policies which are
reviewed and approved by the Board, as part
of an annual corporate governance review.
When identifying and managing any potential
rise in conflict of interest, a record is maintained
for each Board members’ disclosed directorships
and appointments. In the instance of an actual
or potential conflict of interest arising, if the
Board authorises said conflict, a formal record
is maintained as part of the Company’s records
and would be declared at the start of each
relevant meeting and noted within the minutes
of the meeting, as stipulated and governed
by our directors’ conflict of interest policy.
To ensure accurate records, on an annual basis,
Board members are required to formally
approve and sign their conflicts of interest
register, thereby confirming that all
directorships and appointments contained
within are accurate and up to date.
All non-executive directors’ letters of
appointment outline the time commitment
expected of them throughout their tenure
on the Board. At times, their commitment may
be required to go beyond that set out in the
letter of appointment. The time commitment
is reviewed regularly. External commitments,
which may have an impact on existing time
commitments, must be agreed in advance with
the Chair and approved by the Nominations
and Corporate Governance Committee, acting
under its delegation from the Board. As part
of the external appointments approval process,
each director’s time commitments are assessed
in detail. The significant commitments of each
director are detailed in their biographies
on pages 64 to 65.
Non-executive directors’ time commitments
are considered by the Nominations and
Corporate Governance Committee as part
of its ongoing assessment of the Board’s
composition. Upon review, the Committee
assesses the directors’ commitments to the
Company alongside their other significant
commitments to ensure that they continue
to be able to fulfil their duties to the Company.
Where the Committee approved new external
appointments, it was satisfied that they did not
give rise to a conflict of interest and would not
impact the directors’ time commitment to the
Company. In line with our conflicts of interest
policy, directors absent themselves from any
discussions relating to their own internal or
external appointments.
The Board, on the recommendation of the
Nominations and Corporate Governance
Committee, is satisfied that each non-executive
director serving at the end of the year remains
independent, effective and continues to have
sufficient time to discharge their responsibilities
to the Company. Upon making new appointments
to the Board, prospective candidates are
expected to devote sufficient time to fulfil their
responsibilities and duties to the Company and
to do so by acting with integrity, leading by
example and promoting the desired culture.
The Chair’s commitments were considered
on appointment, are regularly reviewed, and
are assessed robustly whenever he proposes
to take on an external appointment. In June
2023, the Chair took up the roles of chair at
Barclays UK PLC and non-executive director
at Barclays PLC. The Nominations and
Corporate Governance Committee, led
by the SID, carefully considered these external
appointments and determined that, given the
length of the Chair’s tenure at the Company
and significant experience, he was capable
of balancing the time commitments and any
potential conflicts, and overall the new roles
would be additive to the Chair’s experience,
and accordingly, to the Company. Thus, the
Nominations and Corporate Governance
Committee was comfortable that the Chair
is able to devote sufficient time to the Company.
Diversity and inclusion (D&I)
At Legal & General, we are building an inclusive
culture that celebrates diversity and creates
fair opportunities for everyone. Diversity
is important to the Board, and the Group
as a whole, because it generates a wider pool
of talent by reflecting the broadest range of
human attributes, experience and backgrounds,
whilst simultaneously supporting good decision
making and reducing the risk of groupthink.
It is important for our Board to have a broad
range of insights and perspectives to help
us make better decisions as a business and
create an inclusive culture for our people.
All appointments to the Board are based upon
an impartial gap analysis of knowledge, skills,
experience and diversity across the Board
as a whole. This gap analysis is routinely
conducted to review the composition of the
Board and make relevant recommendations
for any changes; it also takes account
of succession plans to ensure a sustainable
pipeline of diverse board talent.
D&I continues to be an area of focus for both
the Board and the Nominations and Corporate
Governance Committee. For more information
on the Board’s commitments to D&I, please visit
our Nominations and Corporate Governance
Committee report on pages 80 to 85.
Our purpose and culture
The Company’s three core ‘behaviours’ embody
our values and reflect the belief that it’s not just
what we do that is important, but how we do it.
Together we are: purposeful, straightforward
and collaborative.
70
Legal & General Group Plc Annual report and accounts 2023
Governance
These behaviours are the foundations of our
long-term sustainable success and define how
we do what we do. Throughout 2023, we have
reshaped the way we assess our performance
culture and reinforced a balance between
the ‘what’ in terms of our achievements, and
the ‘how’ in terms of demonstrating our core
behaviours whilst achieving our goals.
This approach not only helps us to further
enhance our performance culture, but also
to ensure our core behaviours are embedded
into the way we do what we do.
The Board regularly receives updates on the
Voice survey which provides insights into
employee satisfaction. The surveys include
questions on purpose, values and culture
to enable the Board to understand whether
these areas are aligned to the three key pillars
used to measure satisfaction; engagement,
culture and productivity, and enablement.
As well as reshaping the way we assess
and measure performance against our core
behaviours and values, in September we
sought to achieve further insight into what
it is like to work as part of the Company,
by seeking views directly from our employees
globally. This qualitatively complimented the
findings from our Voice survey and enabled
a deeper understanding which was not led
or constrained by questions in a survey, but
instead facilitated via a forum for employees
to communicate their views, in confidence.
Throughout the year, the Board attended site
visits across our UK offices, which enabled
our directors to meet with our employees and
gain insights into our culture and behaviours
in action. In addition, Board members meet
with smaller groups of employees to speak
directly with them, both with and without
management present, and hold town hall
events to answer questions from employees.
The executive management team also held
numerous town hall events at various locations
throughout the year to update the workforce on
topical issues. Employees are offered the
chance to ask the management team questions
throughout these sessions. These events are
run as hybrid events to maximise engagement.
Social impact report
Our 2023 Social impact report is available on our
Group website: group.legalandgeneral.com/reports
For further detail on our group-wide D&I strategy
and goals, please see page 49 of this report.
Strategic report
Governance
Financial statements
Other information
Subsidiary boards
At Legal & General we have benefited from
a strong governance framework operating
at subsidiary level for many years now.
Henrietta Baldock and Lesley Knox continue
in their roles on the board of two of our principal
operating subsidiaries: Henrietta as Chair of
Legal and General Assurance Society Limited
(LGAS) and Lesley as non-executive director
of Legal & General Investment Management
(Holdings) Limited (LGIM(H)). George Lewis
was also appointed as the Chair of Legal and
General Assurance (Pensions Management)
Limited in February 2024, having been
a member of the board since April 2022.
This crossover of directors on our Group Board,
principal and other key subsidiary boards
allows greater interactions, information flows
and promotes enhanced collaboration.
Induction, training and development
The Board places great value on training
and development, and all new non-executive
directors are invited to participate in a
comprehensive, formal and tailored induction
programme upon joining the Board. Induction
programmes provide new directors with the
knowledge and understanding of the Company
and its business to enable them to provide
effective contribution to Board discussions,
effectively challenge the executive and properly
fulfil their statutory duties.
Following his appointment as Group CEO,
António received a comprehensive and tailored
executive director induction to the Board.
All Board members receive regular training
throughout the year; the Board believes that
continual director training and development
is important to maximise the effectiveness
of the Board and ensures the Board can
effectively challenge the executive. The training
programme is generated on an annual basis,
based on the needs of the Board, and internal
and/or external circumstances, including any
recommendations from the annual evaluation
of the Board and its Committees. It is the
responsibility of the Chair to help ensure
directors continually update their skills,
knowledge and familiarity with the Group, and
the Chair does so with input from the Board
and the Group Company Secretary. In 2023,
the Board received specific training on various
topics, including cyber security, biodiversity
and AI. In addition, Board and Committee
meetings are regularly used to update the
Board on developments in the areas in which
the Group operates, and specific training
sessions for directors are scheduled for key
topical issues. As part of their ongoing training
and development, Board members are invited
to attend site visits to the Group’s various
offices, developments and investments, with
the aim of widening Board members’ knowledge
of the business, gain first-hand insights and
to provide Board members with the opportunity
to meet personally with our employees.
Throughout the year, site visits were carried out
at our offices in London, Hove and Cardiff, as
well as individual director visits to Solihull.
Board and Committee meeting attendance during 2023
Director
Appointment date
Non-executive directors
H Baldock3
4 October 2018
N von Bismarck OBE4
1 May 2021
P Broadley
C Johnson
L Knox5
G Lewis
R Lewis6
T Morzaria
8 July 2016
17 June 2022
1 June 2016
1 November 2018
18 June 2020
27 May 2022
L Wade-Gery7
3 January 2022
Chair and executive directors
Sir J Kingman8
24 October 2016
J Davies
9 March 2017
Sir N D Wilson9
1 September 2009
Board
Audit Committee
Data and
Technology
Committee1
Nominations
and Corporate
Governance
Committee
Remuneration
Committee
Risk
Committee1
Scheduled Ad-hoc Scheduled Ad-hoc Scheduled
Scheduled Ad-hoc Scheduled Ad-hoc Scheduled
Committee
appointments2
4/5
5/5
5/5
0/1
1/1
1/1
5/5
1/1
5/5
1/1
4/4
4/4
4/4
5/5
3/3
5/5
3/3
5/5
5/5
5/5
5/5
5/5
3/3
2/3
3/3
3/3
3/3
5/5
5/5
5/5
5/5
4/5
5/5
5/5
5/5
4/5
3/4
3/4
4/4
4/4
3/4
4/4
2/4
4/4
4/4
2/2
2/2
2/2
2/2
0/2
2/2
2/2
2/2
2/2
4/4
2/2
7/7
7/7
7/7
7/7
7/7
7/7
6/7
7/7
7/7
7/7
7/7
7/7
3/3
3/3
3/3
2/3
2/3
3/3
3/3
3/3
3/3
3/3
2/2
2/2
1. No ad-hoc meetings throughout 2023.
2. Committee appointments in accordance with appointments as at 31 December 2023.
3. Unable to attend Nominations and Corporate Governance Committee meeting on
6 December 2023 due to pre-agreed commitments.
4. Unable to attend Audit Committee and Nominations and Corporate Governance Committee
meetings on 6 December 2023 due to personal reasons.
5. Unable to attend Risk and Nominations and Corporate Governance Committee meetings
on 12 October 2023 due to pre-agreed travel arrangements.
6. Unable to attend Board meeting on 17 May 2023 and Nominations and Corporate Governance
Committee meetings on 17 May and 12 December 2023 due to pre-agreed travel arrangements.
7. Unable to attend Risk Committee meeting on 15 May 2023 due to pre-agreed travel arrangements.
8. Attends all Audit, Data and Technology, Remuneration and Risk meetings as an invitee.
9. Retired from the Board on 31 December 2023.
Committee membership key
Audit
Data and Technology
Nominations and
Corporate Governance
Remuneration
Risk
Committee Chair
Governance report
Legal & General Group Plc Annual report and accounts 2023
71
Governance report
continued
The Board meets
regularly to oversee the
delivery of the Group’s
strategic objectives to
ensure it continues to
promote the long-term
sustainable success
of the Company.
How the Board spent its time in 2023
The Board meets regularly to oversee the
delivery of the Group’s strategic objectives
to ensure it continues to promote the long-term
sustainable success of the Company.
Throughout 2023, the Board held 10 Board
meetings, including one strategy event, and
one additional site visit. Board Sub-Committees
were also constituted on a number of occasions
in order to deal with particular matters arising
outside of the formal schedule of meetings:
a Sub-Committee was constituted during the
year to oversee and closely manage the Group
CEO search process. The non-executive
directors have private meetings without the
executives present before and after each Board
meeting, and otherwise as required.
This is reflected in the Board agendas
throughout the year, which are set by the
Chair, with input from the Board, and consist
of regular reports on the following discussion
areas:
• updates from the Group CEO, the Group CFO
and the Chair of each of the Committees
• updates from key business divisions on
business performance and progress against
strategy, key business initiatives, customer
and employee engagement, the control
environment and culture
• discussions on strategic ambitions, material
transactions and other material initiatives,
to ensure alignment with strategic
objectives
• updates about meetings held between
directors and key regulators, such
as the FCA and PRA
implementation of the Consumer Duty and
a greater board focus on customer outcomes
risk and compliance matters, including
regular updates on whistleblowing
•
•
• audit matters, including IFRS 17
•
considerations
legal and governance matters from
the Group General Counsel and Group
Company Secretary
• people, culture, and employee engagement
matters, including updates from the
Designated Workforce Director and updates
on the results of the employee Voice survey
• ESG, climate and sustainability
•
considerations
the Group’s relationship with various
stakeholder groups. For more information
on the Board’s stakeholder engagement
throughout the year, see pages 76 to 78.
Board members meet informally with the
executive directors and Group Management
Committee on a regular basis outside of the
formal meeting schedule. Members of the
Group Management Committee and, as
appropriate, individuals from the relevant
business areas are also invited to attend Board
meetings in relation to key items, allowing the
Board the opportunity to debate and challenge
initiatives directly with the senior management
team, along with the executive directors.
The Board informs itself of the views of
shareholders on a regular basis through
updates from the Group CEO and Group CFO,
as well as an update from the Chair following
his annual schedule of investor meetings.
Where relevant, Board Committee Chairs also
hold meetings with investors.
The Board has established the Company’s
purpose, values and strategy, and has satisfied
itself that these and its culture are aligned.
I was honoured to
receive the Instant
Impact Award at the
2023 Legal & General
Awards, and have this
presented to me by one
of our non-executive
directors. It was a
fantastic opportunity
for all nominees
and winners to meet
and integrate with
the Board.”
Jack Maclean
Pensions Consultant
72
Legal & General Group Plc Annual report and accounts 2023
Governance
Strategic report
Governance
Financial statements
Other information
Jan
Mar
Apr
Discussed the Group’s
growth opportunities in
pension risk transfer (PRT)
Approved the full year
financial results, annual
report and accounts
and final dividend
recommendation
Received training
on cyber security
The Chair, Sir John
Kingman, and non-executive
directors, Laura Wade-Gery,
Tushar Morzaria and Nilufer
von Bismarck spoke at town
hall events for colleagues at
our Hove office
Aug
Jun
May
Approved the half year
financial results and
interim dividend
Received a presentation
from the PRA on the 2023
Periodic Summary
Meeting Letter
Approved the appointment
of António Simões,
following recommendation
from the Nominations and
Corporate Governance
Committee
Hosted the Group’s Annual
General Meeting
Hosted the first ‘talent
dinner’ of 2023 with
colleagues who have
demonstrated potential
to progress into senior
roles within the business
Oct
Nov
Dec
Held an executive business
awareness session on
nature and biodiversity
Held interactive sessions
with LGIM senior leadership
in the London Head Office
Hosted the second
‘talent dinner’ of 2023
Held an off-site event and
attended the Legal & General
awards at our new Cardiff
office, Calon
Received training on
Artificial Intelligence
Reviewed and approved
the annual corporate
governance review, to maintain
compliance with legal and
regulatory requirements
and corporate governance
best practice
Approved the Group Financial
Plan for years 2024 – 2028
Governance report
Legal & General Group Plc Annual report and accounts 2023
73
Employee engagement
On behalf of the
Board, I will
continue to listen
to our people.”
Nilufer von Bismarck
Designated Workforce Director
It’s clear that Nilufer
is passionate about
collaboration and our
unique partnership with
Unite. She has had a
positive impact on
the business and our
members, particularly
around Diversity and
Inclusion and Wellbeing.”
Pam Edwards
Head of Unite
Elevating employee views
There is a standing item at each Board meeting
to discuss my activities as Workforce Director
since the last meeting and to provide relevant
feedback. During 2023, I reported against the
programme and discussed relevant issues
and any potential responses or changes.
Not all issues required discussion at the Board
and so I decided in each case whether it was
more appropriate to raise issues with the
relevant member of the executive team and
then report to the Board on any action taken.
The key focus was always to ensure that
what mattered most to our people was
communicated and, where appropriate,
addressed, whilst providing our people with
transparency of relevant Board activities.
My role
The wellbeing of our employees is a key priority
for the Board and we recognise that our success
is driven by our people. As Workforce Director,
I engage with, and listen to the concerns of, our
employees. I seek to support our people by
representing their views to the Board and
finding ways to address the issues I uncover.
At the end of 2022, with input from both
employees across divisions and the Board,
we established my 2023 programme for
engagement with our people based around
three pillars:
• Diversity and Inclusion and Wellbeing
• Collaboration
• Growth.
These pillars are relevant to all areas
of the business and align with the priorities
established by wider management. Engagement
with employees during 2023 was structured
around these pillars and we tracked the impact
and outcomes of my engagement.
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Governance
Strategic report
Strategic report
Governance
Governance
Financial statements
Financial statements
Other information
Other information
Elevating employee views
Collect insights
from meetings,
visits to different
business
locations and
survey data
Work with HR
teams to identify
focus areas
Provide feedback
to, and facilitate
action with, wider
management
Provide updates
on action taken
to employees
Discuss feedback
and, where
appropriate,
propose solutions
to the Board
Some of my 2023 activities
My relationships with Unite and the Management
Consultative Forum (MCF) are key. Through
these bodies, I can gather the views and
concerns of a range of employees at a variety
of grades across the Group. During 2023, I met
with representatives from both organisations
every quarter.
For each business division, I received regular
updates on Diversity and Inclusion, Wellbeing
and on the Voice survey results and actions
being taken following such results. This links
to my 2023 programme pillar of Diversity
and Inclusion and Wellbeing, but also to
Collaboration as I have been able to share best
practices across different parts of the business.
I have participated in various events across
the business, such as the Women in
Business & Finance panel, LGC’s ‘Grade 5
forum’ and the summer internship induction
programme, all supporting the focus on Growth.
Through meeting people at our business
locations in Barnsley, Cardiff, Chicago,
Frederick, Hove, London, Solihull and Stamford,
I have been able to focus on issues specific
to business areas and location, building
on all three pillars of my programme.
Voice
I interrogate the Voice survey data to
understand how our people feel and this
is discussed by Board members at the
Nominations and Corporate Governance
Committee, together with any appropriate
actions to take in response. Employee
satisfaction is at 79%, and work is underway
to improve this even further in 2024.
2024
On behalf of the Board, I will continue to listen
to our people, provide feedback, and, where
relevant, implement changes through wider
management and the Board.
In 2024, my priorities as Workforce Director
will again be aligned with the Board and wider
management’s focus. I will continue to focus
on Diversity and Inclusion and Wellbeing, and
Collaboration, whilst Growth will evolve to
Performance and Capability. I will build my
interactions with employees around these
pillars, complemented with analysis and
understanding of the results of employee surveys.
We are grateful for the
regular forum with
Nilufer to raise issues
impacting management-
level employees and
have been able to shape
approaches to benefits
and internal policies.”
Sarah Hilton
Management Consultative
Forum representative
Employee Engagement
Legal & General Group Plc Annual report and accounts 2023
75
Section 172 statement and
stakeholder engagement
Statement on Section 172
of the Companies Act 2006 (the ‘Act’)
Section 172(1) of the Act requires directors
to act in the way they consider, in good faith,
would be most likely to promote the success
of the Company for the benefit of its members
as a whole, and in doing so, have regard
to a non-exhaustive list of factors to ensure
that the broader implications and interests
of stakeholders are considered in their
decision-making.
The Board recognises the importance of
nurturing its positive relationships with its key
stakeholders and is committed to maintaining
strong engagement with them. The Board
believes that this engagement provides
meaningful insights into the views, priorities
and issues facing its key stakeholders which
can then be considered as part of the Board’s
strategic decision-making and planning.
The Board has reflected on its engagement
mechanisms throughout 2023 and concluded
that they remain effective and have provided
the Board with a comprehensive understanding
of the interests of its key stakeholders.
A summary of the Board’s major decisions
and activities during 2023 can be found below.
This, combined with our key engagement
activities on page 78, makes up our section
172(1) statement. Further information on our
key stakeholders and their importance is set
out on pages 14 and 15.
Key employee engagement
in the year
Following the announcement of the
appointment of António Simões as
Group CEO Designate, effective from
1 January 2024, a new group-wide
CEO edition of the employee Voice
survey was launched in preparation
for António’s arrival. The survey invited
employees to share their feedback
on working at Legal & General which
was shared directly with António upon
his appointment.
Major decisions and activities during 2023
The following examples of major decisions and
activities during the year illustrate how the Board
considers different stakeholders’ interests
in its decision making and how this supports the
implementation of the Group’s long-term strategy
and its strategic growth drivers (as set out on pages
10 and 11).
We believe that major decisions are those that are
both material to the Group and to its key stakeholders.
Whilst not all decisions affect every stakeholder
group, the Board and its delegated decision-making
forums endeavour to balance the sometimes
conflicting needs of our stakeholders to ensure
that all are treated consistently and fairly.
Our strategic growth drivers
1
2
3
Ageing demographics
Globalisation of asset markets
Investing in the real economy
4 Welfare reforms
5
6
Technological innovation
Addressing climate change
Major decision
Key stakeholder consideration
Approval of a £2.7 billion buy-in with
the British Steel Pension Scheme
1
3
4
The Board approved a final buy-in policy with the
British Steel Pension Scheme (the ‘Scheme’),
totalling £2.7bn, under which the remaining 40%
of liabilities was insured. This was the final
transaction in a series of four phased buy-ins to
fully insure the £7.5bn of the Scheme’s liabilities,
securing the benefits of all circa 67,000 retired
and deferred members. In doing so, the Scheme
became the largest pension scheme in the UK
to have fully insured all its members’ benefits.
This transaction demonstrates our expertise in
pensions de-risking and our commitment to
helping schemes find solutions to secure pension
commitments against a backdrop of ageing
demographics.
At the core of these transactions, and to insure
benefits at this scale, Legal & General
developed strong relationships with the
Trustees’ sponsoring company, the Scheme’s
in-house teams and advisors and brought
together expertise across Legal & General.
These transactions signal a successful
continuation of our long-term, collaborative
relationship with the Scheme.
Through rigorous board review and decision
making, and a series of well-timed transactions,
the Scheme capitalised on volatile markets and
strong decision making to capture attractive
pricing and achieve the Trustees’ and Sponsors
objective of full insurance.
For more information on the Group’s
institutional retirement business, please visit
pages 29 to 31.
Customers
Circa 67,000 members will benefit from the security
that Legal & General provides to their pensions.
As populations live longer, their pensions last
longer too. By delivering on a carefully considered
and well-established plan, we helped the Trustees
and sponsoring company of the Scheme secure
the benefits of their members for the long-term
– far faster than initially anticipated.
Regulators
We continue to maintain strong and positive
regulatory engagement with the Prudential
Regulation Authority and we provided updates
on the transaction through our periodic
pipeline reporting.
Shareholders
This transaction has helped us to deliver
another strong result for our pension risk
transfer business and create long-term value and
strong returns for our shareholders.
76
Legal & General Group Plc Annual report and accounts 2023
Governance
Strategic report
Governance
Financial statements
Other information
Major activity
Key stakeholder consideration
The development and residency
of our new Cardiff office, Calon
3
4
5
6
.
Throughout the year, the Board was updated on
the £475 million regeneration project in Cardiff’s
Central Square, which included the development of
Calon, our new Cardiff headquarters. Our aim was
to create a workplace with sustainability, wellbeing
and our purpose of inclusive capitalism at its core.
By October 2023, all of our Cardiff based colleagues
had been successfully relocated to Calon, bringing
our people and our Company into the heart of the
investments we’re making in the city, and their
long-term future.
To celebrate the opening of Calon, our Group CEO,
Group CFO, Group HR Director and Retail CEO
joined employees and community stakeholders
for an official ‘opening ceremony’ to celebrate
our new home for our circa 2,500 people in Wales.
In November, the Board held its strategy event
at Calon and combined this with an interactive site
visit to experience the new office for themselves
and to meet with colleagues.
As part of this, the Board held an in person
town hall and invited all colleagues to join.
Updates were provided on diversity and
inclusion within the Board, emerging risks
and opportunities and Consumer Duty.
Employees were invited to ask a range
of questions and provide their feedback
on their new working environment.
Calon has been designed for sustainability,
wellbeing and inclusivity. The new office has
been developed using a climate-focused
approach and represents the delivery of our
socially responsible investing agenda and
our continued relationship with all of our
stakeholders. It is hoped that Calon will drive
an evolution on how cities are suitably
designed to be sustainable, long-term.
The development of Calon is the result
of a £475 million investment by Legal & General
into the regeneration of Cardiff’s Central
Square, run in partnership with Cardiff Council,
the Welsh Government and Rightacres.
It demonstrates our commitment to investing
in the real economy and forms part of our wider
£1 billion investment in Cardiff in recent years.
Employees
Engaging with our employees throughout the
planning and development stages of Calon has
supported our inclusive company culture whilst
understanding what is important to them
in a hybrid working environment. Our workforce
is vital to our success. To help us understand the
views of our employees, we engaged through
formal and informal channels; the name of the
new office ‘Calon’ – Welsh for heart – was chosen
in a vote by our employees.
Communities and
envi ronment
Calon meets the highest standards in sustainable
design. There is no gas in the building, and it can
generate its own electricity from solar panels
and air source heat pumps. It has achieved
a BREEAM Outstanding rating and is also
targeting Nabers UK 5-star. With over 3,000 living
plants and natural lighting throughout, it has
occupants’ wellbeing at its core.
Suppliers
In line with our commitment to inclusive
capitalism, we utilised local suppliers and
products throughout the development process
where possible, to further improve the social
impact the building delivers.
Major activity
Key stakeholder consideration
The development of our partnership with Bruntwood
SciTech to achieve additional investment for the
regeneration of our towns and cities in the UK
2
3
5
The Board oversaw the development of our
science and technology real estate joint venture
with Bruntwood SciTech, the leading property and
innovation services provider in the UK, including
a new partnership with Greater Manchester
Pension Fund (GMPF), the UK’s largest local
government pension fund, securing £500m
of additional investment.
We’re bringing a fresh injection of capital which
reinforces our commitment to investing
purposefully in the real economy. The long-term
vision for our joint venture with Bruntwood SciTech
is to provide the infrastructure that businesses and
the public sector need to thrive and to provide the
UK’s regional cities with the capacity they need to
support future growth.
Opportunities exist to export our investment
expertise internationally to support our global
ambitions. The success of Bruntwood SciTech
has paved the way for the expansion of our UK
business model to the US market with Ancora
L&G, where we believe there is significant
potential for further growth.
For more information on the Group’s capital
investment business, please visit pages 32 to 34.
Communities and
environment
We are committed to creating and supporting
thriving cities and our joint venture with Bruntwood
SciTech has enabled us to work with cities and
universities to create modern science
infrastructure. The growth of the Bruntwood
SciTech partnership through the introduction
of GMPF supports the delivery of a significant
long-term investment project that is economically
viable and bolsters innovation strategies and
regeneration of towns and cities in the UK.
At Bruntwood SciTech’s core is the drive to invest
in an innovation backbone for the UK. The new
capital will be used to expand and redevelop
existing science and technology campuses and
city centre innovation hubs, delivering additional
world-leading lab and office space in the UK
across a secured 3.6m sq ft development pipeline.
The investment supports the drive to regenerate
towns and cities in the UK, helping to create
highly skilled jobs, increase productivity and
drive wage growth, while supporting the UK’s
target to become a global science and
technology superpower by 2030.
Section 172 statement and stakeholder engagement
Legal & General Group Plc Annual report and accounts 2023
77
Section 172 statement and
stakeholder engagement
continued
Key stakeholder engagement during the year
Stakeholder
Key engagement activities throughout the year
Shareholders
Our shareholders are vital to the future success of our business,
providing funds which aid business growth and the generation
of sustainable returns.
Suppliers
Interaction with our suppliers and treating our suppliers fairly
allows us to drive high standards and reduce risk in our supply
chain whilst also benefitting from cost efficiencies and generating
positive outcomes for the environment and wider society.
Regulators
We actively engage with appropriate regulatory bodies to ensure
that we maintain high standards of business and deliver for our
customers. We work closely with regulatory authorities to
effectively monitor external developments and identify and
respond to the evolving landscape.
Communities and environment
Contributing positively to wider society enables us to create
stronger communities and have a positive environmental impact.
Customers
Listening to our customers helps us to better understand their
needs and provide suitable and reliable products and services.
Employees
Engaging with our people enables us to create an inclusive
company culture and a positive working environment.
• The Chair, Group CEO and Group CFO attend numerous investor roadshows throughout
the year with our key institutional investors to understand their views on areas such as our
strategy, financial performance, AGM voting and macroeconomics.
• Following the release of our full and half year financial results, the Group CEO and Group
CFO met with investors and analysts. In addition, a webcast of each result presentation
is made publicly available on the corporate website to enable accessibility for our
shareholders.
• The AGM continues to provide an important opportunity to engage with all shareholders,
particularly our retail shareholders.
• The Group CFO and members of the senior management team meet with key suppliers
during the year to discuss performance and strategy.
• The Legal & General Resources Limited board, our main contracting entity for suppliers,
is responsible for reviewing and monitoring the Group’s key supplier relationships and
receives an update at each board meeting on our relationships with suppliers and their
performance.
• The Executive Risk Committee, Group Risk Committee and Group Data and Technology
Committee receive reports relating to supplier resilience and security.
• The Group Environment Committee also receives updates on suppliers in the context
of setting environmental targets aligned with our net zero ambitions.
• Board members meet with the PRA and FCA periodically to discuss various priorities
and supervisory strategies.
• Regular meetings continue to take place between management, our risk function and our
regulators, the outcomes of which are reported to the Board and relevant Board
Committees.
• Periodic meetings continue to take place between management, trustees of our master
trust pension scheme and The Pensions Regulator, the outcomes of which are reported
to relevant subsidiary boards, as appropriate.
• Through organised site visits, members of the Board are able to see first-hand how
the Group’s direct investments in infrastructure positively impact local communities
by delivering socially and environmentally positive housing and workplaces at scale.
• Our Group Sustainability function is responsible for developing areas of focus for
sustainability activity, as well as forming charitable partnerships and enabling our
employees’ fundraising and volunteering endeavours.
• Our Group Environment Committee is responsible for providing strategic direction
for the management of environmental impact.
• Laura Wade-Gery, in her role as Consumer Duty Champion, continues to lead on providing
Board oversight of the implementation of the Consumer Duty regulations across the
Group to ensure that we continue to deliver good outcomes for retail customers.
• The Board receives detailed customer management information at each meeting
to ensure that customer outcomes are robustly monitored.
• We hold annual member forums for thousands of members of our pension schemes
which allow members to ask questions in a live Q&A environment.
• Nilufer von Bismarck continues to engage with our workforce through her position as
our Designated Workforce Director. Further details of Nilufer’s engagement can be found
on pages 74 and 75.
• Members of the Board host numerous employee town halls throughout the year at our
various office locations, including following the announcement of full year and half year
results, which provides an opportunity for the Board to increase employee awareness
of the factors affecting the performance of the Company and provides the opportunity
for direct engagement through live Q&A sessions.
For more information on:
•
•
the sustainability of our supply chain and actions against modern slavery, refer to page 51 of this report
the Board’s oversight of climate and environmental issues, and the non-environmental aspects of our sustainability agenda, refer to our
Social impact report and Climate and nature report: group.legalandgeneral.com/reports
• our gender pay gap, alongside other people-related KPIs, refer to our Social impact report: group.legalandgeneral.com/reports.
78
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Governance
Data and Technology
Committee report
Strategic report
Governance
Financial statements
Other information
I am pleased to present my second report
as the Chair of the Data and Technology
Committee. During the year, the Committee’s
remit evolved to include oversight of
Legal & General’s data strategies. This is an
important area of focus for Legal & General
as we recognise the opportunities that can
be derived from data. This change has enabled
the Committee to become a more forward-
looking and strategic forum to drive innovation.
The Committee’s focus during the year has
been around four key themes: control & risk;
capability & capacity; strategy & innovation;
and change delivery. These themes have
allowed the Committee to explore technology,
data and cyber in depth and has created an
environment where these key strands can be
brought together to support the Board in
seizing technological and data opportunities
and overseeing the challenges presented by
technology and cyber. The Committee is
supported by an executive level technology and
security governance framework. This framework
has provided greater oversight of, and allowed
the Committee to place greater reliance on, the
Group’s executive-level governance arrangements.
During the year, the Committee has focused
considerably on data as it becomes an
increasingly important element of our
business. Data touches every application,
process and business decision we make.
We have an ambition to become a more data
driven and insight led organisation, and to
do this, we need to ensure data is treated
as a highly valuable and strategic asset.
The Committee also spent time focusing
on how divisions can collaborate to drive
greater efficiencies and capabilities. In October,
we concentrated on this from a people and
capabilities’ perspective. This was a useful
exercise as it highlighted some shared
challenges and opportunities across the Group
and recognised that the different markets
in which our businesses operate demand
different skill sets, experiences and capabilities
to meet their divisional needs. I have been
pleased to see the formation of a technology
leadership community across the Group which
is bringing together these shared challenges
and opportunities.
As Artificial Intelligence continues to embed
into society, the Committee will continue
to discuss and oversee its associated
opportunities and challenges.
Committee overview
Committee meetings
and membership
The Committee met 4 times during the
year. The Committee is composed
entirely of independent non-executive
directors. As well as the Committee
members, the Group CEO, the Group
CFO, the Group CRO and the Chief
Technology Officer are expected to
attend each meeting. The Committee
is advised by an independent Cyber
Security Advisor and an independent
Information Technology Advisor who
attend each meeting and provide key
insights into industry trends and advice
on the evolution of our technology, data
and cyber strategies.
Members
Laura Wade-Gery (Chair)
Philip Broadley
Nilufer von Bismarck
Gender
67% Women
33% Men
Tenure
33% Over 6 years
0% Between 3 – 6 years
67% Between 0 – 3 years
Ethnicity
33% South Asian
67% White
The role of the Committee
The role of the Committee is to provide
assurance to the Board on the management
of data and technology and associated
change programmes, and to ensure that
the Group is operating within its targeted
information security and cyber risk appetite.
Key responsibilities
• Provide oversight of, and guidance
to, the Board with regards to all aspects
of information technology, data and
analytics and cyber security (including
IT and information security) across
the Group.
• Review and endorse the Group
information technology and digital
strategy, Group data strategy and
Group cyber security strategy, and their
respective implementation plans.
• Oversee technology and data aspects
of major change programmes and
understand their strategic contribution
and risks.
• Review and endorse the operating
model in place for information
technology, data and analytics and
cyber and information security, and
subsequently consider its ongoing
suitability.
• Review and approve any proposed
technology projects and contracts
within its remit of responsibility.
• Consider current capabilities relating
to technology, data, cyber and digital
skills and plans to address any gaps.
• Consider the adequacy, resilience and
performance of suppliers and supply
chains for IT and cyber.
The Committee’s terms of reference can
be viewed on our website: group.
legalandgeneral.com/committees
Laura Wade-Gery
Chair of the Data and Technology Committee
Data and Technology Committee report
Legal & General Group Plc Annual report and accounts 2023
79
Nominations and
Corporate Governance
Committee report
Committee overview
Committee meetings
and membership
The Committee met 6 times during
the year. The composition of the
Committee remains in compliance with
the Code, the requirements of its terms
of reference and comprises only
independent non-executive directors.
Details of members’ experience and
skills can be found in the biographies
on pages 64 and 65.
Members
Sir John Kingman (Chair)
Henrietta Baldock
Nilufer von Bismarck
Philip Broadley
Carolyn Johnson
Lesley Knox
George Lewis
Ric Lewis
Tushar Morzaria
Laura Wade-Gery
Gender
50% Women
50% Men
Tenure
30% Over 6 years
30% Between 3 – 6 years
40% Between 0 – 3 years
Ethnicity
20% South Asian
10% Black
70% White
The role of the Committee
The role of the Committee is to ensure
that the Board’s composition, and that
of its Committees, is appropriate
to discharge its duties effectively, and
to oversee the Company’s corporate
governance framework and commitments
to diversity and inclusion.
Key responsibilities
• Regularly review the structure, size
and composition of the Board.
• Lead the process for new appointments
to the Board, ensuring appointments
bring the required skills, knowledge,
background and experience to the
Board to support the development and
oversight of the Group’s strategy, and
taking into account the promotion
of diversity and inclusion.
• Give consideration to succession
planning for directors and senior
executives.
• Oversee and monitor the Company’s
corporate governance framework,
including its compliance with the UK
Corporate Governance Code.
• Oversee and monitor the Company’s
commitment to diversity and inclusion
across the Group.
• Oversee the process by which the
Board, each Committee and individual
directors assess their effectiveness.
• Review non-executive directors’ time
commitments and consider additional
external appointments.
The Committee’s terms of reference
can be viewed on our website: group.
legalandgeneral.com/committees
80
Legal & General Group Plc Annual report and accounts 2023
Governance
The Board was delighted
to appoint António Simões
and I look forward to working
with António to ensure that
we continue to deliver on
our enormous potential
for our shareholders,
employees, customers and
the communities of which
we are a part.”
Chair’s introduction
I am pleased to present my report as Chair
of the Nominations and Corporate Governance
Committee.
One of the Committee’s main areas of focus
for the year was succession planning,
particularly the extensive search and full
and robust selection process to appoint our
new Group Chief Executive Officer. The Board
was delighted to appoint António Simões with
effect from 1 January 2024 and I look forward
to working with António. In addition, we
implemented succession planning for the Chair
of the Remuneration Committee, as well as the
Senior Independent Director, as part of our
commitment to, and support of, the FCA’s
targets on board diversity as set out in the
Listing Rules.
The external Board effectiveness review was
another key area of focus this year for the
Committee. Further information on the process
and results can be found on pages 84 and 85
of this report.
Sir John Kingman
Chair
Strategic report
Governance
Financial statements
Other information
Key activities during 2023
• Led the process for the search and
appointment of the new Group Chief
Executive Officer.
• Considered director reappointments,
external appointments and changes
to the composition of the Board and
its Committees.
• Recommended the appointment
of the external facilitator for the annual
effectiveness review of the Board and
each of its Committees.
• Oversaw the development of a diverse
pipeline of talent for succession to the
Group Management Committee across
near- to long-term time horizons.
• Oversaw the development of, and progress
against, the Group’s diversity and inclusion
workforce policies, including the annual
review and approval of the Board’s Diversity
and Inclusion Policy.
• Considered the results of the employee
Voice surveys.
Corporate governance
The Committee is responsible for overseeing
and monitoring the Company’s corporate
governance framework and compliance with
the Code. The Company has complied with all
provisions of the Code throughout the year.
Further details of the Group’s corporate
governance framework, including compliance
with the Code, can be found on page 67.
Appointment of our new Group Chief Executive Officer
Upon recommendation from the Committee, the Board appointed António Simões as our new Group Chief Executive Officer with effect from
1 January 2024. António’s appointment followed a rigorous, global selection process managed by a Sub-Committee of the Nominations and
Corporate Governance Committee, led by the Chair. A summary of the process is outlined below.
Talent management
and succession planning
The Committee annually reviews and assesses the executive talent pipeline to ensure there is a pipeline of credible
and capable successors for executive management, including for the role of Group CEO.
1. Constitution of Sub-
Committee to manage
and oversee the process
A Sub-Committee of the Committee, led by the Chair, was constituted to provide direction and Board oversight of the Group
CEO succession planning process.
2. Engagement with
executive search
firm and creation
of role specification
The Sub-Committee engaged with independent external search firm Russell Reynolds. Russell Reynolds has no other
connection with the Company or its directors and is a signatory to the Voluntary Code of Conduct for Executive Search
Firms. Russell Reynolds was chosen for its significant depth in insurance and financial services more generally, a track
record of focusing on diversity, and a strong leadership team who would challenge the Board on its thinking on candidates.
The Sub-Committee worked with Russell Reynolds to devise a role specification, which was approved by the Board.
3. Candidate long lists
The search firm produced a diverse long list of candidates which was reviewed, thoroughly discussed and refined
by the Sub-Committee. The long list included internal candidates and best-in-class external talent. In reviewing the long
list, the Sub-Committee was mindful of diversity, including of background and experience, as well as the desired skills
and attributes for the role as set out in the role specification.
4. Candidate short
list and interviews
All candidates on the long list were interviewed by the Sub-Committee, following which a short list of final candidates
was produced. All shortlisted candidates were assessed against the role specification, on merit and with due regard
to all forms of diversity. The final candidates were interviewed by the full Committee, which included a presentation from
candidates. In addition, they underwent psychometric testing, and references were taken on the external candidates.
5. Candidate
selection
6. Candidate
appointment
and approval
Induction
Following shortlisted candidates’ presentations and interviews, the Board discussed each candidate in detail,
taking into account all elements of the search process. Following this discussion, it was agreed that António
was the outstanding candidate.
The Committee unanimously recommended to the Board the appointment of António Simões as the next Group CEO,
subject to regulatory approval, and the Board duly approved the appointment. The Remuneration Committee led
on the development of an appropriate remuneration package. António was interviewed by the PRA and FCA as part
of the approval process, and approval for his appointment was granted in October 2023.
A comprehensive, tailored induction programme was undertaken by António upon appointment, led by the Chair and the
Group Company Secretary. This included a focus on the markets and regulatory regions in which the Group operates, as
well as meetings with all senior management, key external stakeholders, and undertaking site visits to the Group’s offices
in the UK and globally.
Nominations and Corporate Governance Committee report
Legal & General Group Plc Annual report and accounts 2023
81
Nominations and Corporate
Governance Committee report
continued
Key activities during the year
Board composition, succession and other
changes throughout the year
CEO succession
A key activity for the Committee in 2023 was
managing and overseeing the search for the
new Group CEO, António Simões. For more
information on the appointment process,
please see page 81.
and counsel. Lesley was considered by the
Committee as the outstanding candidate
for the role of SID due to her length of tenure,
strong understanding of, and experience
in dealing with, the Group and its various
stakeholders from her roles as Remuneration
Committee Chair, Designated Workforce
Director and her role on the board of one
of our principal subsidiaries.
Board composition
The Committee undertakes a rigorous annual
review of the Board’s composition to support
discussions on succession planning. This
includes a capability assessment of Board
members’ knowledge, skills and experience
in the context of the Company’s short and
medium-term strategy, supported by a
self-assessment analysis undertaken by each
individual director, which forms part of an overall
Board skills matrix. The skills matrix reflects
the results of the assessment. The skills matrix
is refreshed and reviewed on an annual basis
and is used by the Committee to support
discussions on succession. Various other
considerations, including the tenure of the
Board as a whole, independence and diversity,
are also considered by the Committee when
reviewing the Board’s composition.
The outcome of the 2023 discussion on
composition was that, overall, the Board was
of an appropriate size and composition, with key
succession plans having been executed over
the course of the year. The upcoming focus for
the Committee will be succession planning for
the Chair and non-executive directors who will
be coming to the end of their tenure.
The Committee also considered
reappointments of directors to the Board, and
directors’ external appointments to the boards
of other companies. Where the Committee
approved new external appointments, it was
satisfied that the appointments did not give rise
to a conflict of interest and would not impact
the directors’ time commitment to the
Company. In line with our conflicts of interest
policy, directors absent themselves from any
discussions relating to their own
reappointment, chair appointment or other
internal or external appointments.
Other board changes
The Committee considered and approved
the following board composition changes
throughout the year.
Being mindful of the time commitment for
Lesley to take on the role of SID, Laura
Wade-Gery succeeded Lesley as the Chair
of the Remuneration Committee in February
2024. The Committee considered Laura an
excellent candidate due to her established
track record as a UK-listed company
Remuneration Committee Chair and her strong
understanding of the Committee’s current
workings and short- and medium-term
priorities. Laura fulfils the Code requirement
for any appointee to the Remuneration
Committee Chair role to have served on
a Remuneration Committee for at least
12 months prior to appointment. Having
discussed Laura’s internal and external time
commitments, the Committee considered that
Laura has sufficient time to dedicate to the
Remuneration Committee Chair role.
Executive succession and talent management
In addition to reviewing the Board’s
composition, throughout the year the
Committee has focused on executive-level
succession across near- to long-term time
horizons to ensure there is a credible pipeline
of successors for executive roles.
Subsidiary succession
The Company benefits from a strong
governance framework operating at subsidiary
level. The continued strength of the boards of
the Group’s subsidiaries is vital for ensuring the
Group’s high standards are maintained and
there is sufficient oversight of activity further
down the Group, particularly in our principal
subsidiaries. While succession planning
remains the responsibility of each subsidiary
board, it is nevertheless very important for the
Committee to have continued oversight of its
key subsidiaries and ensure orderly succession
plans are in place. In addition, I meet regularly
with the non-executive directors of our principal
subsidiary boards, without the presence of
executive management, to gain direct
feedback.
Following the 2022 and 2023 discussions on
board composition, Lesley Knox succeeded
Philip Broadley as SID in September 2023.
As a result of this change, the Company now
complies with the FCA’s targets on board
diversity to have at least one of the following
senior board positions held by a female: Chair,
Chief Executive, SID or Chief Financial Officer.
Philip remains a member of the Board and we
continue to benefit from Philip’s experience
Appointments to the Group’s principal
subsidiaries are made on the recommendation
of the Committee. This year the board of one of
the Group’s principal subsidiaries, Legal and
General Assurance Society Limited (LGAS),
approved the appointment of Andrew Kail as its
new CEO, following regulatory approval, on the
recommendation of the Committee. Andrew
succeeded Sir Nigel Wilson who held the LGAS
CEO role (in addition to the Group CEO role)
82
Legal & General Group Plc Annual report and accounts 2023
Governance
until his retirement in December 2023. In making
its decision, the Committee highlighted
Andrew’s knowledge and understanding of the
Group and the LGAS business, having run the
Group’s PRT business for the last two years
as well as previously running the Group’s Retail
Retirement division, meaning that Andrew was
well-placed to take on the role.
Diversity and inclusion (D&I)
D&I across the Group
As a Group, we are working towards a more
equitable workplace where all our people can
realise their potential. We believe that diversity
of experience and skills brings diversity of
thought and perspective, which in turn drives
greater proximity to our customers and
promotes a culture which more readily
embraces innovation.
Last year, we set ourselves deliberately
challenging ethnicity goals across the Group
in order to expand the scope of our D&I agenda
and to complement existing goals for gender.
These goals are for 17% of our workforce,
senior management roles and Board members
to be from minority ethnic backgrounds by
2027. During 2022, we built these new goals
into group-wide and divisional D&I plans,
including key operational areas like recruitment.
As a Group we have made good progress on
achieving our ethnicity goals by 2027, and good
progress on our employees’ voluntary
disclosure of ethnicity data. However, we are
aware that faster progression is required to
achieve our gender diversity goals, particularly
achieving 40% female leadership at the senior/
middle management level, and we continue to
explore areas of opportunity to achieve this.
Throughout 2023, the Committee received
regular updates on the progress against the
group-wide and divisional D&I plans and the
following key D&I focus areas:
• embedding the progress made in 2022,
including inclusive recruitment, improving
line manager capabilities and the creation
of opportunities for those from
underrepresented backgrounds
• evolving the D&I governance and operating
model across the Group by increasing
transparency, reducing duplication and
elevating the voice of our employee
networks
• holding leaders and line managers
to account on diversity matters.
The Committee continues to support the work
of the executive management and the D&I
Council in driving the D&I agenda across the
Group. For more information on our group-wide
D&I activity during 2023, including our progress
on achieving our objectives, please see page 49
of this report.
Strategic report
Governance
Financial statements
Other information
D&I of the Board
As a Committee, we believe that diversity is
important as it supports good decision making
and reduces the risk of groupthink by providing
different viewpoints, ideas and challenge.
As part of this, we believe that it is important
for our Board to be diverse in terms of gender,
ethnic and social backgrounds and have a broad
range of perspectives to help us make better
strategic decisions and lead by example in
creating an inclusive culture for our people.
Lesley Knox was appointed as SID in September
2023. This appointment reflects our commitment
to gender diversity in senior board positions
and complies with the FCA’s targets on board
diversity as set out in Listing Rule 9.8.6(9)(a)(ii),
that at least one of the following senior board
positions should be held by a female; Chair,
Chief Executive, SID or Chief Financial Officer.
We are proud to have a Board which is diverse,
both in terms of gender and ethnicity. As at
31 December 2023, the Board comprised 42%
women, and 25% of the Board was from an
ethnically diverse background. Both of these
percentages exceed regulatory requirements,
the targets in the FTSE Women Leaders Review
(Hampton-Alexander) and Parker Review, as
well as the goals we set ourselves in our Board
Diversity and Inclusion Policy. The Board is also
compliant with the board diversity requirements
in the Listing Rules and discloses its compliance
in the prescribed format below.
When making appointments to the Board, the
Committee only engages executive search
firms that are signatories to the Voluntary Code
of Conduct for Executive Search Firms which
promotes gender diversity and best practice for
corporate board searches.
Listing Rule disclosure on diversity
D&I of senior management
A diverse senior leadership team is as important
as a diverse Board, because we believe that
executive decision-making is more effective if
it takes into account a wider range of views and
opinions. Last year we introduced a new goal of
17% of our senior management roles to be held
by people from minority ethnicity backgrounds
by 2027. During 2023, we are pleased that our
hiring rates for minority ethnicities are trending
positively, increasing our confidence in our
ability to achieve our 2027 goals.
We continue to monitor the progress of our
gender diversity goals of 40% female leadership
by 2025 and a 50:50 gender balance across the
workforce by 2025. We have made good
progress on the representation of women over
the last 5 years, particularly in some of our
most senior roles, however the pace of change
has been slow. As a result, focus on areas of
opportunity for this particular segment of
employees, such as optimising incentives,
job-sharing and job design, continues.
Board D&I Policy
During the year, the Committee reviewed and
approved the Board Diversity and Inclusion
Policy, which complements the Group’s wider
workforce policies and values on D&I.
The Board Diversity and Inclusion Policy sets
out the approach to diversity and inclusion
of the Board of Legal & General Group Plc,
and its Committees, in compliance with the
Disclosure Guidance and Transparency Rules
(DTR). As a business, we have a clear purpose
to improve the lives of our customers, build
a better society for the long term and create
value for our shareholders. Inclusive capitalism
lies at the heart of our business strategy and
is built on the belief of being economically and
socially useful, embracing diversity and being
fully inclusive in everything we do. As part of
the policy, the Board, upon recommendation
from the Committee, has committed to building
a diverse and inclusive Board and a more
diverse and inclusive senior management
team, as well as driving diversity and inclusion
across the Group.
From 1 January 2024, we implemented a new
executive governance framework. The Group
Management Committee was formed as a
formal committee of the Group CEO. As at
31 December 2023, our Group Executive
Committee (which existed under our previous
governance framework) comprised 40%
women*, with 50% of our businesses led by a
female CEO. Also at 31 December 2023,
representation at the middle/ senior
management level was 37.2% women (2022:
38%). We are eager to increase the ethnic
diversity of senior management across the
Company, which is why we have set ourself the
goal of 17% by 2027 – we are currently at 17.3%
for this constituency.
More information on the diversity of our workforce,
including the gender and ethnic diversity of our
Board and executive management, can be found
in our Social impact report: group.legalandgeneral.
com/reports
The Board Diversity and Inclusion Policy is available
here: group.legalandgeneral.com/en/about-us/
corporate-governance/diversity.
Number of Board
members
Percentage of the
Board
Number of senior positions on the Board
(CEO, CFO, SID and Chair)
Number in executive
management*
Percentage of executive
management*
Men
Women
Not specified/prefer not to say
7
5
–
58%
42%
–
3
1
–
6
4
–
60%
40%
–
Number of Board
members
Percentage of the
Board
Number of senior positions on the Board
(CEO, CFO, SID and Chair)
Number in executive
management*
Percentage of executive
management*
White British or other White (including
minority-white groups)
Mixed/Multiple Ethnic Groups
South Asian
East Asian/Southeast Asian
Black/African/Caribbean/Black British
Other ethnic group, including Arab
Not specified/prefer not to say
9
–
2
–
1
–
–
75%
–
17%
–
8%
–
–
4
–
–
–
–
–
–
10
–
–
–
–
–
–
100%
–
–
–
–
–
–
* exclusive of the Group CEO and Group CFO who are included in the number of Board members.
The information in this table was collected on a confidential and voluntary self-reporting basis and is accurate as at the date of this report. For the purpose of this disclosure, ‘executive
management’ means the Group Executive Committee as at 31 December 2023. From 1 January 2024, a new executive governance framework was implemented as detailed on page 66.
Nominations and Corporate Governance Committee report
Legal & General Group Plc Annual report and accounts 2023
83
Nominations and Corporate
Governance Committee report
continued
Assessing board and committee effectiveness
Another role of the Committee is to oversee the
annual Board and Committees’ effectiveness
review. In line with best practice, a formal and
rigorous review of the effectiveness of the
Board and its Committees is conducted each
year. The Board and its Committees undergo
a full, independent external evaluation every
three years, and an externally-facilitated
internal evaluation on all other years. This year,
in line with the requirements of the Code, the
effectiveness review was undertaken by an
independent, external board effectiveness
review specialist.
Following a robust tender process conducted
by the Chair and Group Company Secretary,
upon the Committee’s recommendation, the
Board approved the appointment of Clare
Chalmers Limited as the independent external
reviewer to conduct the 2023 evaluation. Clare
was chosen due to her specialism in financial
services firms. Clare Chalmers Limited has no
other connection with the Company or
individual directors.
The process, findings and resulting actions
from the 2023 effectiveness review of the
Board and its Committees can be found in the
diagram below across pages 84 and 85. Clare
had the opportunity to comment on these
disclosures.
Chair and individual director
performance evaluations
The SID leads the non-executive members
of the Board in an annual evaluation of the
performance of the Chair, which includes an
assessment of the working relationship
between the Chair and the Group CEO. In
carrying out the annual evaluation, the SID
meets with the non-executives without the
Chair present and takes into account the views
of the executive directors, as appropriate.
Following this year’s review, the effectiveness
of the Chair continued to be highly-rated.
The Chair meets with Board members
throughout the year to assess their individual
performance. Following this year’s review, and
the insights gained from the external facilitator,
the Chair confirmed that the individual
directors’ continued to contribute effectively
to the Board.
2023 Board and Committees’ effectiveness review
1
2
Process
3
Document review and
meeting observations
Clare and her associates
conducted a thorough
review of previous Board
and Committee papers,
minutes and other relevant
documentation to provide
context on Board matters
and the decision-making
process, to help inform the
one-to-one interviews.
Following this review, Clare
observed a series of Board
and Committee meetings
to enable her to form an
independent view of the
meeting dynamics.
Scoping
Clare met with the Chair and
Group Company Secretary to
agree the scope of the 2023
effectiveness review. This
included the objectives of the
review and the key areas of
focus. The agreed aim of the
review was to assess the
effectiveness of the Board, both
as a collective unitary Board and
at Committee level. The review
focused on, amongst other things:
• board composition,
including diversity
• succession planning for
the Board and senior
management
• board dynamics, board
decision-making and how
effectively members work
together to achieve objectives
• strategy, performance and risk
• purposes, values and culture
• stakeholder considerations.
Interviews
Clare held in-depth
one-to-one interviews with
Board members covering
a broad range of topics,
as agreed with the Chair
and the Group Company
Secretary. The topics for
consideration were shared
with the Board members
prior to their individual
interviews. Clare also
interviewed certain
members of senior
management, including
the Group Chief Risk
Officer, Group HR Director,
Group Chief Auditor and
Group Company Secretary,
to bring useful insights
on the performance of
the Committees and an
overall holistic view of
effectiveness. Discussions
with all interviewees
remained confidential.
4
Report
Clare produced an
initial, draft report on
her independent review
findings, which she
discussed with the Chair
and Group Company
Secretary in the first
instance. Clare then
presented a final written
report to the Committee
and invited discussion on
the report’s findings and
recommendations.
No views were attributed
to any individual in the
final report.
84
Legal & General Group Plc Annual report and accounts 2023
Governance
Strategic report
Governance
Financial statements
Other information
Update on previous board evaluations
In 2021 and 2022, internal reviews of the performance of the Board and its Committees were undertaken, externally facilitated by Ffion Hague at
Independent Board Evaluation (IBE). IBE has no other connection with the Company or individual directors. At each board meeting, an update on
progress against the review recommendations is provided. An overview of the recommendations from the 2022 review and progress against them
is provided below.
Recommendations from 2022 review
Progress against recommendations
Continuing the practice of ‘top down’ risk
discussions and ‘lessons learnt’ exercises
Ensuring that strategy papers continued to be
forward-looking
Continuing to prioritise stakeholder impacts
and views
‘Lessons learnt’ exercises continued to be requested and presented to the Board and its Committees
throughout 2023, including lessons learnt in relation to the LDI crisis and data security and privacy.
The Group Chief Risk Officer now presents an annual update on emerging (‘top down’) risks to the Group
Risk Committee.
The Board strategy papers continued to be reviewed by the Group Strategy & Investor Relations Director
and Chair at an early stage to ensure papers were sufficiently ‘forward-looking’. Throughout the year,
divisional CEOs provided the Board with assessments of macro-economic changes applicable to their
divisional businesses and the potential strategic and operational impacts.
Following a review by Group Secretariat, new board paper and coversheet templates were rolled out across the
Group during 2023; these templates now require paper authors to specifically include information on wider
stakeholder impacts in their papers for the Board’s consideration, including nature and climate. In addition,
the Board paper pre-review process continues to focus on ensuring that papers consider stakeholder impacts
and views, where relevant.
Results of effectiveness review
5
Findings
The tone of Clare’s report was very
positive overall and indicated that
the Board, and each of its Committees,
continued to be effective. The report
identified a number of key strengths,
including the experience and skillsets
of the non-executive directors, the
level of debate in meetings and the
strong contributions of all Board
members, as well as the supportive,
positive nature of interactions
between the non-executive directors
and management, both inside and
outside of formal meetings.
The strength of the Company’s
culture was also noted, built around
good behaviours, positive and open
stakeholder relationships and the
value-adding engagement from
designated board roles such
as the Designated Workforce
Director.
The appointment process of the
Group CEO was felt to have been
well-managed and it was recognised
that succession planning for the
longer-serving non-executive
directors on the Board would
be a key area of focus for the coming
year, particularly in terms of ensuring
that the Board’s composition would
effectively support the development
of strategy under the Company’s
new executive leadership. The report
commented on the strength of the
Chair and the Committee Chairs,
noting their extensive work outside
of the boardroom, as well as the
considerable roles performed
by each of the Committees
in supporting the Board. Clare
provided a number of thoughtful
recommendations in the report
for the Board’s consideration.
6
Action plan
The Board discussed the findings
of the 2023 effectiveness review
and subsequently agreed an
action plan for the coming year.
The key actions included
(i) continuing to support the new
Group CEO as he transitions into
the role, (ii) continuing to develop
relationships with, and
appropriate governance of, the
Group’s principal subsidiaries,
and (iii) continuing to oversee
how the Consumer Duty is
embedded into the organisation
and how reporting on consumers
could be more strategic.
Progress to implement the
agreed actions is underway.
Progress is monitored by the
Group Company Secretary and
will continue to be reported
to the Board at each meeting.
Nominations and Corporate Governance Committee report
Legal & General Group Plc Annual report and accounts 2023
85
Audit Committee
report
Committee overview
The role of the Committee
The Committee monitors the integrity
of the Group’s financial reporting
(including climate and other
ESG-related disclosures) and provides
oversight of the control environment. In
addition, the Committee monitors the
adequacy and effectiveness of the
Group’s system of risk management
and internal control as well as the
Group’s internal and external audit
processes.
Members
Tushar Morzaria (Chair)
Nilufer von Bismarck
Philip Broadley
Carolyn Johnson
George Lewis
Gender
40% Women
60% Men
Tenure
20% Over 6 years
20% Between 3 – 6 years
60% Between 0 – 3 years
Ethnicity
40% South Asian
60% White
Key responsibilities
• Consider the integrity of the Group’s
financial reporting, formal
announcements and regulatory
information in relation to the Group’s
financial performance.
• Assess the going concern assumption
and the longer-term viability statement.
• Advise the Board on whether the annual
report and accounts is fair, balanced
and understandable and provides the
information necessary for shareholders
to assess the Company’s performance,
business model and strategy.
• Review the Group’s accounting policies,
including any proposed changes, and
review the appropriateness of
significant accounting policies and
judgements.
• Review and make a recommendation
to the Board on the adequacy and
effectiveness of the Group’s system
of internal control over financial
reporting.
• Oversee the appointment,
reappointment, remuneration,
independence and effectiveness
of the external auditor.
• Oversee the work of Group Internal
Audit including the independence and
effectiveness of the function.
• Review the adequacy of the Group’s
whistleblowing arrangements.
• Oversee the audit committees of the
Company’s principal subsidiaries.
The Committee’s terms of reference
can be viewed on our website: group.
legalandgeneral.com/committees
86
Legal & General Group Plc Annual report and accounts 2023
Governance
Chair’s introduction
I am pleased to present my report for the year
ended 31 December 2023. During my first full
year as the Chair of the Audit Committee, the
Committee continued to assist the Board in
fulfilling its core responsibilities, including
monitoring the integrity of the Group’s financial
reporting, the adequacy and effectiveness
of the internal control environment and the
performance and objectivity of both the internal
and external audit functions.
A key area of focus for the Committee in 2023
was the final phase of implementation of the
new IFRS accounting standard IFRS 17,
‘Insurance Contracts’. The Group has applied
IFRS 17, alongside IFRS 9, ‘Financial Instruments’,
for the first time from 1 January 2023. These
standards have brought significant changes
to the accounting treatment for insurance and
reinsurance contracts and financial instruments
respectively and have had a material impact on
the Group’s financial statements in the period
of initial application. It was therefore appropriate
that the Committee spend a significant
proportion of its time overseeing the final
elements of implementation.
This included regular updates on the results
of a series of ‘dry runs’ ahead of initial reporting
under the new standards and monitoring the
development and implementation of the
required changes to systems, processes and
operating models. In addition, the Committee
paid close attention to the effectiveness of the
systems of controls over the new IFRS 17
reporting systems and also reviewed,
challenged and approved the material
accounting judgements, methodologies, policies,
assumptions and new reporting metrics.
The Committee has also received regular
updates from KPMG in relation to IFRS 17 and
commissioned Group Internal Audit to perform
audits on various aspects of the implementation
and received regular updates on the outcome
of these audits.
IFRS 17 was an unusually complex accounting
standard to implement. It required fundamental
changes to accounting records, as well as new
systems and processes for preparing financial
statements in accordance with the required
framework. In common with other insurers, the
Group began significant implementation work
in 2017, some years before the final form of the
standard was known. I would like to express my
gratitude to everyone that contributed to the
IFRS 17 programme for their dedication and
tenacity in ensuring the Group was fully
prepared for the transition.
Committee meetings and membership
The Committee met 6 times during the year –
this represents 1 more meeting than in an
average year due to additional time spent on
monitoring and reviewing the implementation
Strategic report
Governance
Financial statements
Other information
Other key areas of focus for
the Committee during 2023
In addition to the implementation
of IFRS 17, the Committee has also
focused on:
Macroeconomic environment: the
impacts of economic volatility on
key accounting and actuarial areas
of judgement and estimates that
are sensitive to changing interest
rates and inflation, as well as
consideration of geopolitical
events and their potential impact
on balance sheet valuations and
valuation uncertainty.
Internal controls: activities
associated with the operation and
effectiveness of the Group’s
framework of internal controls
over financial reporting and the
evaluation of any failings or
weaknesses.
Non-financial reporting: the
adequacy of climate-related and
other non-financial disclosures,
including recommending the
approval of the Group’s first
Climate transition plan.
Internal Audit effectiveness
review: reviewing the outcomes
of the assessment by an
independent external party.
UK audit and corporate
governance reform: overseeing
the Company’s approach to
proposed reforms, particularly in
relation to internal controls, in light
of a changing approach from both
the Government and FRC.
of IFRS 17. The Committee comprises only
independent non-executive directors and fulfils
the experience and expertise criteria required
by the UK Corporate Governance Code and the
FCA’s disclosure and transparency rules.
The Board considers that the Committee,
as a whole, has a balance of skills and
experience to deliver its responsibilities and
has competence relevant to the sector and
broader financial services industry. In addition,
the Board considers that I, as Chair of the
Committee, have recent and relevant financial
experience and am competent in accounting
and auditing.
All members of the Committee are also members
of the Risk Committee, which ensures that there
is appropriate identification and management
of any issues that are relevant to both
committees. The full biographies of all
Committee members can be found on pages
64 and 65. Between meetings, I meet regularly
with senior management across the Group’s
Finance, Tax and Internal Audit functions, as
well as with the lead external audit partner.
Review of financial disclosures
The Committee reviewed the half year and
annual financial statements, which focused
on the integrity and clarity of disclosure,
application of accounting policies and
judgements and compliance with legal and
financial reporting standards. With the
implementation of IFRS 17 and IFRS 9, and their
impact across multiple reporting periods,
including the transition as at 1 January 2022
and a restatement of the Group’s 2022 half year
and annual results, additional meetings were
scheduled in advance of the Group’s half year
2023 results to ensure that the Committee had
sufficient opportunity to understand, review
and challenge those first financial statements
and disclosures under the new standards.
As part of its review, the Committee received
regular updates from management and the
external auditor and was able to place reliance
on the updates provided throughout the year on
internal controls in relation to financial reporting.
During the second half of 2023, the Financial
Reporting Council (FRC) undertook a thematic
review of ‘IFRS 17 ‘Insurance Contracts’ Interim
Disclosures in the First Year of Application’.
The Group received the outcome of this review
in respect of the Group’s half year report
to 30 June 2023. This review was conducted
in accordance with the FRC’s usual procedures,
and accordingly was based solely on that half
year report without detailed knowledge of our
business or an understanding of the underlying
transactions entered into. The review does not
provide assurance that the half year report was
correct in all material respects. The Committee
was pleased to note both that, based on the
review, there were no further questions or
queries that the FRC wished to raise, but also
that the FRC’s report on their thematic review,
published in November 2023, included a
number of disclosures contained in the Group’s
half year report as examples of better practice.
As part of its review of financial disclosures,
the Committee also considered whether the
annual report was fair, balanced and
understandable (FBU) and whether it provided
the information necessary for shareholders to
assess the Company’s position, performance,
business model and strategy, as well as the
risks facing the business including in relation
to increasingly important ESG and climate
considerations. The Committee reviewed the
FBU assessment taking into consideration the
impact of market volatility and the changing
interest rate and inflationary environment and
giving due attention to the use of APMs in
increasing the level of information available
to investors on the Company’s underlying
performance and the effects of one-off
financial events. In conjunction with verification
processes, management assurance and a
report from the external auditor, the Committee
recommended to the Board that the annual
report and accounts, taken as a whole, is fair,
balanced and understandable.
The Audit Committee, together with the Risk
Committee, reviewed the key assumptions and
methodologies of the risk-based capital model,
Solvency II disclosures and disclosures made
in relation to internal control and risk
management, as well as the principal risks and
uncertainties the Group faces. The Committee
can confirm that the key judgements and
significant issues considered in relation to the
2023 financial statements are consistent with
the disclosures of key estimation uncertainties
and critical judgements as detailed in Note 1
on page 151. The statement is underpinned
by the Committee’s belief that all important
information has been disclosed and that the
descriptions and reviews of the Group’s business
and performance as set out in the Strategic
report are consistent with the financial
reporting in the Group’s financial statements.
Climate and other non-financial reporting
While the FRC chose not to include any
revisions to the UK Corporate Governance
Code in respect of wider responsibilities
and considerations for boards and audit
committees in relation to ESG objectives and
other sustainability matters, following its
consultation in 2023, the Committee provides
close oversight over the Group’s climate and
other non-financial reporting, in light of
ever-increasing stakeholder expectations.
During the year, the Committee has received
updates on the European Union’s Corporate
Sustainability Reporting Directive and the
release of the inaugural standards from the
International Sustainability Standards Board.
Audit Committee report
Legal & General Group Plc Annual report and accounts 2023
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Audit Committee report
continued
In addition, the Committee has focused on
improvements that can be made to the Group’s
climate-related disclosures in the financial
statements and ensuring that there is a
coherent link between those disclosures and
the narrative in the front half of the Annual
report and accounts. The Committee also has
responsibility for reviewing and approving the
Group’s Climate and nature report and Social
impact report and, to that end, has sought to
understand the verification and assurance
framework that is in place to ensure that
disclosures were in line with relevant
requirements, and were materially accurate,
consistent, fair and balanced. The Committee
remained supportive of the proposal to
commission limited third-party assurance over
specific climate and pay gap-related metrics.
Internal control
The Committee has the primary responsibility
for the oversight of the Group’s system of
internal controls including controls over
financial reporting and the work of the Internal
Audit function. The Committee, in collaboration
with the Risk Committee, seeks to ensure that
the Group operates within a framework of
prudent and effective controls that allow risks
to be identified, assessed and managed.
Policies and manuals in relation to International
Financial Reporting Standards (IFRS) and
Solvency II reporting requirements and a
Financial Control Framework (FCF) are in place
across the Group. FCF is a first line framework
that supports the Committee in enabling it to
understand and assess the design and
effectiveness of controls over financial
reporting, covering IFRS, APMs, Solvency II
and, going forward, climate and other
non-financial reporting. FCF is a risk-based
approach with management identification,
documentation, testing, remediation (as
required), reporting and certification over key
financial reporting-related controls.
The Committee has completed its review and
approval of the effectiveness of the Group’s
system of internal control policies and procedures,
during the year and up to the date of this report,
in accordance with the requirements of the
guidance on risk management, internal control
and related financial and business reporting
published by the FRC. During this review, the
Committee did not identify any weaknesses
which were determined to be significant
to the preparation of the financial statements.
Where areas for improvement were identified,
processes are in place to ensure that the
necessary actions are taken, and progress
is monitored by the Committee.
UK audit and corporate governance reform
2023 has seen a significant scaling back of
proposals relating to audit and corporate
governance reform in the UK, with: primary
legislation required for, amongst other things,
the establishment of the Audit, Reporting and
Governance Authority (ARGA) now likely delayed
until post the general election; the late withdrawal
of proposed secondary legislation on the Audit
and Assurance Policy, Resilience Statement,
fraud reporting and reporting on distributable
reserves; and finally the removal of a number
of proposed changes to the UK Corporate
Governance Code following the FRC’s
consultation in 2023. As a Group, Legal & General
remains supportive of proposals that make the
UK an attractive market for shareholders,
investors and broader stakeholders through
high quality and transparent audit and corporate
governance activities. The Committee has
been actively engaged throughout the year
in overseeing the Group’s readiness for the
proposed reforms and, while it was disappointing
to see such late changes, it will continue to
keep a close focus on the changes to the UK
Corporate Governance Code that remain,
notably in relation to the declaration on the
effectiveness of the risk management and
internal control framework.
Audit quality
It remains an important aspect of the
Committee’s work to keep under review the
independence and effectiveness of the internal
and external audit process.
Internal audit
The Group Chief Internal Auditor presents a
report at each Committee meeting, to update
the Committee on the results of audits since
the previous meeting. The report includes:
details of any significant control weaknesses
and positive assurance provided; themes
arising from audits and management’s
progress in addressing actions related to audit
findings; and Group Internal Audit’s (GIA)
evaluation of the overall control environment
for each of the Group’s divisions. Key areas of
GIA’s work reported to the Committee during
the year included: financial reporting processes
and controls related to IFRS 17; IT and data
security; data privacy risk management; IT and
operational resilience; Solvency II compliance;
financial risk governance including credit,
market and liquidity risk; financial crime risk
management; third-party oversight including
material outsourcing; readiness for the FCA’s
Consumer Duty regulation; climate change
reporting; and major IT change programmes.
GIA continues to evaluate the risk and control
culture across the Group and includes specific
reporting to the Committee on the results of
this work. The Committee approved GIA’s
risk-based audit plan for the year and
monitored the delivery of the plan throughout
the year as well as the associated key
performance metrics.
During 2022, Deloitte were engaged to perform
an external quality assessment of GIA, which
assessed the function’s effectiveness including
its independence and positioning within the
organisation. Deloitte presented its report to
the Committee in May 2023. The function was
assessed as a mature internal audit function,
generally conforming with International Internal
Audit Standards and applicable professional
codes for effective internal audit in financial
services. The Deloitte report noted the
function’s clear purpose and support from
management; appropriate safeguards related
to independence and objectivity; mature
working practices; a high quality experienced
team, and a strong focus on data analytics and
continuous improvement.
The Committee continued to meet with the
Group Chief Internal Auditor in private
throughout the year. In accordance with the
Institute of Internal Auditors’ Financial Services
Code of Practice, the Committee conducted its
annual review of the independence and
objectivity of the Group Chief Internal Auditor
and concluded that independence and
objectivity had been maintained throughout the
year. The Committee undertook its annual review
of, and approved, the GIA Charter and undertook
a regular review of key performance indicators,
including: audit plan delivery progress; resourcing
and skill levels; and progress in completing
actions to implement the recommendations
from Deloitte’s 2022 External Quality
Assessment, which were incorporated into
GIA’s continuous improvement plan.
Based on regular internal audit reporting,
private sessions with the Group Chief Internal
Auditor, and taking into consideration the
externally facilitated evaluation noted above,
the Committee is satisfied with the effectiveness
of the GIA function and the appropriateness
of its resources.
External audit
The Committee has the primary responsibility
for overseeing the relationship with, and
performance of, the external auditor. This
includes making recommendations for their
appointment, reappointment, removal and
approval of remuneration. The Committee
reviews and approves the terms of engagement
of the external auditor and monitors its
compliance with the independence criteria
in the UK Corporate Governance Code.
The Committee meets regularly and privately
with the external auditor. These meetings allow
for regular and open dialogue of any issues
relevant to the Committee’s work. Audit
Committee members also meet regularly with
management outside of formal Committee
meetings to discuss the relationship with the
external auditor and the efficiency of the audit
process. Throughout the year, the Committee
has received updates on the quality of the
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Other information
external audit process and has continued to
work with, and challenge, management and
KPMG on efficiency gains and ensuring that
audit fees are fair and proportionate to the
audit work required for the Group. In addition,
the Committee has overseen the succession
of the KPMG lead audit partner in 2023.
Non-audit services
In order to safeguard the auditor’s independence
and objectivity, the Group has in place a policy
setting out the circumstances in which the
external auditor may be engaged to provide
services other than those covered by the audit.
The policy applies to all Legal & General
subsidiaries and other material entities over
which the Group has significant influence.
The core principle of the policy is that non-audit
services (other than those legally required
to be carried out by the Group’s auditor) should
be performed by the auditor only in certain
controlled circumstances. The policy sets out
those types of services that are permitted
(permitted services) and those types of services
which are not permitted. The policy pre-approves
a number of the permitted services, provided
the fee is below a certain threshold; all other
permitted services must be specifically approved
in advance by the Committee.
The policy is reviewed on an annual basis
to ensure that it is fit for purpose and that
it reflects applicable rules and guidelines.
The policy is aligned with the FRC’s requirements
and includes the requirement to consider the
self-review test under the International Ethics
Standards Board for Accountants (IESBA) Code
of Ethics, applicable for periods beginning on or
after 15 December 2022, before a proposed
engagement is assigned. It is also aligned with
KPMG’s own internal policy on non-audit
services for FTSE 350 companies, which broadly
restricts non-audit work to services that are
‘closely related’ to the audit. Any changes to the
policy are required to be approved by the
Committee. This is in accordance with laws
applicable in the UK and FRC guidance, pursuant
to which audit committees of Public Interest
Entities are required to approve non-audit
services provided by their auditors to such
entities; and subsidiary Public Interest Entities
in the UK – such as Legal and General
Assurance Society Limited (LGAS) – can rely
on the approval of non-audit services by the
ultimate parent’s Board Audit Committee.
Appointment
The Company confirms that it has complied
with requirements governing the appointment
of an external auditor, notably the requirements
of the Competition & Markets Authority contained
in the Statutory Audit Services for Large
Companies Market Investigation (Mandatory
Uses of Competitive Tender Process and Audit
Committee Responsibilities) Order 2014,
including requirements for mandatory audit
firm rotation.
Following a competitive tender carried out
in 2016, KPMG was appointed as the Group’s
external auditor with effect from the financial
year ended 31 December 2018. In May 2023,
KPMG was reappointed as the Group’s external
auditor for the financial year ended
31 December 2023, which is their sixth year
as the Group’s external auditor. In accordance
with the ICAEW’s requirements, Salim Tharani
stood down as KPMG’s lead audit partner
during 2023, and was replaced by Phil Smart,
who had previously shadowed Mr Tharani
during the 2022 audit.
The Committee considers the quality and
effectiveness of the external audit and
recommends to the Board, on an annual basis,
whether to recommend the reappointment
of the external auditor for shareholder approval.
On the basis that KPMG continue to maintain
their independence and objectivity, and the
Committee continues to remain satisfied with
their performance, there are no plans as at the
date of this report to conduct a tender exercise
for external audit services before the end
of the current required period of 10 years.
The Committee believes it would not be
appropriate to tender before the end of this
period as it recognises that, while it is
important to ensure the audit firm remains
objective and does not become overly familiar
with management, there is an important
balance to be struck with the investment of
time required both from management and any
completely new audit team for them to gain
sufficient understanding of a large and
complex organisation, such as Legal & General,
to ensure a top-quality audit.
Audit fees
The Committee assesses the external auditor’s
fee structure, resources and terms of
engagement annually. Total fees paid to the
auditor for the year were £23.1 million (2022:
£17.5 million), of which £1.9 million (2022:
£1.7 million), was spent on non-audit and other
assurance services. £1.6 million (2022:
£1.6 million) was spent on audit-related
services required by legislation, which is
excluded from any calculation of the ratio of
non-audit to audit fees in accordance with the
UK FRC Revised Ethical Standard for Auditors
(2019). Further details can be found in Note 29
to the consolidated financial statements. The
non-audit fee represents 10% of the total audit
fee for 2023.
Included within KPMG’s fees for 2023 are
additional audit fees related to the
implementation of IFRS 17 and IFRS 9, and
specifically work to support KPMG’s audit
opinion in respect of the transitional impact to
the Group’s balance sheet and equity position
as at 1 January 2023. The Committee is
satisfied that this level of fee is appropriate in
respect of the audit services required for the
Group and that an effective audit can be
conducted for this fee. The Committee
continues to work with KPMG to ensure costs
remain appropriate and proportionate to the
services provided.
2023
2022
2021
Audit
19.6
14.2
Audit-related required
by legislation
Other audit-related
Other assurance
Non-assurance
1.6
1.0
0.9
–
1.6
0.9
0.8
–
9.3
1.3
1.2
0.1
–
Total
23.1
17.5
11.9
Assessment of independence
and effectiveness
The Committee is responsible for assessing
the effectiveness, objectivity and independence
of the external auditor. This assessment is
on-going throughout the year and concludes
with a formal, internal, effectiveness review,
which was conducted in December 2023.
As part of the on-going assessment, the
Committee assesses the external auditor
against a number of criteria, including but not
limited to: provision of timely and accurate
industry-specific and technical knowledge,
maintaining a professional and open dialogue
with the Audit Committee Chair and members
at all times, delivery of an efficient and effective
audit, the ability to meet objectives within the
agreed time frames and the quality of judgements
and audit findings, management’s response
and stakeholder feedback. In addition, the
Committee holds private meetings with the
external auditor to discuss the audit process
and relationship with management.
Overall, the assessment of KPMG was positive,
with a small number of areas noted for
consideration in future audit cycles. Taking into
account the result of all of the above, the
Committee concluded that KPMG maintained
its independence and objectivity and that the
audit process was effective. Upon the
Committee’s recommendation, the Board has
recommended that KPMG be reappointed as
the Company’s auditor, by shareholders, at the
2024 AGM.
Tushar Morzaria
Chair of the Audit Committee
Audit Committee report
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Audit Committee report
continued
Key accounting and reporting judgements
Throughout the year, the Committee was briefed at each meeting on the Group’s key accounting and reporting judgements by management and
KPMG. The Committee’s response to each issue can be found below and the Committee is satisfied that the financial statements appropriately
address the key accounting judgements and estimates in respect of both the amounts reported and disclosures made.
Issue
Committee’s response
Valuation of insurance contract liabilities –
retirement:
The insurance liabilities for retirement products are
significant in size and their estimation is inherently
judgemental.
Valuation of complex investments:
Mark to model investments can involve significant
judgement and can produce valuation challenges
for investments in new classes.
Mark to model valuations inherently include
assumptions that lead to the existence of a range
of plausible valuations for financial instruments
(known as valuation uncertainty). Certain assets are
subject to a higher degree of valuation uncertainty,
particularly where valuations are modelled using no
market inputs or the valuations are affected by other
factors such as the illiquidity of the asset.
The Committee evaluated the significant judgements that have an impact on the valuation of insurance
liabilities for retirement products. This included considering:
Longevity assumptions – which estimate how long policyholders receiving annuity payments will live.
The challenge around the setting of longevity assumptions was a particularly significant area for review
as the judgements made could be expected to have a material impact on the Group’s results. The Committee
considered the effectiveness of the controls over the accuracy and completeness of the data used in
determining the longevity assumption and the validity of independent industry data supporting those
assumptions. The Committee also reviewed available data illustrating recent trends in mortality experience
in the UK population and the mortality experience on different blocks of our business, taking account of the
uncertainty in more recent data as a result of Covid-19.
Valuation interest rates – which are used to discount the liabilities. These are sensitive to judgements made,
for example, on credit default of the backing assets, as well as the investment data used to calculate the
internal rate of return. The Committee focused on management’s proposed changes to reserving assumptions,
other modelling changes, and the determination of the credit default assumption. This included analysis
of internal historical data and external market experience.
Directly attributable expense assumptions – which determine the specific future expenses that are
incorporated in the calculation of the IFRS insurance liabilities. The Committee considered the allocation
between servicing new and existing business and the consistency of approach applied.
The Committee concluded that the retirement insurance contract liabilities are appropriate for including
in the financial statements, reflecting the asset risks and the available data on policyholder longevity.
The Group balance sheet carries exposure to complex investments (typically classified as Level 3 in the fair
value hierarchy), in line with the Group’s strategy and risk appetite. The valuation of these investments,
including property assets, lifetime mortgages and private credit, requires the use of complex models and
management judgement. The Committee seeks to ensure that the valuation process for these investments
is robust.
These harder to value assets remain a key area of focus, partially heightened in 2023 as a result of
macro-economic volatility and geo-political events. The valuation of a number of asset classes is sensitive
to higher interest rates and inflation, and these have therefore been areas of enhanced challenge and review
by the Committee.
The Committee has continued to review the processes and controls over investment valuations, and
in particular the valuation uncertainty policies and governance which include management’s assessment
of valuation uncertainty by asset type. While we do not currently see any material impact on the valuation
of our asset portfolio arising from climate change, there is an increased consideration of climate and other ESG
factors in both internal and third-party valuations. We expect this to be an increasing area of judgement (and
therefore disclosure) in future years, and it will form a key area of focus in the Committee’s review of this area.
The Committee concluded that there are appropriate controls surrounding the valuation of complex assets
and that they are valued appropriately for inclusion in the financial statements.
Valuation of insurance liabilities – protection:
The insurance liabilities for protection contracts are
an important driver of the profitability for this line of
business and require judgements to be made
regarding the assumed rates of mortality and
persistency. The Company makes extensive use of
reinsurance to reduce mortality risk.
The Committee has reviewed the methodology for calculating reserves including the allowance made for
payments to and from reinsurance counterparties. The assumptions for the rate of future mortality and
morbidity (how many customers will die or become ill during the policy term) and persistency (how many
customers will discontinue cover) are based on the Company’s internal experience and use judgement about
how experience may vary in the future. During 2023, the Committee has spent time reviewing the findings and
judgements in respect of the continuing elevated levels of mortality experience in the UK and the US, reflecting
indirect impacts of Covid-19 related illness, and potentially reflecting the deferral of diagnostics and medical
treatments for other conditions.
The Committee reviewed the judgements underlying the directly attributable expenses included in the
insurance liabilities and considered the effectiveness of controls in place over valuation models.
The Committee concluded that the insurance liabilities of the Group’s insurance businesses are appropriate
for inclusion in the financial statements.
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Other information
Issue
Committee’s response
Alternative performance measures (APMs):
As part of its consideration of whether the annual report is fair, balanced and understandable, the Committee
has paid particular attention to the use of APMs in reporting the Group’s performance.
APMs offer investors and stakeholders additional
information on the Company’s performance and the
financial effect of ‘one-off’ events, and the Group
uses a range of these metrics to enhance
understanding of the Group’s performance.
IFRS 17:
IFRS 17 is a new accounting standard for insurance
contracts which took effect from 1 January 2023.
IFRS 17 has had a significant impact on the
reporting of the Group’s financial performance.
The Committee has reviewed the changes to the definition of adjusted operating profit to reflect the adoption
of IFRS 17 and its application. Specifically the Committee has considered the inclusion of certain items either
as part of adjusted operating profit or investment variances, to ensure that they are aligned to both the
Group’s disclosed policies on these APMs and the underlying principles of fair and consistent reporting.
Where appropriate the Committee has reviewed additional disclosures provided to enhance transparency
in respect of the Group’s APMs.
The Committee concluded that the use and disclosure of APMs, including the clarity of labelling the
prominence of APMs versus statutory measures, are appropriate for inclusion in the annual report.
As well as continuing to monitor the preparedness of the Group to implement IFRS 17, the Committee
has reviewed a number of papers during both 2022 and 2023, covering various areas of policy, methodology
and assumptions.
In particular, the Committee reviewed the methodology and assumptions to support the transition to IFRS 17,
and has reviewed and approved both the impact of that transition on the Group’s balance sheet and equity
position as at 1 January 2022 and the results of the comparative period ended 31 December 2022. This
included a particular focus on the assumptions and judgements that have underpinned the calculation of the
contractual service margin (CSM) at transition, most notably CSM for business transitioned using the fair
value methodology, and the determination of the compensation required for bearing the uncertainty about
the amount and timing of the cash flows arising from non-financial risk as insurance contracts are fulfilled.
The Committee concluded that the disclosures in respect of IFRS 17 (and IFRS 9) included in Note 1 Basis
of Preparation and the comparative period results are appropriate for inclusion in the annual report.
Audit Committee report
Legal & General Group Plc Annual report and accounts 2023
91
Risk Committee
report
Committee overview
Committee meetings
and membership
The Committee met 5 times during
the year. The composition of the
Committee remains in compliance
with the Code, the requirements set
out in its terms of reference and
comprises only independent
non-executive directors. Details
of members’ experience and skills
can be found in the biographies
on pages 64 and 65.
Members
George Lewis (Chair)
Henrietta Baldock
Nilufer von Bismarck
Philip Broadley
Carolyn Johnson
Lesley Knox
Ric Lewis (until 26 February 2024)
Tushar Morzaria
Laura Wade-Gery
Gender
56% Women
44% Men
Tenure
22% Over 6 years
33% Between 3 – 6 years
45% Between 0 – 3 years
Ethnicity
22% South Asian
11% Black
67% White
The role of the Committee
The Committee assists the Board
in its oversight of risk by assessing
the effectiveness of the Group’s risk
management framework, risk strategy,
risk appetite and tolerance for the
categories of enterprise, emerging and
principal risks to which the Group may
be exposed and providing advice on what
constitutes acceptable risk taking.
Key responsibilities
• Review the Group’s risk profile and
appetite for risk and assess the
effectiveness of the Group’s risk
management framework.
• Oversee and advise the Board on the
current risk exposures of the Group
and oversee the management by the
executive of those categories of risk.
• Oversee and advise the Board on the
governance, operation and performance
of the Group’s internal model.
• Review, approve and oversee the
performance of the Group’s own risk
and solvency assessment (ORSA)
which is designed to measure,
aggregate and monitor risks in
accordance with strategy, policy
and principles.
• Support the Remuneration Committee
on specific risk adjustments to be
applied to performance objectives
and other issues as requested by
the Committee.
The Committee’s terms of reference
can be viewed on our website: group.
legalandgeneral.com/committees
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The Risk Committee assists
the Board with strategic advice
in relation to current and potential
future risk exposures. The risk
management framework supports
informed risk taking and sets out
those risks within appetite.
The Committee conducts
a thorough review of the risk
management framework
on an annual basis to ensure
it remains fit for purpose.”
I am pleased to present my report as your Chair
of the Risk Committee. I joined the Committee
upon appointment to the Board in 2018 and
assumed the role of Chair in 2022. Since
becoming Chair of the Committee, I have
further developed my knowledge and
understanding of the risk environment in which
the Company operates and sought to ensure
that the Committee continues to operate
effectively. Throughout 2023, I have continued
to engage with my fellow Committee members
to understand their views, in particular, on any
risk areas which they feel require further
oversight and challenge. This has been
supported by my active and regular
engagement with key colleagues in the
business, with particular emphasis on the
support received from the Group Chief Risk
Officer and his team.
Oversight of risk management
In a challenging macroeconomic and
geopolitical environment, the Committee has
continued to oversee, robustly challenge and
provide advice to the Board, on the Group’s
current and future risk exposures and profile.
During the year, geopolitical risks have continued
to heighten with ongoing conflict and rising
political tensions. Macroeconomic risks have
also increased as many major economies
faced slowing growth against a backdrop
of high inflation, energy market shocks and
rising interest rates, abating somewhat in the
latter part of 2023. The Committee has continued
to monitor the ongoing global economic
uncertainties and, with the prospect of several
important elections in the coming year, this will
continue to remain an important focus for the
Committee in 2024. Despite these challenging
market conditions, the Company has remained
resilient to a number of risk events and has
largely continued to operate within risk appetite.
The Committee, in conjunction with the Audit
Committee, keeps under review the effectiveness
of the Company’s risk management and internal
control systems, which monitors and reviews
all material controls including financial,
Strategic report
Governance
Financial statements
Other information
operational and compliance controls. In addition,
we closely monitor risk appetite and tolerance
levels and challenge management to ensure
these are regularly stress tested to ensure they
are able to withstand wider macroeconomic
risk events.
2023 activity
Given the ongoing uncertain macroeconomic
and geopolitical environment, the Committee
has spent a significant amount of time during
the year hearing directly from the business,
alongside risk and compliance colleagues,
about how they are managing the associated
risks and what mitigating actions are being
taken. In addition, the Committee receives an
update from the Group Chief Risk Officer at each
meeting which covers an in-depth overview of
the risk profile, outlook and landscape. During
the year, the Committee paid close attention
to the Group’s capital and liquidity position,
in light of the macroeconomic and geopolitical
landscape, and received in depth updates on
credit, insurance, longevity and market risk.
A particular area of focus for the Committee
during the year centred around property risk.
The UK commercial property markets continued
to reflect the broader uncertainty in the
economic outlook and the Committee paid
close attention to the Company’s exposure
to commercial property, particularly the office
sector, and the management action being
taken to mitigate the risks.
In addition to the geopolitical and
macroeconomic climate, the Committee has
continued to focus on the management of the
Group’s non-financial risks. The Committee
received regular updates, and challenged the
progress made by management, on operational
resilience, embedding the Consumer Duty
regulations, change management, governance
controls around technology and data risk and
operational risks such as those related to
conduct risk and ensuring appropriate
mitigations are in place to prevent the
facilitation of financial crime.
Alongside the Group Chief Risk Officer’s report,
the Committee is provided with management
information on risk appetite, comparing actual
positions relative to the Group’s risk appetite
statement and quantitative analysis of the
Group’s exposures to financial and operational
risks, including risk-based capital requirements
in relation to the core risks implicit in the
Group’s businesses. The Committee also
receives an assessment of the overall profile
of conduct risks for the Group; analysis and
trends in complaints data and a suite of
customer service metrics designed to enable
the Committee to assess the management
of the customer journey.
Risk appetite review
In July 2023, the Committee considered the
risk profile of the Group’s strategic plan and
its alignment with the Group’s risk appetite.
The Committee undertook a detailed review
of the operation of the Group’s strategic risk
appetite and the key metrics and tolerances
used to determine acceptable risk taking.
As part of the review, refinements were
recommended to the metrics to ensure
a more reliable and accurate measure of the
Group’s performance against risk appetite.
The Committee also conducted an annual
review of emerging risks and continues to
encourage management to be alert to areas
of emerging risk, particularly in light of the
rapidly evolving macroeconomic and geopolitical
climate to ensure that the Company remains
well diversified and robustly protected against
market shocks.
Risk-based capital model
The Group’s risk-based capital model (internal
model) is used to determine the capital
requirements for the Group and forms the
calculation engine for the Solvency II internal
model. During the year, the Committee
reviewed and approved the internal model
development plan and validation report.
As part of this review the Committee takes
into consideration:
• key assumptions, methodologies and areas
of expert judgement used within the model
• activities undertaken to validate the outputs
of the model
• development of the model to ensure that
it reflects the business lines and risk profile
of the Group
• processes to ensure that changes applied
in the model are undertaken in a controlled
manner, and in line with model development
plans.
In addition, the Committee also reviewed and
approved the 2023 recovery and resolution
plans as well as ORSA policy and scenarios,
which are an ongoing assessment of the risks
to which the Group is exposed and an
assessment of the capital resources available
to ensure that the Group is able to sustain its
business over the plan horizon.
Climate risk
It is widely recognised that actions taken today
can influence the likelihood of different climate
outcomes, and impact on future risk exposures.
This, alongside climate scenario analysis,
informs our risk management framework.
During the year, the Committee considered the
Group’s climate risk management approach
and reviewed and approved the 2022 Climate
report, prepared in line with recommendations
by the Task Force on Climate-related Financial
Disclosures. In addition, the Committee
reviewed and approved the Group’s climate
goals and commitments, including our stated
journey to net zero, as well as the Company’s
Climate transition plan, which was presented
for a shareholder advisory vote at the Annual
General Meeting in 2023.
Working collaboratively
The Committee continued to work closely
throughout the year with the Audit Committee
on risk and control matters as well as the
Remuneration Committee so that risk
management and risk culture are properly
considered in setting the Remuneration Policy
and determining remuneration outcomes.
In addition, the Committee also works closely
with the Data and Technology Committee
to consider technology risk. An important
element of this will be the emerging risk and
opportunities that Artificial Intelligence presents.
The Committee also reviewed and approved
the Group Technology Risk Policy and Technology
Risk Appetite statements during the year.
Legal & General has a strong subsidiary
governance framework in place to support the
Board in discharging its responsibilities for the
Group. Directors of the Group’s principal
subsidiaries (LGAS and LGIM(H)) are members
of the Risk Committee; this brings valuable
insight, oversight and challenge to the
Committee’s discussions on specific aspects
of the Group’s operations. An overview of the
Company’s risk appetite and risk management
approach, as well as our principal and emerging
risks, can be found on pages 56 to 59.
2024 priorities
The Committee has an important role in
supporting the Board in the oversight and
management of the risk framework. During
2024, the Committee will continue to focus on:
•
impacts and associated risks arising from
the macroeconomic and geopolitical
environment, regulatory landscape including
the UK Solvency reforms, and global climate
change, with a focus on consideration
of emerging risks
• management of capital and liquidity risks
• oversight of the current and emerging
•
non-financial and conduct risk exposures
of the Group, including operational
resilience, change management and the
embedding of the Consumer Duty regulation
review the output of the Bank of England’s
system-wide exploratory scenario exercise,
investigating the behaviours of banks and
non-bank financial institutions following
a severe but plausible stress to financial
markets.
George Lewis
Chair of the Risk Committee
Risk Committee report
Legal & General Group Plc Annual report and accounts 2023
93
Directors’ report
on remuneration
Committee overview
Committee meetings and
membership
The Committee met eight times during
the year. The Committee comprises
only independent non-executive
directors, fulfilling the requirements
of the UK Corporate Governance Code.
The Board is satisfied that the members
of the Remuneration Committee have
the relevant expertise and experience
to deliver its responsibilities. The majority
of members of the Committee are also
members of the Risk Committee,
ensuring appropriate identification
and consideration of any issues that
are relevant to both committees.
Members
Lesley Knox (stood down as Chair
on 26 February 2024)
Laura Wade-Gery (Chair from
26 February 2024)
Henrietta Baldock
Philip Broadley
George Lewis
Ric Lewis
Tushar Morzaria
Gender
43% Women
57% Men
Tenure
29% Over 6 years
42% Between 3 – 6 years
29% Between 0 – 3 years
Ethnicity
14% South Asian
14% Black
72% White
The role of the Committee
The role of the Committee is to determine
the Group’s framework for the remuneration
of executive directors and designated
senior managers.
Key responsibilities
• Determine and make a recommendation
to the Board on the Group’s
remuneration policy.
• Determine the contractual terms and
remuneration of the Chair, executive
directors and designated senior
managers, including base pay, policy
and scope for pension arrangements,
share and other incentive plans, bonus
arrangements and shareholding
requirements.
• Determine the framework for the
remuneration policy for all other
employees in the Group.
• Design of, or amendment to, any share
or cash-based performance related pay
plans operated by the Company.
• Exercise the powers of the employer
in relation to the operation of the
Group’s ShareSave Plan, Employee
Share Plan and share incentive plans.
• Review the ongoing appropriateness
and relevance of the Group’s various
remuneration policies and compliance
with all regulatory requirements.
The Remuneration Committee’s terms
of reference, which set out full details
of its responsibilities, can be viewed
on our website: group.legalandgeneral.
com/committees
94
Legal & General Group Plc Annual report and accounts 2023
Governance
In 2023, we delivered a further
set of good results, with
adjusted operating profit
of £1.7 billion and profit
for the year of £443 million.”
Our remuneration report is organised
into the following sections
Letter from the Chair of the Remuneration
Committee
Quick read summary
Summary of remuneration policy
Annual report on remuneration
94
97
100
104
Dear Shareholder
I am pleased to present the Remuneration
Committee’s report for 2023. With effect from
26 February 2024, I have stepped down from
my role as Chair of the Committee, and have
been succeeded by fellow non-executive
director, Laura Wade-Gery. The Board considered
Laura an excellent successor due to her
established track record as a UK-listed company
Remuneration Committee Chair and her strong
understanding of the Committee’s current
workings and priorities. Laura fulfills the
Code requirement for any appointee to the
Remuneration Committee Chair role to have
served on a Remuneration Committee
for 12 months prior to appointment. I have
maintained my membership of the Committee.
Within this report, we have presented the
considerations and decisions for the Committee
throughout 2023.
Link between pay and performance
In 2023, we delivered a further set of good results,
with adjusted operating profit of £1.7 billion
and profit for the year of £443 million. Earnings
per share (EPS) was 7.35 pence compared
to 12.84 pence in 2022.
Annual Variable Pay (AVP)
For executive directors, 70% of the bonus
opportunity is determined by the Group’s
financial performance, measured against
pre-determined targets.
Strategic objectives determine the other 30%
of bonus opportunity, including strategy,
Strategic report
Governance
Financial statements
Other information
The Committee has
continued to be mindful
of both the immediate
and long-term financial
wellbeing of the wider
workforce, particularly
in these economically
uncertain and challenging
times. We made a one off
payment of £750 in July
2023 and approved an
increase in the employer
contribution to pension
of 1% of base pay effective
from 1 April 2024, with
a view to aligning employer
pension contributions
with those for senior
management.”
subject to regulatory approval. Regulatory
approval for the appointment was confirmed
in October 2023 and António joined the Board
as Group CEO on 1 January 2024.
Sir Nigel’s departure was confirmed by the
Company once regulatory approval for António’s
appointment had been received and he will
remain employed for his 12 month notice
period in order to ensure a smooth transition.
Consistent with his service contract and the
executive remuneration policy, Sir Nigel will
continue to receive his current base pay and
benefits until his employment ends. Sir Nigel
will not receive an AVP award for performance
in 2024 nor will he receive a PSP award in 2024.
Consistent with the remuneration policy and
the rules of the SBP and PSP, Sir Nigel will
be a good leaver and as such his outstanding
share awards will be treated in line with the
good leaver provisions in the respective plan
rules. His deferred AVP awards for 2021, 2022
and 2023 will vest three years from the date
of grant. His outstanding PSP awards will
be pro-rated with reference to the proportion
of the performance period that has elapsed upon
leaving and will then vest based on performance
to the end of the performance period and will
be released, subject to performance, on the
fifth anniversary of the date of grant.
Sir Nigel will retain a shareholding in
Legal & General Group of at least 325%
of base pay for two years post his departure
from the Board in line with the Director’s
remuneration policy.
António Simões
Context
As reported previously, following a rigorous,
global, selection process managed by
Sir John Kingman, António Simões was
appointed as CEO in June 2023, and took
up his post formally on 1 January 2024.
When determining an appropriate remuneration
package, the Committee considered our current
remuneration practices and shareholder
approved remuneration policy, relevant market
practice and António’s remuneration levels
at his previous employer. As part of the
Remuneration Policy renewal last year,
we made a number of changes to assist
the Committee in a recruitment scenario.
This policy was supported by more than
95% of shareholders and this additional
flexibility was critical in allowing us to secure
António’s appointment.
customer and culture, and risk as well as
Environmental, Social and Governance (ESG)
metrics, as described in more detail on page
106. These act as a moderator to the overall
AVP outcome.
As in previous years, the Committee chose
to exclude the beneficial impact of mortality
assumption changes from the financial results
when determining bonus awards, resulting
in bonus outcomes of 52.7% to 53.8% of
maximum for the executive directors. Targets
and outcomes are summarised in the ‘Quick
read’ section on page 99 and in further detail on
page 105.
Performance Share Plan (PSP)
The long-term incentive (PSP) awards granted
in 2021 were subject to EPS growth and Total
Shareholder Return (TSR) growth over the
three-year period ended 31 December 2023.
EPS growth is determined based on measuring
the change in EPS over the three-year
performance period. However, the introduction
of IFRS 17 from 1 January 2023 prevents EPS
from being measured on the same basis from
the start of the period (on an IFRS 4 basis)
to the end of the performance period (on an
IFRS 17 basis). In order to fairly measure the
EPS growth performance, the Committee has
considered the annual change in each of the
three years, as the EPS for 2022 has been
reported on both an IFRS 4 and IFRS 17 basis.
On this basis, EPS grew by 52.3% over the
period (15.1% per annum). Further details
on this are provided on page 107 of the report.
TSR grew by 23.1%, out-performing the median
of the FTSE 100, but below the median for the
bespoke comparator group.
This resulted in 61.1% of the 2021 PSP award
vesting. In accordance with the remuneration
policy, the Committee assessed the formulaic
outcome, considering overall performance, risk
management progress against ESG
commitments, and other capital and solvency
measures, and determined that the outcome
was appropriate in all the circumstances, and
no downward adjustment was required. Under
the terms of the PSP plan for executive directors,
the vested shares will be deferred for a further
two years and released in 2026. The PSP
performance targets and outcomes are
summarised in the ‘Quick read’ section
on page 99.
Board changes
Sir Nigel Wilson
In January 2023, we announced Sir Nigel Wilson’s
intention to retire as CEO of Legal & General
Group. Sir Nigel agreed to continue in the role
until a successor was appointed and to support
a smooth transition following their appointment.
In June 2023, we announced that António
Simões would be appointed as the new CEO,
Directors’ report on remuneration
Legal & General Group Plc Annual report and accounts 2023
95
Directors’ report on remuneration
continued
The total remuneration package provided to
António at his previous employer was
significantly higher than both the previous
package provided to Nigel Wilson and the
package António is now receiving at
Legal & General.
Ongoing remuneration policy
When determining the final remuneration
package for António, the Committee adopted
a number of principles. Firstly, in
acknowledgment of the fact that António’s
pay would be higher than Nigel’s, we sought
to deliver the majority of the increase through
variable pay rather than fixed pay. This ensured
that a material portion of pay was linked to
performance, and therefore would only be
realised if stretching performance targets were
met. Doing so also means we could moderate
the level of fixed pay required to secure
António’s appointment, where we know
absolute levels of fixed pay are a focus area
of investors.
The second key principle the Committee
adopted was to ensure that the remuneration
package we offered was broadly in line with
other FTSE 100 companies. This ensured that
we operated within market norms and
shareholders’ expectations. With this in mind
António’s remuneration package consists of:
• a base salary of £1,175k. This is between
the median and upper quartile of FTSE 100
financial services companies
• pension of 10% of salary, in line with the
current rate offered to the wider workforce
• benefits in line with our remuneration policy,
including relocation support to assist with
António’s move from Spain, which will be
provided for 12 months
• a maximum bonus of 200% of salary and
maximum PSP of 300% of salary. These are
the maximum levels of remuneration we can
offer under our remuneration policy and are
also broadly in line with the median
opportunities offered by other FTSE 100
financial services companies.
This resulted in a total remuneration package
positioned between the median and upper
quartile of other FTSE 100 financial services
companies, which is appropriate in the context
of Legal & General’s size and complexity.
Replacement award
As is common practice in financial services,
and particularly in banking, António had
numerous unvested awards which he would
forfeit as a result of joining Legal & General.
In line with our remuneration policy, the
Committee has agreed to buy out these awards
with equivalent Legal & General awards,
ensuring António is immediately aligned
to the Legal & General share price and
shareholder interests.
All awards will be bought out on a ‘like for like
basis’, meaning that:
• deferred cash and share awards will be
bought out in cash/shares respectively
• all replacement awards will have identical
vesting/deferral periods to the original awards
• for all awards with performance conditions
we calculated how performance was
tracking against targets in order to
determine a fair value for each award.
The total value of these buyout awards is
significant, however the Committee is
comfortable that these represent the genuine
levels of awards being foregone and that the
awards were critical to securing António’s
appointment. The majority of these awards
will be granted in shares with a grant date
of 20 March 2024, creating immediate
alignment to Legal & General’s performance
and share price. Additionally, all awards will
be subject to relevant deferral, malus and
clawback provisions. In line with our
remuneration policy all awards will be subject
to forfeiture and clawback if António leaves
the Company voluntarily within three years.
Implementation of Remuneration
Policy for 2024
Base pay
Having reviewed pay and conditions across the
Group, and considered the broader market and
overall business performance, the Committee
have determined to increase base pay for Jeff
Davies by 4.3% with effect from 1 March 2024.
For 2024, the average base pay increase for UK
employees is expected to be around 4.3% but
with higher increases for lower paid employees.
The first review of base pay for António Simões
will be in 2025 and so his base pay will remain
unchanged during 2024.
Annual Bonus
The proportion of the annual bonus measures
assessed against financial metrics will remain
70%, with 30% assessed against non-financial
objectives. Financial metrics will cover a range
of KPIs assessing profitability and growth,
aligned to António’s strategic review.
PSP
In order to place further emphasis on the
important influence the Company has on
climate, the Committee have determined
to include a strategic measure with a 20%
weighting based on progress against our
published climate commitments. The remaining
80% will be split equally between EPS growth
and relative TSR performance. Further details,
including the quantitative climate targets, are
shown on page 108.
96
Legal & General Group Plc Annual report and accounts 2023
Governance
Consideration of the wider workforce
The Committee has regard for the remuneration
of all employees across the Group. The policies
and practices applying to executive directors
are the same as for the wider workforce
in most instances, although quantum and
participation by location and grade may vary.
The Committee has continued to be mindful
of both the immediate and longer term financial
wellbeing of the wider workforce, particularly
in these economically uncertain and challenging
times. We made a one off payment of £750 in
July 2023 to lower paid employees to mitigate
inflation pressures, in addition to the £1,500
payment made in 2022. The Committee also
reviewed pension provisions for UK employees
below senior management and approved
an increase to the employer contribution
to pension of 1% of base pay effective from
1 April 2024 with a view to aligning employer
pension contributions with those for senior
management over the next 5 years.
In addition, Legal & General continues to
provide further financial support to all UK
employees including SmartSaving (the
employee discount scheme) and preferential
borrow/save/advance finance facilities through
our partner organisation, Salary Finance.
For 2024 a stratified approach to base pay
increases has been adopted with higher
percentage increases applied to employees
in lower paid roles, reflecting their
proportionally greater exposure to price
inflation, with those in more junior roles
receiving a base pay increase of 5%.
Most employees are eligible to be considered
for a bonus payment based on group, divisional,
individual and/or other specific performance
metrics, with bonuses for performance during
2023 paid shortly after the year end, at the
same time as bonuses for executive directors.
The Committee continues to maintain
an oversight of progress on continuing
work on diversity and inclusion and achieving
a further narrowing of the gender pay gap.
Further details on this can be found on page 49
and in our Social impact report. I hope that you
will find this report a clear account of the
Committee’s considerations and decisions,
and the remuneration outcomes for the year.
Lesley Knox
Chair of the Remuneration Committee
Quick read summary
Strategic report
Governance
Financial statements
Other information
Remuneration policy summary and 2023 implementation
Remuneration element
and time horizon
Policy summary
Base pay
Operation
Reviewed annually, with any increases effective 1 March.
2023 2024 2025 2026 2027
Opportunity
No maximum, but any increases will normally be in line with
the range for other UK employees. In specific circumstances,
the Committee may award increases above this level.
Performance
Personal performance will be taken into consideration
in determining any increase.
Pension
contributions
Operation
DC pension plan or a cash allowance in lieu. Base pay is the only
element of pensionable remuneration.
2023 2024 2025 2026 2027
Opportunity
For executive directors, appointed since 2019, pension
contributions are aligned to that available to the majority of the
workforce (currently 10% of base pay). Pension contributions for
executive directors appointed before 2019 have been aligned with
the contributions for other senior managers in the UK, but were
changed to align with the majority of the UK workforce at the end
of 2022.
Performance
No performance conditions.
2023 implementation
Effective
1 March
2023
Effective
1 March
2024
%
increase
António Simões
– £1,175,000
Sir Nigel Wilson £1,074,800 £1,074,800
Jeff Davies
£660,400
£689,000
Employees below the Board (average)
–
–
4.3%
4.3%
Pension contributions during 2023 (as % of base pay):
Sir Nigel Wilson
Jeff Davies
Majority of UK workforce
Other senior managers in the UK
10%
10%
10%
15%
Effective from 1 April 2024, employer pension
contributions for the wider workforce have increased
to 11% of base pay.
Benefits
Operation
In line with benefits provided to other employees
and senior managers in the UK.
2023 2024 2025 2026 2027
Opportunity
Maximum amount is the cost of providing benefits, subject
to the limits of the benefit plans and HMRC rules.
Performance
No performance conditions.
Benefits during 2023 included:
• allowance in lieu of a company car
• private medical insurance
• life insurance
• income protection
• all-employee (ShareSave and
Share Purchase) plans.
Quick read summary
Legal & General Group Plc Annual report and accounts 2023
97
Quick read summary
continued
Remuneration policy summary and 2023 implementation
Remuneration element
and time horizon
Policy summary
Annual Variable
Pay (AVP)
50% cash
50% deferred for 3 years
2023
2024 2025 2026 2027
Operation
Performance assessed over a one-year period, with targets and
weightings set annually. Awards are determined after the year end,
taking into consideration performance against targets, individual
performance and overall business performance. 50% of any AVP
award is paid in cash, and 50% is deferred into shares for a further
three years. Malus and clawback provisions apply.
Opportunity
Up to 150% of base pay for the Group Chief Executive
and Group Chief Financial Officer. No bonus is payable
for threshold performance or below, with up to 50%
of maximum for target performance.
Performance
Financial performance (at least 70% weighting), plus strategic
and personal performance, including ESG measures.
Performance Share
Plan (PSP)
Performance
Deferred
2023
2024 2025 2026 2027
Operation
Conditional award of shares, subject to a performance period
of no less than three years and a holding period such that no
awards are released before five years from grant. Performance
targets are set annually by the Committee, aligned with the delivery
of shareholder returns over the longer term. The Committee may
amend the vesting downwards (but not increase the level of
vesting) depending on the overall performance of the Group.
PSP awards are subject to malus and clawback.
Opportunity
The maximum award opportunity is 300% of base pay. 15%
of the award vests for threshold performance, increasing to 100%
of the award vesting for achievement of maximum performance.
Performance
An appropriate mix (normally an equal weighting) of earnings
performance and shareholder return.
2023 implementation
70% Financial performance
30% Strategic and personal performance
Bonus for 2023
(as % of base pay):
Sir Nigel Wilson
Jeff Davies
At
target
75%
75%
At
max.
150%
150%
Actual 2023
(as %
of max.)
53.8%
52.7%
50% EPS
25% TSR (vs FTSE 100)
25% TSR (vs comparator group)
PSP grants in 2023
(as % of base pay):
Sir Nigel Wilson
Jeff Davies
Maximum
300%
300%
2023
grant
250%
250%
Vesting
period end
2023
(% of grant)
61.1%
61.1%
Shareholding requirements
Executive directors’
share ownership
Executive directors are expected to retain any after tax vested
shares until their shareholding requirements are met, and maintain
that shareholding requirement (or actual shareholding if lower)
for at least two years after leaving employment.
Share ownership at 31 December 2023
325%
Employment + 2 years
The shareholding requirement is 325% of base pay
for all executive directors.
Sir Nigel Wilson
Jeff Davies
Target met
925%
224%
98
Legal & General Group Plc Annual report and accounts 2023
Governance
Strategic report
Governance
Financial statements
Other information
Alignment with strategy and 2023 performance outcomes
The performance measures for the incentive plans are directly aligned to the Group’s key performance indicators (KPIs). The Group Board reviews
the KPIs annually and adds to or changes them where appropriate. KPIs are explained in more detail on pages 24 and 25 and further details
of performance measures and outcomes are provided on pages 105 to 108.
Overarching drivers
of the business
Group KPIs
Incentive plans
(weightings)
2023 performance targets and outcomes
PSP
Threshold
Target
Maximum
Actual
Profitability
Adjusted operating profit
Earnings per share (EPS)
1 year growth1
Return on equity (ROE)1
Net movement in contractual service
margin (CSM)1
Earnings per share (EPS) 3 year
average annual growth1 (see page 107)
Solvency II
Solvency II operational surplus
generation
Solvency II new business value add
(NBVA)2:
LGRI
Retail retirement – UK annuity
business
Retail insurance – UK and US
protection
AVP
15.0%
10.0%
10.0%
12.5%
12.5%
5.0%
2.5%
2.5%
£1,667m
11.9p
15.4%
£666m
15.1%
£1,821m
7.4%
7.0%
6.7%
£1,663m
£1,773m
£1,858m
19.0p
20.9p
24.2p
19.0%
20.8%
24.0%
£480m
£545m
£639m
50.0%
5%
12%
£1,601m
£1,651m
£1,701m
5.8%
4.7%
6.2%
46.0
Median
6.6%
5.5%
6.7%
36.7
12.0
Median
8.9%
6.3%
7.2%
19.0
Top 20th
5.0
Top 20th
Shareholder
value creation
TSR vs FTSE 100
(rank out of 91)
25.0%
TSR vs comparator group
(rank out of 23)
25.0%
16.6
Strategic priorities
(see page 106):
30.0%
100.0%
100.0%
1.
2.
Performance measures exclude the material accounting impact of longevity assumptions and profits and gains on disposal
New Business Value Add (NBVA) is equivalent to the margin on Solvency II new business, and represents Solvency II new business contribution as a percentage of the present value
of new business premium (PVNBP).
Total remuneration received (£’000)
The charts below provide a breakdown of the total remuneration received by the executive directors and their maximum total remuneration opportunity.
Sir Nigel Wilson
Actual remuneration
2022
2023
1,198
1,200
Maximum remuneration
Jeff Davies
Actual remuneration
1,410
1,408 4,016
867
1,151 3,218
2022
2023
730
867
848 2,445
747
522
693 1,962
Maximum remuneration
2023
1,200
1,612
1,884 4,696
2023
747
991
1,135
2,873
Key
Fixed (base pay, benefits and pension contributions)
Annual Variable Pay (AVP)
Performance Share Plan (PSP)
The values for the 2020 PSP, which vested in 2023, in the charts above have been adjusted to reflect the share price at vesting on 10 March 2023,
which was not known at the publication date of the 2022 report. Further details can be found on page 104.
Quick read summary
Legal & General Group Plc Annual report and accounts 2023
99
Summary of remuneration policy
The directors’ remuneration policy was approved by shareholders by way of a binding vote at the
2023 AGM on 18 May 2023 and applies for three years from the 2023 AGM. The policy table below
summarises key aspects of the approved policy. The full remuneration policy can be found in the
2022 annual report, and on the Company’s website.
Base pay
Pension contributions
Benefits
Annual Variable Pay (AVP)
Fixed pay
Purpose
and link
to strategy
Provides a fixed level
of earnings, appropriate
to the market and
requirements of the role.
Provides a basis for
savings to provide an
income in retirement.
Provides benefits and allowances
appropriate to the market, and
to assist employees in efficiently
carrying out their duties.
Operation
Reviewed annually with
effect from 1 March, taking
into account:
• the individual’s skills,
In line with other
employees in the UK,
executive directors may:
• participate in a DC
pension plan
• receive a cash
allowance in lieu
• receive some
combination thereof.
Non-UK national executives
may be permitted to
participate in home-
country pension plans
where relevant.
Base pay is the only
element of pensionable
remuneration.
Pension contributions
for executive directors
are aligned to that available
to the majority of the UK
workforce (currently
up to 10% of base pay).
In line with other employees in the
UK, benefits currently include:
• private medical insurance
• life insurance
• income protection
• all-employee (ShareSave
and Share Purchase) plans.
Executive directors may participate
in voluntary benefits and choose
to acquire Legal & General products
which they fund themselves,
sometimes through salary sacrifice.
In line with other senior managers
in the UK, executive directors
receive a non-pensionable cash
allowance in lieu of a company car.
Where an executive director is
required to relocate, or perform duties
outside their home country, additional
benefits may be provided, (including
healthcare and assistance for housing,
school fees, home travel, relocation
costs and tax compliance advice)
for a period not exceeding two years.
The maximum amount paid in
respect of benefits will be the actual
cost of providing those benefits
which, particularly in the case
of insured benefits, may vary from
year to year, although the Committee
is mindful of achieving the best
value from benefit providers.
The maximum opportunity
for participation in the all-employee
share plans is the same for all
employees and takes into account
prevailing HMRC rules.
There are no performance
conditions.
There are no performance
conditions.
experience and
performance
• scope of the role
• external market data,
including other FTSE 100
companies and other
financial and non-
financial institutions
• pay and conditions
elsewhere in the Group
• overall business
performance.
There is no obligation
to increase base pay upon
any such review, and any
decision to increase base
pay will take into account
the associated impact
on overall quantum.
There is no set maximum
base pay, but any increases
will normally be in line with
the range of increases
for other UK employees.
In specific circumstances,
the Committee may award
increases above this level,
for example where:
• base pay for a recently
appointed executive
director has been set
with a view to allowing
progression in the role
over time
• there has been a
significant increase in
the size or scope of an
executive director’s role
or responsibilities
• there is a significant
change in the regulatory
environment.
Personal performance will
be taken into consideration
in determining any base
pay increase.
Opportunity
Performance
100
Legal & General Group Plc Annual report and accounts 2023
Governance
Incentivises and rewards the achievement of annual
financial performance and delivery of strategic priorities.
50% of any AVP award is deferred into shares,
reinforcing retention and alignment with shareholders
by encouraging long-term focus and risk alignment.
In normal circumstances:
• performance is assessed over a one-year period
• performance measures and weightings are set
annually to ensure they are appropriately stretching,
and aligned with the Group’s strategic priorities
• performance targets take into account internal
forecasts, market expectations and prior year
performance. Target normally equates to the
forecast in the strategic plan, with maximum set
at an appropriate stretch above plan, but still within
the Company’s risk appetite
• AVP awards are determined after the year end,
taking into consideration performance against
targets, individual performance, and overall
business performance
• 50% of any AVP award is paid in cash, after the year
end, with 50% deferred into restricted shares (or
nil-cost options, or phantom equivalent, or other
forms dependent upon business or regulatory
requirements) for a further three years
• dividends or dividend equivalents may accrue
during the deferral period and vest and are paid
in shares upon vesting
• malus and clawback apply to both cash awards
and deferred awards.
The maximum opportunity in respect of any financial
year is:
• up to 200% of base pay for the Chief Executive
Officer and any executive director appointed
after the approval by shareholders of the
remuneration policy
• 150% of base pay for the current Chief
Financial Officer.
No bonus is payable for threshold performance
or below, with up to 50% of maximum for target
performance.
• The Committee will consider the calculated
outcome in the context of a range of factors
(not just the specific performance measures)
including risk management, behaviours, culture,
capital generation, Solvency II coverage ratio
and sustainable financial performance, and may
apply a ‘moderator’ to reduce (but not increase)
an AVP award if there are factors that warrant
such a reduction.
A combination of:
• financial performance (primary measure with
at least 70% weighting) – to ensure growth and
return to shareholders
• strategic and personal performance – to safeguard
the future, with the development of future income
streams, and focus on key metrics including
customers, culture and ESG.
Strategic report
Governance
Financial statements
Other information
Performance Share Plan (PSP)
Non-executive directors’ fees
Shareholding requirements
Provides a direct and transparent link between executive pay
and the delivery of shareholder returns over the longer term.
Compensates non-executive directors for their
responsibilities and time commitment.
Purpose
and link to
strategy
Operation
A conditional award of shares (or nil-cost options, or phantom
equivalent, or other forms dependent upon business or regulatory
requirements). In normal circumstances:
• subject to a performance period of no less than three years
and a further holding period of no less than two years following
the end of the performance period
• performance measures and targets are set annually by the
Committee to ensure they are relevant and appropriately
stretching, and aligned with the delivery of shareholder returns
over the longer term
• performance targets take into account internal forecasts, any
guidance provided to the market, market expectations, prior
performance, and the company’s risk appetite
• dividends or dividend equivalents may accrue during the
performance period based on the number of shares that vest
but not those that have lapsed
• malus and clawback apply.
Exceptionally, the Committee may adjust and amend the PSP
awards in accordance with the rules, including:
• lengthening the performance period and/ or the holding period
for future awards
• reducing (but not increasing) the level of vesting dependent upon
the performance of the Group.
Opportunity
or
requirement
The maximum opportunity for an executive director in respect
of any financial year is 300% of base pay.
• 15% of the award vests for threshold performance
• 100% of the award vests for achievement of maximum.
The Committee assesses the formulaic vesting outcome, and may
amend the vesting downwards (but not increase the level of vesting)
considering a range of factors including overall performance,
risk management, capital generation, Solvency II coverage ratio,
and ESG.
Provides alignment with
shareholder returns and ensures
the impact on directors’
shareholdings moves in line with
Legal & General’s share price.
Executive directors are expected
to retain any after-tax vested
share awards until their
shareholding requirements
are met, and maintain that
shareholding requirement
(or their actual shareholding
at the date of leaving, if lower)
for at least two years after
leaving employment with
the Group.
The Committee retains the
discretion to withhold future
PSP grants if executive directors
are not making sufficient
progress towards their
shareholding requirement.
Non-executive directors may
elect to receive a proportion
of their fees (normally 50%)
in Legal & General shares until
their shareholding requirement
is met.
The sale of shares prior to the
shareholding requirements
being met may be permitted
in extenuating situations, for
example, a change to personal
circumstances, ill health, etc.
Shares owned outright
equivalent to:
• 325% of base pay for
executive directors
• 100% of base fee for
non-executive directors.
Fees for the Chair and non-executive directors
are set at an appropriate level to reflect:
• time commitment required to fulfil the role
• responsibilities and duties of the positions
• typical competitor practice in the FTSE 100
and other financial services institutions.
Fees comprise a base fee for membership
of the Board, plus (where applicable) additional
fees for:
• Senior Independent Director (SID)
• Committee Chairship
• Committee membership (not including
the Nominations and Corporate Governance
Committee)
• Designated Workforce Director.
Additional fees for membership of Committee,
or Chairship or membership of subsidiary
Boards, or other fixed fees may apply if justified
by time or commitment.
The Chair receives an inclusive fee for the role.
The Chair’s fee is reviewed annually by the
Committee, and the non-executive directors’
fees are reviewed by the executive directors.
There is no obligation to increase fees upon
any such review.
Fees are subject to the aggregate limit
in the Company’s Articles of Association
or any subsequent shareholder resolution.
Any changes in this limit would be subject
to shareholder approval.
The Chair and non-executive directors are not
eligible to participate in any benefit, pension
or incentive plan. However, additional benefits
may be provided if the Board feels this is justified,
such as tax compliance advice, work permits
or similar. Expenses incurred in carrying out
duties (and any associated tax liability) may
be reimbursed or paid directly by the Company.
Performance
An appropriate mix (normally an equal weighting) of:
• earnings performance – to incentivise growth in earnings
• shareholder return – to deliver a competitive return for
shareholders; and
• strategic performance including ESG – to incentivise the delivery
of broader aspects of the Company’s strategy.
The maximum weighting for any strategic measures will be 20%.
No performance conditions.
Not applicable.
See page 102 for
Remuneration policy notes
Summary of remuneration policy
Legal & General Group Plc Annual report and accounts 2023
101
Summary of remuneration policy
continued
Recruitment Remuneration
Component
Overall approach
Policy and operation
The Committee will pay no more than it considers necessary to attract appropriate candidates, and it is not contemplated
that remuneration will need to be different from the structure or exceed the limits set out in the remuneration policy table.
Maximum variable remuneration
The maximum variable remuneration will be in line with that set out in the remuneration policy table, that is 500% of base pay,
excluding any compensation for awards forfeited on appointment.
Compensation for forfeited awards
As a result of regulations around the globe in the financial services sector, executives are likely to have accrued deferred
remuneration which may be lost upon a change of employment. Accordingly, to aid the recruitment of a new executive
director, the Committee may grant deferred cash and share awards to compensate for awards forfeited upon leaving
a previous employer, taking into consideration relevant factors including:
• the form of the award
• any performance conditions
• the vesting profile and likelihood of vesting
• relevant regulatory requirements and guidance.
Any awards will reflect the terms and the value of the arrangements forgone, and any such compensation will be subject
to forfeiture and clawback if the executive leaves the Company voluntarily within a fixed time period determined by the
Committee, being not less than three years. Where possible the Committee will use existing share-based plans.
However, in the event these are not appropriate, the Committee retains the discretion to use the Listing Rules exemption
(LR 9.4.2) for the purpose of making an award to compensate for amounts forfeited upon leaving a previous employer.
For internal appointments, the Committee may continue to honour prior commitments made before joining the Board.
Relocation
Where a new executive director has to relocate to take up the appointment, either within the UK or from overseas, practical
and/ or financial support may be provided in relation to relocation or mobility including the cost of any tax incurred for
a period not exceeding two years.
For appointments from overseas, certain home country benefits may continue to apply. Relocation and mobility support
may also apply to the recruitment of a non-executive director.
The Committee will normally align the remuneration arrangements for new non-executive directors with those outlined within the policy table.
Termination and payments for loss of office
Component
Fixed pay
Annual Variable Pay (AVP)
Performance Share Plan (PSP)
Other payments
Policy and operation
Any termination payments in lieu of notice would consist solely of base pay and the cost of providing benefits for the
outstanding notice period. Any statutory requirements will be observed. Our standard practice is to include within executive
directors’ contractual terms mitigation provisions as regards to payments in lieu of notice.
Eligibility for annual variable pay, deferred annual variable pay awards and performance share awards are governed by their
respective plan rules, as summarised below:
• annual variable pay (AVP) – there is no automatic entitlement to an annual bonus in the year of cessation of employment.
However, for a ‘good leaver’, the Committee may determine that an executive director will receive a bonus pro-rated for the
period through to leaving based on targets and performance for the full year, and an assessment of overall business and
personal performance
• deferred AVP awards – in the event that a participant is a ‘good leaver’ any outstanding unvested deferred awards will
normally be released in accordance with the ordinary timescale. Exceptionally, the Committee reserves the right
to accelerate any vesting or payment, for example in the case of terminal illness.
Performance share plan (PSP) – unless the Committee determines otherwise, in the event that a participant is a ‘good leaver’
any unvested PSP awards will be pro-rated for the period through to leaving and vest based on targets and performance to the
end of the performance period, with awards released at the normal times. Exceptionally, the Committee reserves the right
to accelerate vesting or payment due, for example, in the case of terminal illness.
The Committee reserves the right to make any other payments in connection with a director’s cessation of office/
employment where the payments are made in good faith in the discharge of an existing legal obligation (or by way of
damages for breach of such obligation) or by way of settlement of any claim arising in connection with the cessation of the
director’s office/ employment, or for any fees for outplacement assistance and/ or director’s legal and/ or professional advice
fees in connection with his/ her cessation of office/ employment.
‘Good leaver’ circumstances are leaving due to death, disability, ill-health or injury, redundancy, retirement with company agreement, the individual’s
employing company/ business ceasing to be part of the Group, or other circumstances at the Committee’s discretion. For all other leavers, unvested
awards lapse.
Awards will generally vest early upon a takeover of the Company, merger or other corporate reorganisation. Alternatively participants may be allowed
or required to exchange their awards for new awards. If there is a demerger, delisting or special dividend or other transaction which may affect the
share price, the Committee may allow awards to vest on the same basis as for a takeover.
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Governance
Strategic report
Governance
Financial statements
Other information
António Simões Remuneration Disclosure
António Simões was formally appointed as Group CEO from 1 January 2024, following the announcement of his appointment in June 2023. As set
out in the Chair’s letter on page 62, when determining an appropriate remuneration package the Committee considered our current remuneration
practices and shareholder approved Remuneration Policy, relevant market practice and António’s remuneration levels at his previous employer.
Ongoing remuneration package
On appointment, the key elements of António’s remuneration package will consist of:
• a base pay of £1,175k, which is between the median and upper quartile of FTSE 100 financial services companies
• pension of 10% of salary, in line with the rate offered to the wider workforce during 2023
• benefits in line with our remuneration policy, including relocation support to assist with António’s move from Spain. Relocation support is provided
for 12 months only
• a maximum AVP of 200% of base pay
• a maximum PSP of 300% of base pay.
These are the maximum AVP and PSP levels of remuneration we can offer under our remuneration policy and are also broadly the median
opportunities of other FTSE 100 financial services companies.
Replacement award
As is common practice in Financial Services, and in particular in banking, António had numerous unvested awards which he forfeited as a result
of joining Legal & General. Our policy on recruitment remuneration provides, that in these circumstance, the Committee may grant awards
equivalent to the remuneration arrangements forfeited upon leaving the previous employer, taking into consideration relevant factors including
but not limited to, the form of the award, any performance conditions attached to those awards, the vesting profile and likelihood of vesting and
any relevant regulatory requirements and guidance in relation to awards.
All awards will be replaced on a ‘like for like basis’, meaning that:
• deferred cash and share awards have been bought out in cash/ shares respectively
• all buyout awards will have identical vesting/ deferral periods to the original awards
• for all awards with performance conditions we have calculated how performance was tracking against targets in order to determine a fair value
for each award.
Accordingly, in accordance with our policy on recruitment remuneration, the following cash and share awards will be granted to António, subject
to malus and clawback, matching as close as possible both the expected value and timescale to vesting of his forfeited Santander awards.
In recognition of the forfeit of annual bonus for 2023 from António’s previous employer, a payment of £3,079,242 will be awarded of which 50%
will be paid in cash at the end of March 2024 and 50% will be granted as shares in April 2024, vesting 3 years from the date of grant.
In addition, in recognition of the forfeit of other unvested awards the following cash and share awards will be made:
Cash awards
Payment date
March 2024
March 2025
March 2026
March 2027
March 2028
Share awards
Grant date
March 2024
March 2024
March 2024
March 2024
March 2024
March 2024
March 2024
March 2024
Vesting date
March 2024
December 2024
March 2025
December 2025
March 2026
December 2026
March 2027
March 2028
1. Effective grant price fixed at time of appointment.
Value
£342,352
£345,718
£345,718
£253,168
£132,612
Award Value
No. of Shares
Effective grant price1
£410,259
£405,256
£513,595
£202,628
172,617
170,512
216,096
85,256
£513,595
216,096
£202,628
£407,269
£267,260
85,256
171,359
112,450
£2.377
£2.377
£2.377
£2.377
£2.377
£2.377
£2.377
£2.377
Summary of remuneration policy
Legal & General Group Plc Annual report and accounts 2023
103
Annual report on remuneration
Audited information
Content contained within a grey outline box indicates that all the
information in the panel is audited.
Planned implementation for 2024
Content contained within a black outline box indicates that all the
information in the panel is planned for implementation in 2024.
‘Single figure’ of remuneration – executive directors
The following table shows a single total figure of remuneration for each executive director in respect of qualifying services for the 2023 financial year,
together with a comparative figure for 2022.
Single figure table
Executive director
2023
Sir Nigel Wilson
Jeff Davies
2022
Sir Nigel Wilson1
Jeff Davies1
Fixed
Variable
PSP
Base pay
£’000
Benefits
£’000
Pensions
£’000
1,067
656
1,020
625
26
25
25
23
107
66
153
82
Total
fixed
£’000
1,200
747
1,198
730
AVP
£’000
Face value
£’000
Share price
appreciation
£’000
Total
variable
£’000
867
522
1,410
867
1,496
901
1,281
771
(345)
(208)
127
77
2,018
1,215
2,818
1,715
Total
£’000
3,218
1,962
4,016
2,445
1. Reporting of the 2020 PSP in the 2022 annual report
The vesting date of the 2020 PSP award occurred after the 2022 results announcement. As a result, the PSP figures recognised in the 2022 annual report were based on a three-month
average share price to 31 December 2022. The 2020 PSP figures reported in the 2022 single figure table above now reflect the share price at vesting on 10 March 2023, at 252p per
share. The figures in the 2022 report were £1,353,539 (Sir Nigel Wilson) and £815,301 (Jeff Davies).
Base pay
Executive director
António Simões
Sir Nigel Wilson
Jeff Davies
Annual base pay as at
1 January 2023
Annual base pay effective
1 March 2023
–
1,028,500
632,000
–
1,074,800
660,400
Total base pay
paid in 2023
–
1,067,083
655,667
Annual base pay effective
1 March 2024
%
increase
1,175,000
1,074,800
689,000
0%
0%
4.3%
Benefits
Benefits include the elements shown in the table below.
Executive director
2023
Sir Nigel Wilson
Jeff Davies
2022
Sir Nigel Wilson
Jeff Davies
Car allowance,
insurances and
taxable expenses
£’000
Discount
on ShareSave,
and ESP
matching shares
£’000
Dividends
£’000
19
20
19
20
6
2
5
1
1
3
1
2
Total
benefits
£’000
26
25
25
23
The Employee Share Purchase Plan (ESP) matching shares and dividends relate to the all-employee share purchase plan. No dividends are payable
on outstanding Share Bonus Plan (SBP) or PSP awards. ShareSave is calculated based on the value of the discount on ShareSave share options
exercised in the year.
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Financial statements
Other information
Benefits for 2024
Benefits for 2024 remain in line with policy.
Pension
Sir Nigel Wilson and Jeff Davies received a cash allowance in lieu of pension contributions equal to 10% of base pay, aligned with the employer
pension contributions for the majority of the UK workforce. All cash allowances are subject to normal payroll deductions for income tax and
national insurance.
Pension for 2024
For 2024 António Simões and Jeff Davies will receive a cash allowance of 10% of base pay, aligned with employer pension contributions for the
majority of the UK workforce.
2023 Annual Variable Pay (AVP) awards
The 2023 AVP awards are based on performance for the year ended 31 December 2023. 70% of the bonus opportunity is determined
by financial performance and 30% is based upon the achievement of strategic objectives.
The figures below represent the total 2023 AVP awards to be paid, incorporating the amount payable in cash in 2024 (50%), and the amount
deferred into restricted shares for a further three years to be released in 2027 (50%) subject to continued employment with malus and
clawback provisions.
Performance measure
Adjusted operating profit
Earnings per share (EPS)
Return on equity (ROE)
Net movement in contractual
service margin (CSM)
Solvency II operational
surplus generation
Solvency II new business
value add (NBVA):
LGRI
Retail retirement – UK
annuity business
Retail insurance – UK and
US protection
Strategic – Sir Nigel Wilson
Strategic – Jeff Davies
Total (% of maximum)
Maximum bonus opportunity (% of base pay)
Base pay
2023 AVP award
2023 performance targets and outcome
Threshold
(0% max)
£1,663m
19.0p
19.0%
Target
(50% max)
£1,773m
20.9p
20.8%
Maximum
(100% max)
Actual
Outcome
(% of max)
Weighting
£1,858m
£1,667m
24.2p
24.0%
11.9p
15.4%
1.8% x
0.0% x
0.0% x
15.0% =
10.0% =
10.0% =
AVP award
(% of maximum)
Sir Nigel
Wilson
0.3%
0.0%
0.0%
Jeff Davies
0.3%
0.0%
0.0%
£480m
£545m
£639m
£666m
100.0% x
12.5% =
12.5%
12.5%
£1,601m
£1,651m
£1,701m
£1,821m
100.0% x
12.5%
12.5%
12.5%
5.8%
4.7%
6.2%
6.6%
5.5%
6.7%
8.9%
6.3%
7.2%
7.4%
67.0% x
5.0%
7.0%
100.0% x
2.5%
6.7%
50.0% x
2.5%
71.3%
67.7%
30.0% =
100%
3.3%
2.5%
1.3%
21.4%
53.8%
x
150%
x
3.3%
2.5%
1.3%
20.3%
52.7%
x
150%
x
£1,074,800
£660,400
=
=
£867,200
£522,000
Strategic objectives comprise a qualitative assessment by the Remuneration Committee of operational performance and risk management,
customer and culture metrics, and other strategic objectives set by the Committee, including ESG objectives. A qualitative assessment, rather
than an outcome based only on pre-determined numerical targets, is considered more appropriate for the assessment of strategic objectives,
as this enables the Committee to consider performance in the context of a range of factors and changing situations during the year.
Annual report on remuneration
Legal & General Group Plc Annual report and accounts 2023
105
Annual report on remuneration
continued
Key focus areas are identified at the beginning of each year, and strategic objectives may be set individually for each executive director or assessed as their
individual contribution to joint objectives. Normally, 10% of the total bonus opportunity is allocated to each category encompassing:
• Strategy: focus on safeguarding the future of the company and developing future income streams.
• Culture & Customer: based on a range of metrics which reflect the impact of culture on employees and customers, including customer performance scores
and feedback, employee engagement scores, and progress against gender and other diversity goals.
• Risk: supported by analysis from the Chief Risk Officer, using quantitative and qualitative metrics, including divisional and group operational performance,
capital management, prudential risk, IT and cyber risk, and internal audit.
• Environmental: (moderator*): progress against key environmental commitments as referenced in our 2023 Climate and nature report and increase in the
prominence of sustainability considerations in commercial decisions taken during the year (including operational, investment and product development
decisions).
*ESG metrics are incorporated into the existing strategic and personal performance measures, rather than a separate or additional component. AVP may
be reduced if insufficient progress is made against ESG metrics.
Performance Measures
Strategy (10% weighting)
Culture & Customer (10% weighting)
Risk management (10% of weighting)
Risk management aligned with the framework
set out on page 54 of this report assessed
across the following areas:
• risk appetite and key risk limits
• non-financial risk
• customer
Environmental measures (moderator)
Portfolio carbon emission intensity reduction
Progress in delivery of operational
emissions SBT
Increase prominence of sustainability
considerations in commercial decisions
Commentary
•
•
•
•
•
•
•
•
•
Strong delivery against business plan whilst ensuring
effective transition to the new CEO with focused handover.
Strong continuity whilst managing IFRS 17 accounting
standard implementation.
Sustained focus on long term environment goals.
Increase on an already strong employee satisfaction index
(eSat) scores (79% in 2023 compared with 78% in 2022).
Significant focus on leadership and employee development
and implementation of a new performance management
framework, focusing both on what employees deliver
as well as how they deliver it.
Focus on customer across all divisions measured robustly
through NPS scores, quality assurance, complaints and
resolutions and continued professional development for
customer service teams and leaders.
Took a strong and pro-active approach to prudential risk
across all areas of the business, particularly in relation
to PRT business and property asset deployment.
Effectively fostered an environment where 2nd and 3rd line
are empowered and supported to challenge the business
on all aspects of risk management, ensuring thoroughness
and transparency of risk and audit analysis.
Effective management of exposures to liquidity, rates,
property and FX despite significantly volatile markets.
Portfolio carbon emission intensity reduced to 56 tCO2e/ £m
(2022: 62 tCO2e/£m) in line with pathway to achieve 50%
reduction by end 2030 (from a YE 2019 baseline).
Good progress against operational emissions SBT with
operational footprint reduced to 27,722 (2022: 30,062 tCO2e),
in line with our science-based target (SBT) and net zero ambition.
Group and LGIM continue to play an active role in industry
climate forums, government lobbying and shaping of the
regulatory framework for sustainability
Outcome (out of 30)
CEO
CFO
21.4
20.3
Progress on or exceeding targets
In addition, the Committee considers the Solvency II coverage ratio (2023: 224%) and sustainable financial performance, and may apply a ‘moderator’ to reduce
(but not increase) an AVP award if there are factors that warrant such a reduction. For 2023, it was determined that no adjustment was necessary to the
calculated AVP award.
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Risk consideration
The Committee reviewed a comprehensive report from the Chief Risk Officer to ascertain that the executive directors’ objectives had been
fulfilled within the risk appetite of the Group. In addition, the Committee received feedback from the Group Regulatory Risk and Compliance
function that there were no issues to consider relating to regulatory breaches or customer outcomes that would prevent payment of any AVP
award or trigger a recommendation that malus should be applied. The Committee was satisfied that the AVP awards should be paid.
Deferral policy
In line with the remuneration policy, 50% of all 2023 AVP awards have been deferred for three years into restricted shares, subject to continued
employment and with malus and clawback provisions.
AVP potential 2024
In line with the remuneration policy, for 2024 the target and maximum AVP opportunities for our executive directors will be:
Executive director
António Simões
Jeff Davies
Target opportunity
(% of base pay)
Maximum opportunity
(% of base pay)
100%
75%
200%
150%
The proportion of the AVP measures assessed against financial metrics will remain 70%, with 30% assessed against non-financial objectives.
Financial metrics will cover profitability and growth, aligned to António’s strategic review. Group financial targets will be disclosed in the 2024
annual report. Some strategic and personal targets are considered confidential and will not be disclosed in any future report.
In line with the remuneration policy, 50% of all 2024 AVP awards will be deferred for three years into restricted shares, subject to continued
employment, with malus and clawback provisions.
Details of how the 2021 PSP award vested
The 2021 PSP award vested at 61.1% of maximum in March 2024 based on a combination of total shareholder return (TSR) out-performance (50%)
and earnings per share (EPS) growth (50%) over the three-year performance period ended 31 December 2023. A summary of the outcome per
measure is below, with further detail provided on page 108.
Perfo rmance measure
TSR vs FTSE 100
TSR vs bespoke comparator group
EPS growth (% p.a.)
Total (% of maximum)
The bespoke comparator group comprises:
Weighting
Outcome (% of maximum)
25%
25%
50%
100%
11.1%
0.0%
50.0%
61.1%
Abrdn, Aegon, Ageas, Allianz, Assicurazioni Generali, Aviva, AXA, Gjensidige Forsikring, Hannover Rueck, Lincoln National, Mapfre, M&G,
Metlife, Muenchener Ruck, NN Group, Phoenix Group, Principal Financial, Prudential, Prudential Financial, Sampo A, Swiss Re, Talanx, Zurich
Insurance Group.
The Committee reviewed the company’s overall performance taking into consideration an assessment of Solvency II performance and progress
against long-term environmental, social and governance (ESG) objectives. The Committee was satisfied that the PSP awards should vest
in accordance with the TSR and EPS growth outcomes.
Approach to calculation of EPS growth
EPS growth is determined based on measuring the change in EPS over the 3 year performance period. However, as previously indicated, the
introduction of IFRS 17 prevents EPS from being measured on the same basis from the start of the performance period (where EPS was reported
based on IFRS 4) to the end of the performance period (where EPS was reported based on IFRS 17). In order to fairly measure the EPS growth
performance, the Committee has considered the annual change in each of the three years, as the EPS for 2022 has been reported on both an IFRS 4
and IFRS 17 basis. The basis for the calculation is illustrated in the table below:
Accounting Standard
2020 to 2021
2021 to 2022
2022 to 2023
Year on year EPS growth
Adjusted EPS
IFRS 4
IFRS 17
75.4%
12.0%
(22.4)%
EPS growth p.a. over
3-year performance
period
15.1%
Annual report on remuneration
Legal & General Group Plc Annual report and accounts 2023
107
Annual report on remuneration
continued
The results are shown below:
Grant date
13 April 2021
Performance
period
1 January 2021
to 31 December
2023
Comparator
group
FTSE 100
Bespoke
comparator
group
Legal &
General’s
TSR1 Median rank
46.0
80th
percentile
rank
19.0
23.1%
12.0
5.0
Performance target
Legal & General’s
rank
36.7
16.6
Performance condition
EPS growth (% p.a.)
Threshold
Maximum
Actual performance
5%
12%
15.1%
Outcome
(% of maximum)
44.4%
0.0%
Outcome
(% of maximum)
100%
1. TSR is calculated in accordance with the Performance Share Plan rules using the three-month average prior to the start and end of the performance period.
The PSP award will vest on 8 March 2024. As the share price at the date of vesting was not known as of the date of this report, the value included in the ‘single
figure’ of remuneration on page 104 has been calculated based on the number of shares vesting multiplied by the average share price over the quarter ended
31 December 2023 (226.3p). The actual share price and value at vesting will be reported in the 2024 annual report.
Executive director
Sir Nigel Wilson
Jeff Davies
Shares granted in 2021
832,341
501,359
Vesting outcome
(% of maximum)
61.1%
61.1%
Shares vesting
in March 2024
508,560
306,330
Estimated value of
shares on vesting (£)
1,150,922
693,255
Performance Share Plan (PSP) 2024 awards: António Simões will be granted an award with a face value of 300% of base pay and Jeff Davies
will be granted an award with a face value of 250% of base pay
For the 2024 award, the following performance measures will be used:
• TSR performance relative to the FTSE 100 (20% of award)
• TSR performance relative to a bespoke comparator group of companies (20% of award), noting that the bespoke comparator group will
be unchanged from the 2023 PSP
• EPS growth (40% of award)
• progress against published commitments in our Climate transition plan, aligned to our three-pillar strategy of Invest, Influence, Operate
(20% of award) as detailed in the table on the following page.
Vesting of the overall awards will also be subject to assessment against Solvency II objectives.
In setting targets for the 2024 PSP awards the Committee have considered:
the business plan over the next three years, market expectations of performance
the impact of the new IFRS 17 accounting standard on the timing of the reporting of profit
•
•
• progress against our published commitments with the Climate transition plan and projected progress over the performance period.
Based on these considerations the Committee considered it appropriate to for vesting to be based on performance as set out in the table
on the following page.
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Other information
Vesting
TSR performance
EPS growth
Progress against Climate transition plan
Portfolio GHG emission intensity reduction, from a YE19 baseline
(aligned with the pathway to achieving 50% reduction by 2030)
Investment portfolio temperature rating (SBTi metric) to achieve 2.1
degree portfolio alignment on listed equities and bonds
Progress on operational emissions SBT, from a YE21 baseline (aligned
with the pathway to achieving a 42% reduction in our absolute scope 1
and 2 GHG emissions by 2030)
40%
40%
20%
5%
5%
10%
Weighting
Below Threshold
Threshold
0%
Below median
< 5% p.a.
15%
Median
5% p.a.
Maximum
100%
80th percentile
14% p.a.
<37%
37%
43%
>2.2 degrees
2.2 degrees
2.1 degrees
<33%
33%
38%
In determining the final outcome for the Climate transition measures, the Remuneration Committee may make a downwards adjustment if they are not satisfied
that positive and sufficient progress has been made against our target of 70% of eligible AUM to be managed in alignment with net zero1.
The Remuneration Committee will also consider material market movements or business composition changes when assessing the final outcome and may
make adjustments to the outcome as a result.
Total shareholder return %
1. This reflects the important and significant impact that the Company has though influencing its investments whilst acknowledging the challenges in setting quantitative targets
at this point in time
Other remuneration information
Total shareholder return (TSR)
The chart shows the value, as at 31 December 2023, of £100 invested
in Legal & General shares on 31 December 2013, compared to £100
invested in the FTSE 100 on the same date. The FTSE 100 Index
was chosen as the comparator because the Company is a member
of this index.
As at 31 December 2023
150%
100%
50%
0%
-50%
Dec 13 Dec 14 Dec 15 Dec 16
Dec 17
Dec 18
Dec 19 Dec 20 Dec 21 Dec 22 Dec 23
Legal & General
FTSE 100
Group Chief Executive – historical remuneration information
The table below shows the remuneration of the Group Chief Executive in place at the time over the same period.
Year
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
Name
Sir Nigel Wilson
Sir Nigel Wilson
Sir Nigel Wilson
Sir Nigel Wilson
Sir Nigel Wilson
Sir Nigel Wilson
Sir Nigel Wilson
Sir Nigel Wilson
Sir Nigel Wilson
Sir Nigel Wilson
Group Chief Executive
single figure of
total remuneration
(£’000)
Annual variable
element against
maximum
opportunity
PSP vesting rates
against
maximum
opportunity
3,218
4,016
4,311
2,092
4,592
3,398
3,439
5,417
5,497
4,213
53.8%
91.4%
94.5%
23.5%
91.1%
80.4%
85.3%
87.8%
86.3%
90.7%
61.1%
52.3%
82.9%
24.2%
86.9%
48.7%
59.9%
76.6%
100%
100%
Due to the timing of the vesting of PSP awards, initially PSP figures within the single figure of remuneration are calculated based on the average
share price for the three months ended 31 December in the respective year. As noted under the single figure of remuneration table on page 104,
the figures are restated in the following year’s report to reflect the actual share price on the vesting date. The figures in the table above have been
restated to reflect the actual share price on vesting for the years 2014 – 2022.
Annual report on remuneration
Legal & General Group Plc Annual report and accounts 2023
109
Annual report on remuneration
continued
Scheme interests awarded during the financial year
The following table sets out details of deferred annual variable pay (AVP) and performance share plan (PSP) awards made in 2023.
The deferred AVP represented 50% of the total AVP award in 2023 and the PSP awards were granted over 250% of base pay.
Executive director
Sir Nigel Wilson
Jeff Davies
Reason for award
Award type
Awards granted in 2023
Grant price
£
Face value at grant price
£
PSP
Deferred AVP
PSP
Deferred AVP
Nil-cost option
Restricted shares
Nil-cost options
Restricted shares
1,128,422
297,929
693,347
183,215
2.381
2.366
2.381
2.366
2,686,998
704,999
1,650,998
433,548
Performance conditions for PSP awards granted in 2023
The PSP awards were granted on 6 April 2023. 25% of the award will vest based on TSR performance relative to the FTSE 100, 25% of the
award will vest based on TSR performance relative to a bespoke peer group (comprising Abrdn, Aegon, Ageas, Allianz, Assicurazioni Generali,
Aviva, AXA, CNP Assurances, Gjensidige Forsikring, Hannover Rueck, Lincoln National, M&G, Mapfre, Metlife, Muenchener Ruck, NN Group,
Phoenix Group, Principal Financial, Prudential Financial, Prudential, Sampo A, Swiss Re, Talanx and Zurich Insurance Group), and 50% of the
award will vest based on the EPS growth. Vesting will be based on performance as set out in the table below:
Vesting
TSR performance
EPS growth
Below threshold
0%
Below median
<5% p.a.
Threshold
15%
Median
5% p.a.
Maximum
100%
80th percentile
14% p.a.
Performance below threshold results in a nil vesting, and performance between threshold and maximum vests on a straight line basis
between 15% and 100% of maximum.
At the end of the three-year performance period commencing 1 January 2023, the Committee will assess whether the formulaic vesting
outcome is justified by looking at a number of factors including: whether the result is reflective of overall performance and has been achieved
within the company’s risk appetite, the Solvency II coverage ratio, the quality of earnings, the nature of any changes in leverage or key
assumptions and progress against long-term ESG objectives. If such considerations mean that the formulaic outcome of the vesting is not
considered to be justified, the Committee can amend the vesting downwards (but not increase the level of vesting).
Statement of directors’ shareholding and share interests
Total shareholding of executive directors:
Sir Nigel Wilson
Jeff Davies
Type
Shares
ESP
Options
Shares
ESP
Options
Owned outright/
vested shares
Subject to deferral/
holding period
3,937,380
24,078
–
583,235
5,678
–
611,669
6,712
1,245,121
369,235
993
743,594
Total vested and
unvested shares
(excludes any
shares with
performance
conditions)
4,549,049
30,790
1,245,121
952,470
6,671
743,594
Shares sold or acquired during the period
1 January 2024 and 5 March 2024
Owned outright/
vested shares
Subject to deferral/
holding period
–
150
–
–
150
–
–
85
–
–
85
–
Subject to
performance
conditions
–
–
2,909,143
–
–
1,777,473
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Other information
Shareholding requirement – executive directors
The shareholding requirement for all executive directors is 325% of base pay.
Actual share
ownership as % of 2023
base salary:
vested shares1
925%
224%
Shareholding
requirement met
Shares owned at
1 January 2023
Shares owned at
31 December 2023
Yes
No
3,658,708
411,246
3,961,458
588,913
Shares sold or acquired
during the period
1 January 2024
and 5 March 2024
235
235
Sir Nigel Wilson
Jeff Davies
1. Closing share price as at 31 December 2023: 251.1p
Notes
Shares used for the above calculation exclude those with performance conditions, any unexercised options, those shares subject to a period of deferral and any shares held
in a private trust where the executive director is not a trustee. They include vested shares where the executive director has beneficial ownership, shares independently acquired
in the market and those held by a spouse or civil partner or dependant child under the age of 18 years.
Although the shareholding requirement is not contractually binding, executive directors are expected to retain any after tax vested share
awards until their shareholding requirements are met, and maintain that shareholding requirement (or their actual shareholding at the date
of leaving, if lower) for at least two years after leaving employment. The Committee retains the discretion to withhold future grants under the
PSP if executives are not making sufficient progress towards their shareholding requirement. Once shareholding requirements have been met,
executive directors may sell shares in excess of the shareholding requirement if they wish. The Committee has discretion to allow executive
directors to sell shares prior to the shareholding requirement being met in extenuating situations, for example, a change to personal
circumstances or ill health, etc.
Share options exercised during 2023
PSP awards may be granted in the form of nil-cost options with an exercise date no earlier than the normal vesting date. Executive directors
may also participate in the company’s ShareSave Plan. Where such share awards have been exercised during 2023 they are shown below:
Executive director
Sir Nigel Wilson
Jeff Davies
Jeff Davies
Date of grant
Shares exercised
Exercise date
16/04/2018
16/04/2018
03/04/2020
240,105
132,097
4,522
19/04/2023
17/04/2023
01/06/2023
Share price at
date of exercise
£
2.533
2.490
2.288
Gain
£
608,186
328,922
1,348
Annual report on remuneration
Legal & General Group Plc Annual report and accounts 2023
111
Annual report on remuneration
continued
Sir Nigel Wilson payments for loss of office
Sir Nigel’s retirement was confirmed by the Company once regulatory approval for António’s appointment had been received and he will serve
his full 12 month notice period in order to ensure a smooth transition. Consistent with his service contract and the executive remuneration
policy, Sir Nigel will continue to receive his current base pay, pension and benefits until his retirement. Sir Nigel will not receive an AVP award
for performance in 2024 nor will he receive a PSP award in 2024.
Consistent with the remuneration policy and the rules of the SBP and PSP, Sir Nigel will be a good leaver and as such his outstanding share
awards will be treated in line with the good leaver provisions in the respective plan rules.
Unvested deferred share awards
Sir Nigel’s deferred AVP, awarded as restricted shares, for 2021, 2022 and 2023 will vest in accordance with the ordinary timescale, three years
from the date of grant, as set out in the table below.
AVP award
2020
2021
2022
Grant Date
13/04/2021
19/04/2022
06/04/2023
Vesting Date
13/04/2024
19/04/2025
06/04/2026
Value of award
No. of shares granted
Grant price
£172,850
£694,200
£705,000
58,520
255,220
297,929
£2.954
£2.720
£2.366
In addition, as set out on page 107, 50% of Sir Nigel’s FY23 AVP will be deferred and awarded as restricted shares vesting in April 2027.
Unvested PSP awards
In accordance with the rules of the PSP, upon retirement, a participant remains eligible to receive a proportion of their PSP awards already
granted, pro-rated for the period through to leaving, and subject to the normal performance conditions over the full performance period,
and released in accordance with the normal timescale.
Details of Sir Nigel’s unvested PSP awards and the maximum number of shares which may vest after pro-rating are shown in the table below.
Start date
01/01/2022
01/01/2023
End date
31/12/2024
31/12/2025
Date exercisable
No. of shares granted
Pro-rating Maximum no. of shares vesting
19/04/2027
06/04/2028
948,380
1,128,422
94%
61%
894,731
687,761
Sir Nigel will retain a shareholding in Legal & General Group of at least 325% of base pay for two years post-retirement in line with the executive
remuneration policy post-cessation shareholding requirements.
Non-executive directors’ remuneration – 2023
Non-executive directors’ fees
The fees for the Chair and non-executive directors were reviewed during 2023 and with effect from 1 August 2023 the fee for the Chair was increased
from £577,500 to £603,500. From 1 August 2023 the committee membership fee for the Audit, Risk and Remuneration Committees was increased
from £15,750 to £16,500. The fee for the Chair of the Data and Technology Committee was aligned with these committees, an increase from £31,500
to £42,000 and a membership fee of £16,500 was introduced for the Data and Technology Committee, in line with the fee for membership of the
Audit, Risk and Remuneration Committees.
All other non-executive director fees remained unchanged from 1 August 2022. The table below sets out the current fees.
Annual fees
Chair
Base fee
Additional fees:
Senior Independent Director
Designated Workforce Director
Committee Chair fee (Audit, Remuneration, Risk and Data and Technology Committees)
Committee membership fee (Audit, Remuneration, Risk and Data and Technology Committees)
Current fee
£
603,500
78,750
31,500
31,500
42,000
16,500
The current limit for base fees for non-executive directors is an aggregate of £3,000,000. This limit was approved by shareholders at the 2023
Annual General Meeting.
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The table below shows the actual fees paid to our non-executive directors in 2023 and 2022.
Non-executive
director
Sir John Kingman
Henrietta Baldock1
Chair N
N R Ri
Nilufer von Bismarck A D N Ri
Philip Broadley
A D N R Ri
Carolyn Johnson
Lesley Knox2
George Lewis3
Ric Lewis
Tushar Morzaria
Laura Wade-Gery
A D N
N R Ri
A N R Ri
N R Ri
A N R Ri
N D R Ri
Fees
for 2023
Benefits
for 20234
Total
remuneration
for 2023
Fees
for 2022
Benefits
for 2022
Total
remuneration
for 2022
588,333
245,042
149,250
157,437
110,875
251,122
218,686
110,875
152,875
146,750
–
130
–
1,777
28,051
3,170
54,844
–
–
–
588,333
245,172
149,250
159,214
138,926
254,292
273,530
110,875
152,875
146,750
561,458
207,625
162,313
163,542
58,665
232,583
174,830
107,188
89,252
97,562
–
–
292
1,615
–
3,471
12,870
–
–
348
561,458
207,625
162,605
165,157
58,665
236,054
187,700
107,188
89,252
97,910
Key:
NED Committee membership: A = Audit D = Data and Technology N = Nominations and Corporate Governance R = Remuneration Ri = Risk
1. Henrietta Baldock is also Chair of the Legal and General Assurance Society Board for which she receives a separate fee to that paid to her as a non-executive director
of the Company. The actual fees in the table above include her total fees for both roles.
2. Lesley Knox is also a NED of the Legal & General Investment Management (Holdings) Limited Board and was Chair until 22 September 2023, for which she receives a separate
fee to that paid to her as a non-executive director of the Company. The actual fees in the table above include her fees for both roles.
3. George Lewis is also Chair of the Legal and General Assurance (Pensions Management) Limited Board for which he receives a separate fee to that paid to him
as a non-executive director of the Company. The actual fees in the table above include his fees for both roles.
4. The Chair and non-executive directors are not eligible to participate in any benefits, pension or incentive plan. The amounts disclosed in the benefits section above relate
to taxable travel and accommodation expenses incurred while undertaking their roles as non-executive directors of the Company.
Shareholding requirements – non-executive directors
Non-executive directors are required to build up a shareholding equivalent to 100% of base fee, typically within three years of appointment.
Non-executive directors may elect to receive a proportion of their fees (normally 50%) in shares until their shareholding requirement is met.
The table below shows their shareholding as at 2 January 2024, taking into account share purchases in relation to December 2023 fees.
Name
Sir John Kingman
Henrietta Baldock
Nilufer von Bismarck
Philip Broadley
Carolyn Johnson1
Lesley Knox
George Lewis
Ric Lewis
Tushar Morzaria
Laura Wade-Gery2
Shareholding as at
2 January 2024
Shareholding as a %
of base fee
Guideline met
Shares purchased
from 3 January 2024
to 5 March 2024
355,720
60,784
45,691
92,260
6,500
77,600
58,905
51,239
60,000
23,996
148%
194%
146%
294%
104%
247%
188%
163%
191%
77%
Met
Met
Met
Met
Met
Met
Met
Met
Met
On target
1,969
2,907
–
–
–
–
–
4,054
–
2,188
1. Carolyn Johnson holds 6,500 Legal & General Group American Depositary Receipts.
2. Laura Wade-Gery is on track to meet the shareholding requirement within three years based on the value of her shareholding as a proportion of her fee.
Non-executive directors’ terms of employment
Sir John Kingman
Henrietta Baldock
Nilufer von Bismarck
Philip Broadley
Carolyn Johnson
Lesley Knox
George Lewis
Ric Lewis
Tushar Morzaria
Laura Wade-Gery
Initial
appointment date
24 October 2016
04 October 2018
01 May 2021
08 July 2016
17 June 2022
01 June 2016
Current letter of
appointment end date
24 October 2025
04 October 2024
01 May 2024
08 July 2025
17 June 2025
01 June 2025
01 November 2018
01 November 2024
18 June 2020
27 May 2022
18 June 2026
27 May 2025
03 January 2022
03 January 2025
The standard term for non-executive directors is three years and for the Chair is five years. All non-executive directors are subject to annual
re-election by shareholders.
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Legal & General Group Plc Annual report and accounts 2023
113
Annual report on remuneration
continued
Remuneration for employees below Board
General remuneration policy
The Group’s remuneration policy is designed to reward, motivate and retain high performers in line with the risk appetite of the Group. Remuneration
is considered within the overall context of the Group’s sector and the markets in which it operates. The policy for the majority of employees is to pay
around the relevant mid-market range with a competitive package designed to align the interests of employees with those of shareholders, and with
an appropriate proportion of total remuneration dependent upon performance.
We define core remuneration as base pay, annual bonus and other benefits such as pension. Key employees are also eligible to participate
in a long-term incentive plan, typically either the Share Bonus Plan (SBP) for the majority of employees or the Performance Share Plan (PSP)
for the most senior management.
Summary of the remuneration structure for employees below the Board
Element
Fixed
Base pay
Benefits
Pension
Variable
Annual bonus
Policy
We aim to attract and retain key employees by paying base pay which delivers competitive total remuneration.
Factors taken into account when determining salaries include:
• the individual’s skills, experience and performance
• scope of the role
• external market data
• pay and conditions elsewhere in the Group
• overall business performance.
As a member of the Living Wage Foundation, base pay is also set with reference to the Foundation’s UK and London living
wage levels. During 2023 the average increase was around 5.8% but with increases applied on a stratified basis with the
lowest paid employees (less than £25,000) receiving, on average, the highest increases (generally 7.5%). For 2024 the average
increase was 4.3%, applied again on a stratified basis with more junior employees receiving increases, on average, of 5%.
All UK employees have access to private medical insurance, life insurance, and a range of family-friendly policies (maternity,
paternity, adoption and shared parental leave). In addition there are several wellbeing support packages including Unmind
(a mental health app), childcare and elderly care support. Employees of non-UK business are provided with benefits in line
with the local market.
All employees are given the opportunity to participate in a group pension scheme. The pension opportunity offered
to the majority of the UK workforce in 2023 was 10% of base pay. With effect from 1 April 2024 the pension opportunity
for the majority of the UK workforce was increased to 11%, with further increases planned over the next 5 years to align
the pension opportunity with that for senior managers. Employees of non-UK business are provided with pension provision
in line with the local market practice and legislative requirements.
The majority of employees participate in a discretionary bonus plan, unless an alternative plan applies based on role.
An employee will be considered for a discretionary bonus award based on achievement against objectives, conduct
and behaviours, the role performed during that year and internal relativities.
The Group operates bespoke bonus plans where business appropriate. However, the Remuneration Committee has ultimate
discretion over all bonus plans.
Bonuses above a certain threshold are subject to deferral. Deferred awards are normally held in shares for three years
and are subject to malus and clawback.
The company reserves the right to adjust deferral levels for Material Risk Takers and Code staff as deemed necessary
to comply with regulatory requirements.
Share bonus plan (SBP)
Key employees, including senior managers, high performing and high-potential individuals and those with critical skills
may receive SBP awards, typically in the form of restricted shares vesting three years from the grant date.
SBP is also used as the vehicle for deferral of annual bonuses in the majority of cases.
Performance
share plan (PSP)
Participation in the PSP is offered to a small number of senior management each year in recognition of the strategic
and influential role that they hold in terms of driving company performance, as well as their individual contribution.
Participation in the plan for one year does not guarantee participation in future years.
PSP awards were made to around 18 employees during 2023.
Where appropriate, grants under the PSP may also be made for new employees who join the company during the year
in key roles.
Other
Employee
share plans
All employees are given the opportunity to participate in a ShareSave plan and an Employee Share Purchase plan.
These are both HMRC-approved plans which offer all employees the opportunity to share in the success of the business.
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Annual equal pay review
The Group seeks to ensure that our pay policies and practices are free from unfair bias. Part of the pay review process is an annual equal pay review
that reviews pay and bonus decisions by gender, ethnicity, age and full-time versus part-time working. In addition, it considers the application of the
pay policy more widely, in particular looking at decisions made in the annual pay review across grades, functions and divisions.
Gender pay reporting
The Group has published a new Social impact report, which contains the statutory disclosure of our gender pay gap for 2023.
Pay ratio in relation to the Group Chief Executive Officer
Since 2016 we have voluntarily disclosed details of the pay ratio in relation to the Group Chief Executive Officer and the wider UK employee
population. From 2018 we made some amendments to how we report the information in order to align with the reporting requirements set
out by the Department for Business, Energy and Industrial Strategy (BEIS), which came into effect for financial years starting 1 January 2019.
The tables below provide the ratio between the base pay and single figure total remuneration of the Group Chief Executive Officer and the base
pay and total remuneration of UK employees at the upper quartile (75th percentile), median (50th percentile) and lower quartile (25th percentile).
Total remuneration
Year
2023
2022
2021
2020
2019
2018
2017
Base pay
Year
2023
2022
2021
2020
2019
2018
2017
Method
75th percentile
Median
25th percentile
75th percentile
Median
25th percentile
Pay ratio
All UK employees £
B
A
A
A
A
A
A
33
46
52
26
61
49
52
54
77
88
48
105
83
89
95
135
146
81
167
132
137
97,774
87,152
82,475
78,989
70,892
69,923
66,572
59,094
51,834
49,226
43,726
40,982
40,814
38,802
33,950
29,804
29,531
25,839
25,814
25,730
25,023
Method
75th percentile
Median
25th percentile
75th percentile
Median
25th percentile
Pay ratio
All UK employees £
B
A
A
A
A
A
A
13
14
14
15
16
16
16
22
23
23
26
27
27
27
36
38
38
42
42
41
42
79,125
72,530
68,675
65,101
60,000
57,853
58,020
48,069
44,549
42,444
37,677
35,000
34,475
33,649
30,000
26,875
26,000
23,232
22,550
22,781
22,148
Pay ratio commentary
Between 2022 and 2023 the ratio of total remuneration for the Group CEO compared to UK employees has decreased. The decrease is principally
the result of the lower value of variable remuneration for the Group CEO in 2023, in particular the lower AVP award, which has contributed to around
a 20% reduction in the single figure total remuneration when compared with 2022. Variable remuneration makes up a greater proportion
of remuneration for Executive Directors and senior managers compared to the wider workforce and is more directly linked to financial performance.
Methodology
The Companies (Miscellaneous Reporting) Regulations 2018 permit different options for calculating the pay ratio. We have chosen option B as our
method for calculating the pay ratio for 2023, consistent with the methodology for gender pay reporting. The total remuneration figures for the UK
employees are based on salaries at 1 December 2023. Bonus amounts for 2023 are not able to be determined for some eligible employees until
after publication of this report, and therefore it is not possible to determine the exact 2023 total remuneration for all UK employees as is required
for option A within this timescale. For completeness and transparency, we have included the pay ratios based on the option A method for previous
years and we will also retrospectively disclose the pay ratio for 2023 based on the option A method in the 2024 report. We do not believe that this
will result in pay ratio figures that are materially different to the 2023 figures disclosed above.
Social impact report
Our 2023 Social impact report is
available on our Group website.
See: group.legalandgeneral.com/reports
Annual report on remuneration
Legal & General Group Plc Annual report and accounts 2023
115
Annual report on remuneration
continued
Percentage change in directors’ 2023 remuneration compared with all UK employees
As required by the Companies (Directors’ Remuneration Policy and Directors’ Remuneration Report) Regulations 2019, the analysis covers
all executive directors and non-executive directors.
Year ended 31 December 2023
Year ended 31 December 2022
Year ended 31 December 2021
Year ended 31 December 2020
Base pay/
fees
(% change)
Benefits
(% change)
AVP
(% change)
Base pay/
fees
(% change)
Benefits
(% change)
AVP
(% change)
Base pay/
fees
(% change)
Benefits
(% change)
AVP
(% change)
Base pay/
fees
(% change)
Benefits
(% change)
AVP
(% change)
4.6%
4.9%
(25.4)% (38.5)%
(13.7)%
(39.8)%
4.2%
5.9%
4.1%
4.0%
1.6%
6.3%
0.0%
0.0%
3.3%
0.7%
301.6%
282.2%
3.4%
6.6%
3.4%
6.3%
(73.2)%
(72.1)%
4.8%
18.0%
(8.0)%
(3.7)%
2.0%
8.0%
25.1%
3.4%
2.3%
50.4%
5.7%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
5.1%
3.4%
59.7%
5.0%
n/a
3.5%
69.9%
8.1%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
4.2%
0.8%
n/a
28.7%
n/a
2.8%
11.0%
7.8%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
3.3%
4.5%
n/a
3.6%
n/a
1.9%
4.9%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
5.7%
5.2%
4.7%
4.7%
(0.3)%
2.4%
2.4%
19.6%
3.5%
3.5%
2.7%
Executive directors
Sir Nigel Wilson
Jeff Davies
Chair and
Non Executive Directors1
Sir John Kingman
Henrietta Baldock
Nilufer von Bismarck
Philip Broadley
Carolyn Johnson2
Lesley Knox
George Lewis
Ric Lewis
Tushar Morzaria2
Laura Wade-Gery3
Average for UK employees
1.
2.
The increase in fees for non-executive directors of the company reflects the increases in committee membership fees as well as changes in the membership of the committees.
Tushar Morzaria and Carolyn Johnson were appointed to the Board on 22 May 2022 and 17 June 2022 respectively, and the percentage increases for these non-executive directors
are based on the change in annualised fees for 2022 compared with 2023.
3. The increase in fees for Laura Wade-Gery reflects her increased committee memberships and the increase in fee for her role as the Chair of the Data and Technology Committee.
As with prior years, the whole UK employee population has been selected as the comparator group. This group was chosen because it includes a wider
cross section of the Group’s employees. The increase in benefits for the employee comparator group relates to the impact of base pay increases.
Relative importance of spend on pay
The chart opposite shows the relative importance of expenditure on pay
compared to share dividends, adjusted operating profit and tax for the
year. Adjusted operating profit has been shown because it is a key
performance indicator of the business. Further information on tax is on
pages 233 to 237. No share buybacks were made in 2022 or 2023.
(£m)
2,500
2,000
1,500
1,000
500
0
-500
0.24% increase
5.02% increase
9.63% increase
526.74% decrease
Share dividends
Adjusted operating
profit
Tax
Expenditure on pay
2022
2023
116
Legal & General Group Plc Annual report and accounts 2023
Governance
Strategic report
Governance
Financial statements
Other information
Remuneration Committee
The table below shows the members and attendees of the Remuneration Committee during 2023.
Committee members, attendees and advice
Meetings in 2023
During 2023, the Committee met eight times and in addition had ongoing dialogue via email and other telecommunications. An outline of the
Committee undertakings in each quarter during 2023 is shown in the table below. During 2023, the Remuneration Committee comprised the
following non-executive directors:
Non-executive
director
Lesley Knox
Henrietta Baldock
Philip Broadley
George Lewis
Ric Lewis
Tushar Morzaria
Laura Wade-Gery
Committee undertakings
Number of Remuneration Committee meetings
attended during 2023
Scheduled
Ad-hoc
5/5
5/5
5/5
5/5
5/5
5/5
5/5
3/3
3/3
3/3
2/3
3/3
3/3
3/3
Quarter
First
Second
Third
Fourth
Governance
Performance
Remuneration policy
Regulatory
• Reviewed the 2022 gender pay
gap report.
• Reviewed findings of board
effectiveness evaluation.
• Reviewed findings of the
CRO report, 2023 Climate
report and group-wide culture
review.
• Approved the 2023 AVP
performance measures.
• Approved 2023 PSP and
SBP awards.
• Approved the 2022/23 annual
• Approved the 2023 ShareSave
pay review and executive
pay awards.
• Approved vesting of the
2020 PSP.
invitation.
• Reviewed proposals for the
introduction of a divisional
long term incentive plan.
• Reviewed outcomes of AGM.
• Reviewed 2023 gender pay
gap figures.
• Reviewed and approved
the Committee’s terms
of reference.
• Reviewed report on the
activities of the Group Reward
Steering Committee in 2023.
• Financial update and indicative
• Reviewed and approved
variable pay update for
executive teams.
• Reviewed PSP vesting
forecasts and debated
potential windfall gains in
relation to 2021 PSP awards.
proposals for alignment of
senior management and wider
workforce employer pension
contributions.
• Reviewed proposals for senior
management grading review.
• Consideration of AVP out-turns
• Reviewed remuneration policy
in respect of 2023.
for the wider workforce.
• Reviewed AVP and PSP
performance measures and
targets for 2024.
• Reviewed Code staff lists.
• Approved remuneration policy
statements for FCA and PRA.
• Approved the 2024 maximum
fixed to variable pay ratio for
IFPR regulated firms.
At the invitation of the Remuneration Committee, the Group Chair attends Committee meetings. Where appropriate, the Group Chief Executive,
the Group HR Director, Group Reward Director, Head of Executive Compensation, Director of Group Finance, Group Chief Risk Officer and Group
Climate Director also attend meetings. No person is present during any discussion relating to that person’s own remuneration.
At the invitation of the Remuneration Committee, a representative from PricewaterhouseCoopers (PwC) also attends Committee meetings.
During 2023, PwC principally advised the Committee on external developments affecting remuneration as well as specific matters raised by the
Remuneration Committee. PwC were appointed by the Committee. The Committee reflects on the quality of advice provided and whether it properly
addresses the issues under consideration as part of its normal deliberations. The Committee is satisfied that the advice received from the PwC
engagement team is objective and independent. PwC are signatories to the Remuneration Consultants’ Group Code of Conduct in relation to
executive remuneration consulting in the UK. The total fees paid to PwC in relation to Remuneration Committee work during 2023 were £198,600
(excluding VAT). While fee estimates are required for bespoke pieces of work, fees are generally charged based on time with hourly rates in line with
the level of expertise and seniority of the advisor concerned. During the year, PwC also provided the company with HR consulting services including
advice to management on regulatory aspects of reward, as well as other professional services including tax, consulting, accounting, regulatory
compliance, and other advice to the Group.
Annual report on remuneration
Legal & General Group Plc Annual report and accounts 2023
117
Annual report on remuneration
continued
Considering risk
The Reward Steering Committee (RSC) and the Group Regulatory Risk and Compliance Function make a key contribution to the process of designing
reward structures and evaluating whether achievement of objectives and any payment from plans have taken into account the overall risk profile
of the Group.
Reward Steering Committee (RSC)
Reporting to the Remuneration Committee, the RSC helps set the framework within which incentive arrangements are normally reviewed and
implemented, with a view to supporting business strategy, whilst acting within the Group’s risk appetite. The members of the RSC include the Group
Chief Risk Officer, Non-financial Risk Director, Regulatory Risk Director, LGIM Chief Compliance Officer, the Director of Group Finance, the Group
Reward Director and the Head of Executive Compensation.
Where a business unit tables a proposal for consideration, the relevant business manager is required to attend the RSC meeting to explain
the background and to answer any questions from the RSC.
Group Regulatory Risk and Compliance Function
The Remuneration Committee also works closely with the Group Regulatory Risk and Compliance Function with respect to remuneration proposals.
In particular, the function reports to the Committee on an annual basis on whether any risks have been taken outside of pre-agreed parameters,
whether there have been regulatory breaches, or whether they are aware of any other considerations that may lead the Committee to consider
whether it should impact payments to employees (including in particular the executive directors and Code staff).
The Group Chief Risk Officer also specifically looks at the overall risk profile of the Group and whether executive directors have achieved objectives
within the Group’s accepted risk appetite, and also reviews the executive directors’ objectives for the forthcoming year to ensure they are in line with
the risk parameters.
Since the implementation of a new Solvency II remuneration policy in 2016, the scope of the Group Chief Risk Officer’s report has been extended
to consider whether there are any risk considerations which may warrant adjustments to the overall level of corporate annual variable pay awards.
Engagement with key stakeholders
The Committee seeks to maintain an active and productive dialogue with investors on developments in the remuneration aspects of corporate
governance and any changes to the Group’s executive pay arrangements. During 2022, we reviewed our approach to remuneration in the context
of future business strategy, updated investor guidelines and evolving best practice, and sought feedback from shareholders and representative
bodies. The responses that we received helped shape our thinking with respect to the new remuneration policy which was approved by shareholders
at the 2023 AGM in May 2023.
During 2024 the Committee will continue to closely examine our remuneration principles and policies to ensure they remain appropriate in the
context of future business strategy, updated investor guidelines and evolving best practice and will consult with the Group’s largest shareholders
on any proposed changes.
We engaged regularly with our workforce throughout 2023, including via our workforce representative bodies Unite (the trade union) and our
Management Consultative Forum on a number of topics, including pay, and propose to continue this dialogue in 2024, including in relation
to our new remuneration policy.
118
Legal & General Group Plc Annual report and accounts 2023
Governance
Strategic report
Governance
Financial statements
Other information
Statement of voting at the Annual General Meeting (AGM) 2023
The table below shows the voting outcomes on the directors’ remuneration policy and the directors’ remuneration report at the last AGM
in May 2023.
Item
Remuneration policy
Remuneration report
For
95.46%
3,646,065,245
95.71%
3,655,778,819
Against
4.54%
173,407,374
4.29%
163,680,654
Abstain number
1,515,264
1,524,911
Dilution limits
The Company’s share plans operate within the Investment Association’s dilution limit of 5% of issued capital in 10 years for executive schemes,
and all its plans will operate within the limit of 10% of issued capital in 10 years for all schemes.
As at 31 December 2023, the Company had 4.93% of share capital available under the 5% in 10 years limit and 9.56% of share capital under
the 10% in 10 years limit.
As at 31 December 2023, 59,773,855 shares were held by the Employee Benefit Trust in respect of outstanding awards of 78,896,736 shares
for the PSP and SBP.
Other information relating to directors’ remuneration
External appointments
During 2023, Sir Nigel Wilson held no external appointments. Jeff Davies was a non-executive director for Ethniki Hellenic General Insurance
Company S.A.
External appointments are subject to annual agreement by the Board and must not be with competing companies. Fees may be retained
by the individual subject to the Board’s agreement.
Annual report on remuneration
Legal & General Group Plc Annual report and accounts 2023
119
120
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Strategic report
Governance
Governance
Financial statements
Financial statements
Other information
Other information
Financial
statements
Group consolidated financial statements 122
123
Independent auditor’s report
138
Primary statements and performance
174
Balance sheet management
232
Additional financial information
256
Company financial statements
Our networks
We dressed our London office
for Pride in London 2023. Our
L&GBT+Allies network arranged
participation in the London,
Cardiff, and Brighton & Hove
marches. L&GBT+Allies is just
one of our award winning
employee resource groups,
which work to foster a culture
of diversity and inclusion
across the Group.
Our networks:
• Culture Club
• Ability Network
• Family & Carers Exchange
(“FACE”)
• Women’s Network
• Health & Wellbeing
• L&GBT+Allies Network
• Neurodiversity Network
• Social-Economic Mobility
(“SEM”)
• The Military Network
Financial statements
Legal & General Group Plc Annual report and accounts 2023
121
121
Group consolidated financial statements
Consolidated financial statements
The Group consolidated financial statements are divided into three sections:
• The Primary statements and performance section, which includes the Group primary statements and other notes which we believe are
integral to understanding our financial performance.
• The Balance sheet management section, which provides further details on our financial position and approach to risk management.
• The Additional financial information section, which includes disclosures required to be compliant with accounting standards or the
Companies Act. We view this information as important, but less significant in understanding our business and performance.
Additional financial information
27. Investment return
28. Tax
29. Auditor’s remuneration
30. Employee information
31. Share-based payments
32. Share capital, share premium and
employee scheme treasury shares
33. Restricted Tier 1 convertible notes
34. Non-controlling interests
35. Other liabilities
36. Related party transactions
37. Contingent liabilities, guarantees
and indemnities
38. Commitments
39. Associates and joint ventures
40. Related undertakings
41. Interests in structured entities
Company financial statements
232
233
237
238
238
240
240
240
241
241
242
242
242
243
254
256
Contents
Group consolidated financial statements
Independent auditor’s report to the members of
Legal & General Group Plc
Primary statements and performance
Consolidated Income Statement
138
Consolidated Statement of Comprehensive Income 139
140
Consolidated Balance Sheet
141
Consolidated Statement of Changes in Equity
143
Consolidated Statement of Cash Flows
1. Basis of preparation and accounting policies
144
2. Adjusted operating profit information and
123
segmental analysis
Insurance service and other expenses
3.
4. Dividends
5. Earnings per share
167
172
172
173
Balance sheet management
174
6. Principal products
177
7. Asset risk
179
8. Balance sheet analysis
181
9.
Intangible assets
10. Property, plant and equipment
182
11. Financial investments and investment property 183
189
12. Derivative assets and liabilities
191
13. Receivables and other assets
191
14. Cash and cash equivalents
192
15. Market risk
195
16. Credit risk
198
17.
199
18. Long-term insurance valuation assumptions
202
19. IFRS sensitivity analysis
204
20. Insurance contract liabilities
220
21. Investment contract liabilities
221
22. Borrowings
225
23. Provisions
227
24. Payables and other financial liabilities
228
25. Leases
229
26. Management of capital resources
Insurance risk
122
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
Independent auditor’s report to the members of Legal & General Group Plc
1. Our opinion is unmodified
In our opinion:
•
•
•
•
the financial statements of Legal & General Group Plc give a true and fair view of the state of the Group’s and of the parent company’s affairs
as at 31 December 2023 and of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards;
the parent company financial statements have been properly prepared in accordance with UK accounting standards, including FRS 101
Reduced Disclosure Framework; and
the Group and parent company financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
What our opinion covers
We have audited the Group and parent company financial statements of Legal & General Group Plc (the Company) for the year ended 31 December
2023 (2023) included in the Annual report and accounts, which comprise:
Legal & General Group Plc and its subsidiaries
Parent company (Legal & General Group Plc)
Consolidated Income Statement, Consolidated Statement of Comprehensive
Income, Consolidated Balance Sheet, Consolidated Statement of Changes in
Equity and Consolidated Statement of Cash Flows
Company Balance Sheet and Company Statement of Changes in Equity
Notes 1 to 41 to the Group financial statements, including the accounting
policies in Note 1.
Notes 1 to 13 to the parent company financial statements, including the
accounting policies in Note 1.
Group consolidated financial statements
Legal & General Group Plc Annual report and accounts 2023
123
Group consolidated financial statements
continued
Independent auditor’s report to the members of Legal & General Group Plc continued
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities are
described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion and
matters included in this report are consistent with those discussed and included in our reporting to the Audit Committee.
We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical requirements including
the FRC Ethical Standard as applied to listed public interest entities.
Key audit matters
vs 2022
Item
Valuation of UK annuity policyholder liabilities
Valuation of hard to value (Level 3) investments
Parent company risk: Recoverability of parent
company’s investments in subsidiaries
4.1
4.2
4.3
2. Overview of our audit
Factors driving our view of risks
Following our 2022 audit, and considering developments affecting the Group
since then, we have updated our audit risk assessment for Key Audit Matters
(KAMs) previously identified.
The risk associated with the valuation of UK annuity policyholder liabilities
KAM (4.1) is predominantly driven by the inherent subjectivity associated with
the longevity, expense and credit risk assumptions for UK annuity policyholder
liabilities. We continue to consider the impact of external factors such as the
current uncertain economic conditions including high inflation and higher market
interest rates affecting the credit risk of assets backing annuity liabilities and the
result of excess deaths on longevity assumptions. The risk in the current year has
been further elevated due to the first time adoption of IFRS 17 Insurance contracts
requiring certain methodologies and assumptions to be determined for the first
time and applied retrospectively.
The risk associated with the valuation of hard to value (Level 3) investments KAM
(4.2) is predominantly driven by the significant estimation uncertainty associated
with valuing Level 3 investments, specifically UK lifetime mortgages, private credit
portfolios, and investment property.
We have removed the pre-transition IFRS 17 insurance contract disclosure KAM
from our 2022 report and included the relevant risks within the valuation of UK
annuity policyholder liabilities KAM (4.1).
The continuing financial significance of the parent company’s investment in
subsidiaries drives the identification of recoverability of the parent company’s
investment in subsidiaries as a key area of focus for the parent company’s audit
(4.3).
Audit Committee interaction
During the year, the Audit Committee met 6 times. KPMG are invited to attend all Audit Committee meetings and are provided with an opportunity to meet with the
Audit Committee in private sessions without the Executive Directors being present. For each Key Audit Matter, we have set out communications with the Audit
Committee in Section 4, including matters that required particular judgement.
The matters included in the Audit Committee report on page 86 are materially consistent with our observations of those meetings.
Our independence
We have fulfilled our ethical responsibilities under, and we remain independent of
the Group in accordance with, UK ethical requirements including the FRC Ethical
Standard as applied to listed public interest entities.
We have not performed any non-audit services during 2023 or subsequently
which are prohibited by the FRC Ethical Standard.
We were first appointed as auditor by the directors for the year ended
31 December 2018. The period of total uninterrupted engagement is for the
6 financial years ended 31 December 2023.
The Group engagement partner is required to rotate every 5 years. As these are
the first set of the Group’s financial statements signed by Philip Smart, he will be
required to rotate off after the 2027 audit.
The average tenure of partners responsible for component audits as set out in
Section 7 below is 3 years, with the shortest being 1 and the longest being 5.
Total audit fee
Audit related fees (including interim review)
Other services
Non-audit fee as a % of total audit and audit related fees
Date first appointed
Uninterrupted audit tenure
Next financial period which requires a tender
Tenure of Group engagement partner
Average tenure of component signing partners
£19.6m
£2.6m
£0.9m
4.1%
17 May 2018
6 years
2028
1 year
3 years
124
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
Materiality (Item 6 below)
The scope of our work is influenced by our view of materiality and our assessed
risk of material misstatement.
Materiality levels used in our audit
Materiality levels used in our audit
Group
We have determined overall materiality for the Group financial statements as a
whole at £82.9m (2022: £113.0m) and for the parent company financial
statements as a whole at £33.0m (2022: £45.0m).
Consistent with 2022, we determined that profit before tax from continuing
operations (PBTCO) normalised to exclude this year’s investment and other
variances and losses attributable to non-controlling interests remains the
benchmark for the Group due to its importance to users of the financial
statements because the share price is more sensitive to changes in the PBTCO
than other metrics. As such, we based our Group materiality on the normalised
PBTCO of which it represents 4.87% (2022: 4.71% with reference to a benchmark
under IFRS 4).
In addition, we applied materiality of £3.3bn (2022: £3.3bn) to the unit linked
assets and liabilities in the Consolidated Balance Sheet, Consolidated Income
Statement and related notes, of which it represents 0.9% (2022: 0.9%) of unit
linked assets and liabilities, in accordance with FRC Practice Note 20 The Audit
of Insurers in the United Kingdom.
Materiality for the parent company financial statements as a whole was set at
£33.0m (2022: £45.0m), which is the component materiality for the parent
company determined by the Group audit engagement team. This is lower than
the materiality we would otherwise have determined with reference to parent
company net assets (2022: total assets), of which it represents 0.47% (2022:
0.36%). We selected net assets as the benchmark in the current period due to
the users of the financial statements focus on the parent entity’s capital and
distributions.
GPM
HCM
PCM
LCM
12.0
16.0
AMPT
3.7
5.7
2023
2022
113.0
82.9
84.8
84.0
53.8
53.0
33.0
45.0
Group
Group Materiality
GPM
HCM
PCM
LCM
Group Performance Materiality
Highest Component Materiality
Parent Company Materiality
Lowest Component Materiality
AMPT
Audit Misstatement Posting Threshold
Group scope (Item 7 below)
We have performed risk assessment and planning procedures to determine
which of the Group’s components are likely to include risks of material
misstatement to the Group financial statements, the type of procedures to be
performed at these components and the extent of involvement required from
our component auditors around the world.
Coverage of group financial statements
Coverage of Group financial statements
Total assets
88%
5%
1%
6%
Profit before tax
82%
11%
6%
1%
We have performed audit procedures centrally across the Group, set out in more
detail in Section 7.
Of the Group’s 16 (2022: 12) in-scope reporting components, we subjected 7
(2022: 7) to full scope audits for Group purposes, 3 (2022: 1) to audit of account
balance and 6 (2022: 4) to specified risk-focused audit procedures. The latter
were not individually financially significant enough to require a full scope audit
for Group purposes but did present specific individual risks that needed to be
addressed. We have increased our in-scope reporting components in 2023 as
a result of the reduction in insurance profits under IFRS 17 as a portion of the
Group’s profit before tax to ensure we have sufficient coverage over profit
metrics. The components within the scope of our work accounted for the
percentages illustrated opposite.
In addition, we have performed Group level analysis on the remaining
components to determine whether further risks of material misstatement exist
in those components, set out in more detail in Section 7. For the residual
components, we performed analysis at an aggregated Group level to re-examine
our assessment that there were no significant risks of material misstatement
within these.
The Group team visited component locations in London, Edinburgh, and
Baltimore, USA to assess the audit risk and strategy and the component team
responses and findings to the identified risks. Video and telephone conference
meetings were also held with those component auditors that were not physically
visited. At these visits and meetings, the findings reported to the Group team
were discussed in more detail, and any further work required by the Group team
was then performed by the component auditor. Further details are set out in
Section 7.
We consider the scope of our audit, as communicated to the Audit Committee,
to be an appropriate basis for our audit opinion.
Revenue
90%
10%
Full scope audits
Audits of one or more account balances
Specified risk-focused audit procedures
Remaining components
Group consolidated financial statements
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Group consolidated financial statements
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Independent auditor’s report to the members of Legal & General Group Plc continued
On the basis of the risk assessment procedures performed above and taking
into account the nature of the Group’s assets and basis of the related valuations,
we concluded that, while climate change may pose a risk to the determination of
asset values, the risk was not significant in the current year. As a result, there
was no significant impact from climate change on our KAMs.
We have also read the disclosures of climate related information in the Strategic
Report as set out on pages 41 to 45 and considered consistency with the
financial statements and our audit knowledge. We have not been engaged to
provide assurance over the accuracy of these disclosures.
The impact of climate change on our audit
In planning our audit, we have considered the potential impact of climate change
on the Group’s business and its financial statements.
Climate change, and the associated initiatives and commitments, impact the
Group in a variety of ways including the potential financial risks which could
arise from the associated physical and transition risks and the greater narrative
and disclosure of the impact of climate change risk that is incorporated into the
Annual report and accounts. The Group’s exposure to climate change is
primarily through climate related transition risks which potentially impact the
carrying amount of investments and potential reputational risk associated with
the Group’s delivery of its climate related commitments. The Group has set out
its commitments under the Paris objective to achieve net zero carbon emissions
by 2050 in its Strategic Report on page 45.
As a part of our audit we have made enquiries of management to understand
the extent of the potential impact of climate change risk on the Group’s financial
statements, including how climate is considered as part of the investment
making and monitoring processes, and the Group’s preparedness for this.
We have performed a risk assessment of how the impact of climate change
may affect the financial statements and our audit. This included evaluating the
impact of management’s stress test scenarios and holding discussions with
our own climate change professionals to challenge our risk assessment.
3. Going concern, viability and principal risks and uncertainties
The directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Group or the parent company
or to cease their operations, and as they have concluded that the Group’s and the parent company’s financial position means that this is realistic.
They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to continue as a going
concern for at least a year from the date of approval of the financial statements (“the going concern period”).
Going concern
We used our knowledge of the Group and parent company, its industry, and the
general economic environment in which it operates to identify the inherent risks
to its business model and analysed how those risks might affect the Group and
parent company’s financial resources or ability to continue operations over the
going concern period. The risks that were considered most likely to adversely
affect the Group’s and parent company’s available financial resources over this
period were:
• Adverse impacts arising from fluctuations or negative trends in the economic
environment including, but not limited to, wider credit spreads and defaults
which affect regulatory capital solvency coverage ratios, liquidity ratios, the
valuations of the Group’s hard to value (Level 3) investments that require
judgement and valuation of insurance contract liabilities; and
Our conclusions
• We consider that the directors’ use of the going concern basis of accounting
in the preparation of the financial statements is appropriate;
• We have not identified, and concur with the directors’ assessment that there is
not, a material uncertainty related to events or conditions that, individually or
collectively, may cast significant doubt on the Group’s or parent company’s
ability to continue as a going concern for the going concern period;
• We have nothing material to add or draw attention to in relation to the directors’
statement in Note 1 (ii) to the financial statements on the use of the going
concern basis of accounting with no material uncertainties that may cast
significant doubt over the Group and parent company’s use of that basis for the
going concern period, and we found the going concern disclosure in Note 1 (ii)
to be acceptable; and
• Severely adverse policyholder lapse or claims experience.
• The related statement under the Listing Rules set out on page 267 is materially
consistent with the financial statements and our audit knowledge.
We also considered less predictable but realistic second order impacts, such
as the failure of counterparties who have transactions with the Group (such as
banks and reinsurers), which could result in a rapid reduction of available
financial resources.
We considered whether these risks could plausibly affect the liquidity in the
going concern period by comparing severe, but plausible downside scenarios
that could arise from these risks individually and collectively against the level
of available financial resources by the Group’s financial forecasts.
We considered whether the going concern disclosure in Note 1 (ii) to the
financial statements gives an accurate description of the directors’ assessment
of going concern, including the identified risks and related sensitivities.
Accordingly, based on those procedures, we found the directors’ use of the
going concern basis of preparation without any material uncertainty for the
Group and parent company to be appropriate. However, as we cannot predict all
future events or conditions and as subsequent events may result in outcomes
that are inconsistent with judgements that were reasonable at the time they
were made, the above conclusions are not a guarantee that the Group or the
parent company will continue in operation.
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Other information
Our reporting
We have nothing material to add or draw attention to in relation to these
disclosures.
We have concluded that these disclosures are materially consistent with the
financial statements and our audit knowledge.
Disclosures of emerging and principal risks and longer-term viability
Our responsibility
We are required to perform procedures to identify whether there is a material
inconsistency between the directors’ disclosures in respect of emerging and
principal risks and the viability statement, and the financial statements and our
audit knowledge.
Based on those procedures, we have nothing material to add or draw attention
to in relation to:
• the directors’ confirmation within the viability statement on page 56 that they
have carried out a robust assessment of the emerging and principal risks facing
the Group, including those that would threaten its business model, future
performance, solvency and liquidity;
• the risks and uncertainties disclosures describing these risks and how
emerging risks are identified and explaining how they are being managed and
mitigated; and
• the directors’ explanation in the viability statement of how they have assessed
the prospects of the Group, over what period they have done so and why they
considered that period to be appropriate, and their statement as to whether they
have a reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the period of their
assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
We are also required to review the viability statement set out on page 55 under
the Listing Rules.
Our work is limited to assessing these matters in the context of only the
knowledge acquired during our financial statements audit. As we cannot
predict all future events or conditions and as subsequent events may result in
outcomes that are inconsistent with judgements that were reasonable at the
time they were made, the absence of anything to report on these statements is
not a guarantee as to the Group’s and parent company’s longer-term viability.
4. Key audit matters
What we mean
KAMs are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant
assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on:
• the overall audit strategy;
• the allocation of resources in the audit; and
• directing the efforts of the engagement team.
We include below the Key Audit Matters in decreasing order of audit significance together with our key audit procedures to address those matters and our results from
those procedures. These matters were addressed, and our results are based on procedures undertaken, for the purpose of our audit of the financial statements as a
whole. We do not provide a separate opinion on these matters.
Group consolidated financial statements
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Group consolidated financial statements
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Independent auditor’s report to the members of Legal & General Group Plc continued
4.1 Valuation of UK annuity policyholder liabilities (Group)
Financial statement elements
UK annuity policyholder liabilities
included within insurance contract
liabilities
Description of the key audit matter
2023
£86.706bn
2022
£73.729bn
Transition
£93.627bn
We have identified increased risk in
2023 compared to 2022 driven by the
first year of implementation of IFRS 17.
2023: Acceptable
2022: Acceptable
Transition: Acceptable
Our assessment of risk vs 2022
Our results
The implementation of IFRS 17 has resulted in the entity applying the transitional
rules in the standard which have a consequential effect on the transition date
balance sheet, subsequent balance sheets and the period profit and loss
accounts. The insurance contract liabilities balance now primarily consists of the
present value of future cash flows, risk adjustment for non-financial risk and
contractual service margin (CSM) components.
Subjective valuation:
The valuation of insurance contract liabilities is an inherently subjective area,
requiring management judgement in the setting of key assumptions. The
longevity, credit risk, and expense assumptions involve the greatest level of
subjectivity. A small change in these assumptions can have a significant impact
on the estimates of future cash flows. We consider the risk to remain heightened
in the current year due to the higher degree of estimation uncertainty resulting
from changes in demographic trends, including those triggered by the
Coronavirus pandemic (Covid-19) and ongoing economic uncertainties as a
result of high inflation and higher market interest rates.
The risk in the current year has been further elevated due to the first-time
adoption of IFRS 17 Insurance Contracts requiring certain methodologies and
assumptions to be determined for the first time.
Longevity assumptions
Longevity assumptions have two main components: mortality base assumptions
and the rate of mortality improvements. The changing trends in longevity and
emerging medical trends mean there is a high level of uncertainty in the
assumptions. This uncertainty continues to be heightened in the current year due
to the potential medium and long-term impacts of a variety of factors that are
driving excess deaths. There is also a high degree of reliance on Continuous
Mortality Investigations (CMI) models. Hence, there is a risk that other mortality
and health data sources are not appropriately considered under the assumption
setting methodology.
Credit assumptions
The Group’s current discount rates are derived by adjusting a reference asset
portfolio for risks not present in the related insurance liabilities, in particular
credit risk, such that the discount rate includes a yield above the risk-free rate
that appropriately reflects the risks in the liabilities, in particular their illiquid
nature. The credit risk deduction methodology is judgmental and small changes
in this can have a significant impact on the present value of future cash flows.
The assumptions surrounding this deduction require significant judgement and
there is a risk that current actual default experience and anticipated trends are
not appropriately reflected. This is particularly significant during the current
uncertain economic conditions of high inflation and higher market interest rates.
IFRS 4 did not require entities to discount insurance liabilities in the same way
that IFRS 17 does and therefore the Group has had to determine the discount
rates to be applied both in the current and preceding years.
Expense assumptions
Judgement is required in setting the maintenance expense assumption which
is based on management’s long-term view of the expected future costs of
administering the underlying policies, and is also informed by the allocation
between cost centres and determination of costs that are directly attributable
to the maintenance of annuity insurance contracts.
Like discount rates above, IFRS 4 did not require entities to identify and allocate
expense assumptions in the same way that IFRS 17 does and therefore the Group
has had to determine the expense assumptions to be applied both in the current
and preceding years.
Our response to the risk
We used our own actuarial specialists in order to assist us in performing
procedures over methodology choice and assumptions in this area. Our
procedures to address the risk included:
• Control design and re-performance: testing reconciliation controls designed
to ensure completeness of data flows from policy administration systems to
the actuarial models. With the assistance of our IT audit specialists, testing
controls over the accuracy of data flows and data conversions from policy
administration systems to the actuarial valuation models.
• Test of detail: testing the completeness of data used in the valuation of
annuity liabilities by reconciling the data from the policy administration
system to the data used in the actuarial models.
• Test of detail: by utilising data and analytics procedures, testing the accuracy
of historical data input into the actuarial model by comparing the data used
for reporting as at 31 December 2023 to the data used for reporting as at
31 December 2022 in relation to policies that were in force at that time.
• Test of detail: tracing a sample of new business policyholder data inputs into
the actuarial valuation model to the underlying policy documents.
• Test of detail: reconciling the completeness and accuracy of the assets used
in the calculation of the current discount rate to the assets in the reference
portfolio.
• Test of detail: for a sample of assets, validating the accuracy of the asset data
used to project the cash flows used to derive the yield used in the calculation
of the current discount rate and, with the assistance of our valuation
specialists, re-projecting these cash flows.
• Historical comparisons: evaluating whether the expense assumptions reflect
the expected future costs of administering the underlying policies by
considering the historical accuracy of management’s forecast expenses and
analysing the allocations of the forecast 2024 costs to directly attributable
maintenance expenses with reference to the historical allocations.
• Methodology choice: assessing the appropriateness of the methodology for
selecting assumptions by applying our understanding of developments in the
business and expectations derived from market experience, including
consideration of the effects of uncertain economic conditions on policyholder
mortality and credit risk. For longevity assumptions, this includes
consideration of the cause of death modelling performed by management and
other non-CMI sources alongside the CMI modelling used across the industry.
• Accounting analysis: assessing whether the Group’s proposed methodology
for determining the discount rate credit deduction and reference portfolios is
consistent with the requirements of IFRS 17.
• Benchmarking assumptions: assessing mortality improvement assumptions
against industry data on expected future mortality rate improvements and
industry historic mortality improvement rates and assessing the
appropriateness of the credit risk assumptions by comparing to industry
practice and our expectations derived from market experience.
• Historical comparisons: evaluating the mortality base assumptions used in
the valuation of the annuity liabilities by comparing to the Group’s historic
mortality experience.
UK deferred annuity coverage units
• Accounting analysis: assessing whether management’s proposed UK
deferred annuity coverage unit methodology is consistent with IFRS 17 and
related guidance.
• Our sector experience: evaluating whether management’s proposed UK
deferred annuity coverage unit methodology is consistent with our
understanding of the services delivered to the policyholder over the duration
of the annuity contract.
• Scenario analysis: assessing whether under management’s methodology,
the calculation of coverage units, and their associated weightings, produces
impacts on the profile of profit recognition that were consistent with our
expectations based on our understanding of the services delivered to the
policyholder over the duration of the annuity contract considering the impact
of possible scenarios.
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4.1 Valuation of UK annuity policyholder liabilities (Group)
Description of the key audit matter
Our response to the risk
Transition fair value approach and expected internal rate of return
• Our sector experience: evaluating management’s approach to the fair value
calculation and in particular the assertion that the methodology the Group
applies in pricing bulk annuity transactions, including the application of a
pricing IRR, is appropriate to be used in the valuation of the pre-2016 UK
annuity portfolio given the Group’s participation in the bulk annuity market.
• Benchmarking assumptions: evaluating and challenging the proposed IRR by
comparing to the rate implied by recent bulk annuity transactions as at the
transition balance sheet date.
• Benchmarking assumptions: validating that the Group’s assumption that the
primary constraint is Solvency II capital requirements is consistent with the
market through benchmarking against other annuity writers.
• Evaluating external valuations: the Group engaged an external expert to
report on the valuation of the pre-2016 annuity liabilities; we evaluated this
report including assessing the expert’s competence and objectivity, and
comparing the Group’s valuation, resulting from the application of the IRR,
to the valuation range determined by an external expert.
• Assessing transparency: considering whether the disclosures in relation to
the assumptions used in the calculation of the valuation of insurance contract
liabilities are compliant with the relevant accounting requirements and
appropriately represent the sensitivities of these assumptions to alternative
scenarios and inputs.
UK deferred annuity coverage units
The CSM recognised at the inception of an insurance contract should be released
to profit over the duration of the contract to reflect the insurance services
provided to the policyholder in each period. Under IFRS 17, ‘coverage units’
represent those insurance contract services. The amount of the CSM recognised
as insurance revenue in a period is determined by allocating the CSM at the end
of a period over the current and future periods by reference to the coverage units
expected to be provided in those periods. The determination of coverage units for
UK deferred annuities in the deferral phase, and in particular the relative
weighting of different services, is highly subjective given the mix of services
delivered in the different phases of the contract.
The concept of coverage units did not exist under IFRS 4 and therefore the Group
has had to determine the coverage units to be applied both in the current and
preceding years.
Transition fair value approach and expected internal rate of return
The Group has estimated the transition CSM as at 1 January 2022 for annuity
liabilities written pre-2016 on the basis of the ‘fair value approach’. The
determination of the fair value of this portfolio of business is inherently
subjective, particularly in the setting of key assumptions, and small changes in
certain assumptions could have a material impact on the estimated transition
CSM within insurance contract liabilities.
The fair value approach is determined by discounting the expected future capital
releases emerging from the pre-2016 annuity business at the expected internal
rate of return (IRR). Under IFRS 13, Fair Value Measurement, this should be the
return that another market participant would demand to assume the liabilities.
In determining this IRR, the Group assumes that the primary constraint is the
Solvency II capital requirement. Whilst the UK bulk annuity market is relatively
active, there are no previous transactions of this size, and as such significant
judgement is applied in setting the IRR assumption.
Data capture
There is a risk that incomplete and inaccurate data is used in the calculation
of liabilities resulting from error in input of data into the policy administration
systems or inaccurate transfer or conversion of aggregate data from the policy
administration systems into model point files used to value the liabilities in the
actuarial models. In addition, there is a risk that inaccurate asset data is used
to calculate the discount rates.
Estimation uncertainty:
The effect of these matters is that, as part of our risk assessment, we determined
that the valuation of insurance contract liabilities has a high degree of estimation
uncertainty, with a potential range of reasonable outcomes greater than our
materiality for the financial statements as a whole, and possibly many times that
amount. The financial statements disclose the sensitivities (Note 19) estimated
by the Group.
Communications with Legal & General Group Plc’s Audit Committee
Our discussions with and reporting to the Audit Committee included:
Areas of particular auditor judgement
We identified the following as the areas of particular auditor judgement:
• Our approach to the audit of UK annuity policyholder liabilities included within
• The appropriateness of the assumptions including longevity, credit, and
insurance contract liabilities including fair value transition approach, the
approach to determining the discount rate, the determination of coverage units,
details of our planned substantive procedures and the extent of our control
reliance.
• Our conclusions on the appropriateness of the Group’s methodology for setting
assumptions and calculating policyholder liabilities and accounting policies.
• Our conclusions on the appropriateness of the longevity, credit, and expense
assumptions, including challenge of the assumptions using our sector experience
and market knowledge.
expense assumptions.
• The significance of the inputs into the actuarial models and the consequent
impact on the valuation of policyholder liabilities.
• The approach to determining the fair value of the pre-2016 UK annuity business.
This is based on the premise that there is an active market for bulk annuities in the
UK and although the recent transactions were not as large as the LGRI pre-2016
business, recent transactions are relevant inputs to the calibration of the IRR.
• The approach and methods applied to determine the discount rates, including
the credit default deduction.
• The adequacy and appropriateness of the disclosures, particularly as it relates to
• The appropriate coverage units to apply in calculating the release of CSM on UK
new required disclosures under IFRS 17 including the sensitivity of insurance
contract liabilities to key assumptions.
deferred annuities. This requires significant judgement in the absence of
specific guidance from the accounting setters and a lack of consensus
amongst other annuity writers at the time this approach was being developed.
Our results
We found the resulting estimate of the valuation of UK annuity policyholder liabilities
within insurance contract liabilities to be acceptable (2022 result: acceptable).
Further information in the Annual report and accounts: See the Audit Committee Report on page 90 for details on how the Audit Committee considered the valuation of
UK annuity policyholder liabilities within insurance contract liabilities as an area of significant attention, page 152 for the accounting policy on insurance contract
liabilities and Notes 17, 18, 19 and 20 for the financial disclosures.
Group consolidated financial statements
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Independent auditor’s report to the members of Legal & General Group Plc continued
4.2 Valuation of hard to value (Level 3) investments (Group)
Financial statement elements
Our assessment of risk vs 2022
UK lifetime mortgages
Private credit portfolios
Investment property
2023
£5.324bn
£12.258bn
£8.893bn
2022
£4.801bn
£9.178bn
£9.372bn
Description of the key audit matter
Subjective valuation:
6.7% of the investment portfolio as at 31 December 2023 (2022: 6.3%) was
classified as Level 3 assets, of which we consider the valuation of lifetime
mortgages, private credit and investment property involve the greatest level of
subjectivity. The subjectivity of the asset valuations remains heightened due
to the current economic conditions caused by the ongoing uncertainties as a
result of high inflation and higher market interest rates.
For these positions a reliable third-party price from a recent market transaction
is not readily available and therefore the application of expert judgement from
management in the valuations adopted is required.
The key assumptions underlying the valuations are:
• UK lifetime mortgages: property price at the valuation date, property price
inflation, property price inflation volatility, voluntary redemption rate and the
illiquidity premium added to the risk-free rate.
• Private credit and US private placements: credit ratings derived from credit
rating models.
• Investment property: estimated rental value and yield of the property.
Estimation uncertainty:
The effect of these matters is that, as part of our risk assessment, we
determined that the valuation of hard to value (Level 3) investments has a
high degree of estimation uncertainty, with a potential range of reasonable
outcomes greater than our materiality for the financial statements as a whole,
and possibly many times that amount.
Our results
2023: Acceptable
2022: Acceptable
We have not identified any significant
changes to our assessment of the level
of risk relating to valuation of hard to
value (Level 3) investments compared
to 2022.
Our response to the risk
Our procedures to address the risk included:
• Control design and implementation: testing of the design and implementation
of key controls over the valuation process for UK lifetime mortgages, private
credit and investment property investments.
• Our valuation expertise:
• Using our own valuation specialists to assess the suitability of the valuation
and credit rating methodologies used by the Group, to independently revalue
a sample of the private credit investments; and
• Using our own actuarial specialists to evaluate the appropriateness of the
assumptions used in the valuation of UK lifetime mortgages with reference
to market data and industry benchmarks.
• Assessing valuers’ credentials: assessing the objectivity, professional
qualifications and competence of external valuers of private credit, and
investment property investments and reconciling the valuations provided by
them to the valuations recorded in the financial statements.
• Methodology choice: assessing the appropriateness of the credit rating
methodologies for private credit and investment property investments with
reference to relevant accounting standards and the Group’s own valuation
guidelines as well as industry practice.
• Benchmarking assumptions: evaluating and challenging the key assumptions
upon which the valuations of lifetime mortgages, private credit and investment
property investments were based, including consideration of the impacts of
economic uncertainties, by making a comparison to our own understanding of
the market, comparable evidence relied on by the valuers used by the Group and
to industry benchmarks.
• Assessing transparency: assessing whether the disclosures in relation to the
valuation of hard to value (Level 3) investments are compliant with the relevant
financial reporting requirements and appropriately present the sensitivities of
the valuation to alternative assumptions.
Communications with Legal & General Group Plc’s Audit Committee
Our discussions with and reporting to the Audit Committee included:
Areas of particular auditor judgement
We identified the following as the areas of particular auditor judgement:
• Our approach to the audit of the valuation of the UK lifetime mortgages, private
• Determination of the valuation methodology where external pricing sources are
credit portfolios, investment property hard to value (Level 3) investments,
including details of our planned substantive procedures and the extent of our
control reliance.
• Our conclusions on the appropriateness of the methodology adopted by the
Group to the valuation of UK lifetime mortgages, private credit portfolios,
investment property hard to value (Level 3) investments.
• The adequacy of the disclosures, particularly as they relate to the sensitivity
of Level 3 investments to key assumptions.
not readily available or unreliable.
• The appropriateness of the credit ratings and valuation of internally rated
investments.
• The appropriateness of the assumptions including UK lifetime mortgage
property price at valuation date, property price inflation, property price volatility
and voluntary redemptions.
Our results
We found the resulting estimate of the valuation of hard to value (Level 3)
investments to be acceptable (2022 result: acceptable).
Further information in the Annual Report and Accounts: See the Audit Committee Report on page 90 for details on how the Audit Committee considered the valuation of
hard to value (Level 3) investments as an area of significant attention, page 152 for the accounting policy for Level 3 investments, and Note 11 for the financial disclosures.
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4.3 Recoverability of parent company’s investment in subsidiaries (Parent)
Financial statement elements
Parent company risk:
Recoverability of the parent
company’s investments in
subsidiaries
2023
£10.982bn
2022
£10.740bn
Our assessment of risk vs 2022
Our results
2023: Acceptable
2022: Acceptable
We have not identified any significant
changes to our assessment of the level
of risk relating to Recoverability of the
parent company’s investment in
subsidiaries compared to 2022.
Our response to the risk
Description of the key audit matter
Low risk, high value:
The carrying amount of the parent company’s investments in subsidiaries
represents 89.2% (2022: 85.4%) of the parent company’s total assets. Their
carrying amount is not at a high risk of significant misstatement or subject to
significant judgement. However, due to their materiality in the context of the
parent company financial statements, this is considered to be the area that
had the greatest effect on our overall parent company audit.
We performed the tests below rather than seeking to rely on any of the parent
company’s controls because the nature of the balance is such that we would expect
to obtain audit evidence primarily through the detailed procedures described.
Our procedures included:
Test of details: comparing the carrying amount of the parent company’s
investments, with the subsidiaries’ financial information to identify whether their
net assets, being an approximation of their minimum recoverable amount, are in
excess of their carrying amount and assessing whether those subsidiaries have
historically been profit-making.
Comparing valuations: for the investments where the carrying amount exceeded
the net asset value, comparing the carrying amount of the investment with the
expected value of the business.
Communications with Legal & General Group Plc’s Audit Committee
Our discussions with and reporting to the Audit Committee included:
Our results
We found the balance of the parent company’s investments in subsidiaries and
the related impairment charge to be acceptable (2022: acceptable).
• Our approach to the audit of the recoverability of the parent company’s
investment in subsidiaries.
• Our conclusions on the appropriateness of the valuation of the parent company’s
investment in subsidiaries.
Further information in the Annual report and accounts: See page 258 for the accounting policy on investments in subsidiaries and Note 6 for the Company
financial disclosures.
Group consolidated financial statements
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Independent auditor’s report to the members of Legal & General Group Plc continued
5. Our ability to detect irregularities, and our response
Fraud – identifying and responding to risks of material misstatement due to fraud
Fraud risk assessment
To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive or pressure to commit fraud
or provide an opportunity to commit fraud. Our risk assessment procedures included:
• enquiring of directors, the Audit Committee, internal audit, Group Financial Crime Director as to whether they have knowledge of any actual, suspected or alleged
fraud and inspection of policy documentation as to the Group’s high-level policies and procedures to prevent and detect fraud, including the internal audit function,
and the Group’s channel for “whistleblowing”;
• reading Board, Audit Committee and Risk Committee meeting minutes;
• considering remuneration incentive schemes and performance targets for management;
• using our own professionals with forensic knowledge to assist us in identifying fraud risks based on discussion of the circumstances of the Group;
• using analytical procedures to identify any unusual or unexpected relationships;
• inspecting correspondence with regulators to identify instances or suspected instances of fraud;
• reviewing the audit misstatements from prior period to identify fraud risk factors; and
• reading broker reports and other public information to identify third-party expectations and concerns.
Risk communications
We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout the audit. This included
communication from the Group audit team to component audit teams of relevant fraud risks identified at the Group level and request to full scope component audit
teams to report to the Group audit team any instances of fraud that could give rise to a material misstatement at the Group level.
Fraud risks
As required by auditing standards and taking into account possible pressures to meet profit targets, we perform procedures to address the risk of management
override of controls, in particular the risk that Group and component management may be in a position to make inappropriate accounting estimates and
judgements. Accordingly, we identified fraud risks related to the valuation of insurance contract liabilities and valuation of hard to value (Level 3 assets) that require
management judgement (private credit and lifetime mortgages) given the impact on the Group’s profit, the opportunity for management to manipulate assumptions
due to the subjectivity involved and given the long-term nature of these assumptions which are more difficult to corroborate.
We have identified a fraud risk over revenue recognition for UK deferred annuities, as the release of profits requires management to exercise significant judgment
with respect to the determination of coverage units, which ultimately determines how revenue is released and recorded each period.
We do not believe there is a fraud risk related to any other Group revenue because there is limited management judgement involved in the recognition of and
measurement of the transaction price for all material revenue streams.
Link to KAMs
We identified fraud risks related to the valuation of UK annuity policyholder liabilities, and valuation of hard to value (Level 3) investments in response to possible
pressures to meet profit targets.
Further detail in respect of the valuation of UK annuity policyholder liabilities, and valuation of hard to value (Level 3) investments is set out in the two KAM
disclosures in Section 4 of this report.
Procedures to address fraud risks
We performed procedures including:
• instructing full scope components and components completing audit of account balances to identify journal entries to test based on high-risk criteria sent to them
and comparing the entries to supporting documentation. These included, but were not limited to, journals impacting cash balances that were identified as unusual
or unexpected in our risk assessment procedures;
• evaluating the business purpose of significant unusual transactions; and
• assessing whether the judgements made making accounting estimates are indicative of a potential bias.
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Other information
Laws and regulations – identifying and responding to risks of material misstatement relating to compliance with laws and regulations
Laws and regulations risk assessment
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial
and sector experience, through discussion with the directors and other management (as required by auditing standards), and from inspection of the Group’s
regulatory and legal correspondence and discussed with the directors and other management the policies and procedures regarding compliance with laws and
regulations. As the Group is regulated, our assessment of risks involved gaining an understanding of the control environment including the Group’s procedures for
complying with regulatory requirements.
Risk communications
We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit. This included
communication from the Group audit team to full scope component audit teams of relevant laws and regulations identified at the Group level, and a request for full
scope component auditors to report to the Group team any instances of non-compliance with laws and regulations that could give rise to a material misstatement
at the Group level.
Direct laws context and link to audit
The potential effect of laws and regulations on the financial statements varies considerably.
The Group is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related companies’
legislation), distributable profits legislation, taxation legislation, and pension legislation and we assessed the extent of compliance with these laws and regulations
as part of our procedures on the related financial statement items.
Most significant indirect law/regulation areas
The Group is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the
financial statements, for instance through the imposition of fines or litigation or the loss of the Group’s license to operate.
We identified the following areas as those most likely to have such effect:
• Specific aspects of regulatory capital and liquidity;
• Market abuse regulations;
• Financial crime and customer conduct regulations;
• The Consumer Duty; and
• Certain aspects of company legislation, recognising the financial and regulated nature of the Group’s activities and certain regulated subsidiaries.
Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the directors and other management
and inspection of regulatory and legal correspondence, if any. Therefore, if a breach of operational regulations is not disclosed to us or evident from relevant
correspondence, an audit will not detect that breach.
Context
Context of the ability of the audit to detect fraud or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements,
even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws
and regulations is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing
standards would identify it.
In addition, as with any audit, there remained a higher risk of non-detection of fraud, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing
non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations.
Group consolidated financial statements
Legal & General Group Plc Annual report and accounts 2023
133
Group consolidated financial statements
continued
Independent auditor’s report to the members of Legal & General Group Plc continued
6. Our determination of materiality
The scope of our audit was influenced by our application of materiality. We set quantitative thresholds and overlay qualitative considerations to help
us determine the scope of our audit and the nature, timing and extent of our procedures, and in evaluating the effect of misstatements, both
individually and in the aggregate, on the financial statements as a whole.
Materiality for the Group
financial statements
as a whole
£82.9m
(2022: £113.0m)
What we mean
A quantitative reference for the purpose of planning and performing our audit.
Basis for determining materiality and judgements applied
Materiality for the Group financial statements as a whole was set at £82.9m (2022: £113.0m). This was determined with reference
to a benchmark of profit before tax from continuing operations (PBTCO) normalised to exclude this year’s investment and other
variances and losses attributable to non-controlling interests disclosed in Note 2 of the financial statements that do not represent
normal continuing operations of the business.
Consistent with 2022, normalised PBTCO remains the main benchmark for the Group because it is the metric in the primary
statements which best reflects the focus of the financial statements’ users.
Our Group materiality of £82.9m (2022: £113.0m) was determined by applying a percentage to the normalised PBTCO. When using
a benchmark of normalised PBTCO to determine overall materiality, KPMG’s approach for listed entities considers a guideline range
3% - 5% of the measure. In setting overall Group materiality, we applied a percentage of 4.87% (2022: 4.71% with reference to a
benchmark under IFRS 4) to the final year end benchmark.
In addition, we applied materiality of £3.3bn (2022: £3.3bn) to the unit linked assets and liabilities in the Consolidated Balance Sheet,
Consolidated Income Statement and related notes, which represents 0.9% (2022: 0.9%) of the total unit linked asset balance. This
materiality was applied in accordance with FRC Practice Note 20 The Audit of Insurers in the United Kingdom.
Materiality for the parent company financial statements as a whole was set at £33.0m (2022: £45.0m), which is the component
materiality for the parent company determined by the Group audit engagement team. This is lower than the materiality we would
otherwise have determined with reference to parent company net assets (2022: total assets), of which it represents 0.47% (2022: 0.36%).
We selected net assets as the benchmark in the current period due to the users of the financial statements focus on the parent
entity’s capital and distributions.
Performance materiality
£53.9m
(2022: £84.8m)
What we mean
Our procedures on individual account balances and disclosures were performed to a lower threshold, performance materiality,
so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account balances add up to
a material amount across the financial statements as a whole.
Basis for determining performance materiality and judgements applied
We have considered performance materiality at a level of 65% (2022: 75%) of materiality for both the Group financial statements
and the parent company financial statements as a whole to be appropriate.
We applied this percentage in our determination of performance materiality based on the additional risk associated with the
first-year implementation of IFRS 17.
Audit misstatement
posting threshold
£3.7m
(2022: £5.7m)
What we mean
This is the amount below which identified misstatements are considered to be clearly trivial from a quantitative point of view. We
may become aware of misstatements below this threshold which could alter the nature, timing and scope of our audit procedures,
for example if we identify smaller misstatements which are indicators of fraud.
This is also the amount above which all misstatements identified are communicated to the Group’s Audit Committee.
Basis for determining the audit misstatement posting threshold and judgements applied
We set our audit misstatement posting threshold at 4.5% (2022: 5.0%) of our materiality for both the Group financial statements and
parent company. The decrease is a result of our assessment of increased aggregation risk, consistent with performance materiality
above. We also report to the Audit Committee any other identified misstatements that warrant reporting on qualitative grounds.
The overall materiality for the Group financial statements of £82.9m (2022: £113.0m) compares as follows to the main financial statement
caption amounts:
Group materiality as % of caption
* With reference to a benchmark under IFRS 4.
Total Group revenue
Total Group profit before tax
Total Group assets
2023
0.68%
2022*
0.13%
2023
4.87%
2022*
4.14%
2023
0.02%
2022*
0.02%
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Other information
7. The scope of our audit
Group scope
What we mean
How the Group audit team determined the procedures to be performed across the Group.
The Group has 16 (2022: 12 ) in-scope reporting components. In order to determine the work performed at the reporting component level, we identified those
components which we considered to be of individual financial significance, those which were significant due to risk and those remaining components on which we
required procedures to be performed to provide us with the evidence we required in order to conclude on the Group financial statements as a whole.
We determined individually financially significant components as those contributing at least 5% (2022: 5%) of total Group revenue and Group profit before tax, and 10%
(2022: 10%) of total Group assets. We selected total Group revenue, total Group profit before tax and total Group assets because these are the most representative of
the relative size of the components. We identified 5 (2022: 6) components as individually financially significant components and performed full scope audits on these
components.
In addition to the individually financially significant components, we identified 3 (2022: 4) components as significant, owing to significant risks of material
misstatement affecting the Group financial statements. Of the 3 (2022: 4) components identified as significant due to risk, we performed audits of account balances
for investment property, cash and cash equivalents and receivables and other assets on 1 component (2022: 1) and performed specific risk-focused audit procedures
over financial investments, investment property, cash and cash equivalents, receivables and other assets and investment in associates and joint ventures accounted
for using the equity method on 2 components (2022: 3).
In addition, to enable us to obtain sufficient appropriate audit evidence for the Group financial statements as a whole, we selected 8 (2022: 2) components on which to
perform procedures. Of these components, we performed full scope audits for 2 components (2022: 1), performed audits of account balances for financial
investments, cash and cash equivalents, receivables and other assets, provisions, payables, core borrowings, and other financial liabilities on 2 components (2022: 0)
and performed specific risk-focused procedures over provisions, cash and cash equivalents, investment return and other expenses on 4 components (2022: 1).
The components within the scope of our work accounted for the following percentages of the Group’s results, with the prior year comparatives calculated with
reference to amounts under IFRS 4 indicated in brackets:
Scope
Full scope audit
Audits of one or more account balances
Specific risk-focused audit procedures
Number
of components
Range of
materiality
applied
7 (7)
3 (1)
6 (4)
£20m – £53m
(£16m – £85m)
£16m – £20m
(£39m)
£12m – £49m
(£22m – £67m)
Group revenue
Group PBT
Group total
assets
90% (96%)
82% (81%)
88% (83%)
0% (1%)
1% (9%)
6% (2%)
0% (1%)
6% (1%)
1% (12%)
Total
16 (12)
90% (98%)
89% (91%)
95% (97%)
The remaining 10% (2022: 2%) of total Group revenue, 12% (2022: 9%) of Group profit before tax and 7% (2022: 3%) of total Group assets is represented by 68 (2022: 78)
reporting components, none of which individually represented more than 1% (2022: 1%) of any of total Group revenue, 3% of Group profit before tax (2022: 4%) or 1% of
total Group assets (2022: 1%). For these components, we performed analysis at an aggregated Group level to re-examine our assessment that there were no significant
risks of material misstatement within these.
The work on 12 of the 16 components (2022: 11 of the 12 components) was performed by component auditors and the rest, including the audit of the parent company,
was performed by the Group team. For those items excluded from normalised Group PBTCO, the component teams performed procedures on items relating to their
components. The Group team performed procedures on the remaining excluded items.
The Group audit team has also performed audit procedures on the following areas on behalf of the components:
• Entity level controls;
• General expenses (including accounts payable, payroll, intangible capitalisation and year-end accruals);
• Intercompany balances;
• Directors’ emoluments;
• Foreign exchange rates; and
• Related parties.
These items were audited by the Group team as they are all centralised processes across the Group. The Group team communicated the results of these procedures to
the component teams.
The Group team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and the information to be reported
back. The Group team approved the component materialities, as detailed in the table above, having regard to the mix of size and risk profile of the Group across the
components.
The scope of the audit work performed was predominately substantive as we placed limited reliance upon the Group’s internal control over financial reporting.
Group consolidated financial statements
Legal & General Group Plc Annual report and accounts 2023
135
Group consolidated financial statements
continued
Independent auditor’s report to the members of Legal & General Group Plc continued
Group audit team oversight
What we mean
The extent of the Group audit team’s involvement in component audits.
In working with component auditors, we:
• Held planning calls with component audit teams to discuss the significant areas of the audit relevant to the components, including the key audit matters in respect of
KAM 4.1, KAM 4.2 and KAM 4.3.
• Issued Group audit instructions to component auditors on the scope of their work, including specifying the minimum procedures to perform in their audit, setting out
the significant areas to be covered including the relevant key audit matters and information to be reported back to the Group audit team.
• Held risk assessment update discussions with all component audit teams before the commencement of the final phase of the audit led by the Group engagement
partner and engagement quality control partner.
• Of the audits not performed by the Group Team, we visited 9 of 12 (2022: 9 of 11) components in-person, including London, Edinburgh, and Baltimore, USA, as the audit
progressed to understand and challenge the audit approach and organised fortnightly video conferences with the partners and directors of the Group and component
audit teams. At these visits and meetings, the findings reported to the Group team were discussed in more detail, and any further work required by the Group team was
then performed by the component audit teams.
• Inspected component audit teams’ key work papers in-person and using remote technology capabilities to evaluate the quality of execution of the audits of the
components with a particular focus on work related to key audit matters and significant risks over the valuation of insurance contract liabilities and valuation of hard
to value (Level 3) investments.
8. Other information in the Annual report and accounts
The directors are responsible for the other information presented in the Annual report and accounts together with the financial statements. Our
opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly
stated below, any form of assurance conclusion thereon.
All other information
Our responsibility
Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is
materially misstated or inconsistent with the financial statements or our audit knowledge.
Our reporting
Based solely on that work we have not identified material misstatements or inconsistencies in the other information.
Strategic report and directors’ report
Our responsibility and reporting
Based solely on our work on the other information described above we report to you as follows:
• we have not identified material misstatements in the strategic report and the directors’ report;
• in our opinion the information given in those reports for the financial year is consistent with the financial statements; and
• in our opinion those reports have been prepared in accordance with the Companies Act 2006.
Directors’ report on remuneration
Our responsibility
We are required to form an opinion as to whether the part of the Directors’ report on remuneration to be audited has been properly prepared in accordance with the
Companies Act 2006.
Our reporting
In our opinion the part of the Directors’ report on remuneration to be audited has been properly prepared in accordance with the Companies Act 2006.
Corporate governance disclosures
Our responsibility
We are required to perform procedures to identify whether there is a material inconsistency between the financial statements and our audit knowledge, and:
• the directors’ statement that they consider that the Annual report and accounts and financial statements taken as a whole is fair, balanced and understandable, and
provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy;
• the section of the Annual report and accounts describing the work of the Audit Committee, including the significant issues that the Audit Committee considered in
relation to the financial statements, and how these issues were addressed; and
• the section of the Annual report and accounts that describes the review of the effectiveness of the Group’s risk management and internal control systems.
Our reporting
Based on those procedures, we have concluded that each of these disclosures is materially consistent with the financial statements and our audit knowledge.
Our responsibility
We are also required to review the part of the Corporate Governance Statement relating to the Group’s compliance with the provisions of the UK Corporate
Governance Code specified by the Listing Rules for our review.
Our reporting
We have nothing to report in this respect.
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Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
Other matters on which we are required to report by exception
Our responsibility
Under the Companies Act 2006, we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
• the parent company financial statements and the part of the Directors’ report on remuneration to be audited are not in agreement with the accounting records and
returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Our reporting
We have nothing to report in these respects.
9. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 267, the directors are responsible for: the preparation of the financial statements including
being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error; assessing the Group and parent company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either
intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
The Group is required to include these financial statements in an annual financial report prepared under Disclosure Guidance and Transparency Rule
4.1.17R and 4.1.18R. This auditor’s report provides no assurance over whether the annual financial report has been prepared in accordance with those
requirements.
10. The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work
has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for
no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the
Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
Philip Smart (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square,
London, E14 5GL
5 March 2024
Group consolidated financial statements
Legal & General Group Plc Annual report and accounts 2023
137
Primary statements and performance
Consolidated Income Statement
For the year ended 31 December 2023
Insurance revenue
Insurance service expenses
Insurance service result before reinsurance contracts held
Net expense from reinsurance contracts held
Insurance service result
Investment return
Finance (expense)/income from insurance contracts
Finance income from reinsurance contracts
Change in investment contract liabilities
Insurance and investment result
Other operational income
Fees from fund management and investment contracts
Acquisition costs
Other finance costs
Other expenses
Total other income and expenses
Profit before tax
Tax expense attributable to policyholder returns
Profit before tax attributable to equity holders
Total tax credit/(expense)
Tax expense attributable to policyholder returns
Tax credit/(expense) attributable to equity holders
Profit for the year
Attributable to:
Non-controlling interests
Equity holders
Dividend distributions to equity holders during the year
Dividend distributions to equity holders proposed after the year end
Total basic earnings per share2
Total diluted earnings per share2
Notes
2(vi), 20
3, 20
20
20
27
27
27
21
2(vi)
22
3
28
2(vi)
28
28
28
4
4
5
5
2023
£m
9,624
(8,373)
1,251
(137)
1,114
Restated1
2022
£m
8,683
(7,497)
1,186
(145)
1,041
32,973
(98,352)
(5,830)
19,114
584
6
(27,116)
79,889
1,725
1,571
825
(149)
(347)
(3,430)
(1,530)
195
(119)
76
248
119
367
443
(14)
457
1,172
871
p
7.35
7.28
1,698
1,646
899
(103)
(290)
(2,911)
(759)
939
(71)
868
(157)
71
(86)
782
(1)
783
1,116
829
p
12.84
12.47
1. Prior year comparatives have been restated to reflect the implementation of IFRS 17 and IFRS 9. They also reflect a small number of adjustments to the (unaudited) prior period
comparatives that were included in the Group’s interim financial statements for the period ending 30 June 2023. Further information can be found in Note 1. These corrections have
been applied consistently to all affected disclosure notes in the consolidated financial statements.
2. All earnings per share calculations are based on profit attributable to equity holders of the Company.
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Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2023
Profit for the year
Items that will not be reclassified subsequently to profit or loss
Actuarial remeasurements on defined benefit pension schemes
Tax on actuarial remeasurements on defined benefit pension schemes
Total items that will not be reclassified subsequently to profit or loss
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations
Movement in cross-currency hedge
Tax on movement in cross-currency hedge
Movement in financial investments measured at FVOCI
Tax on movement in financial investments measured at FVOCI
Insurance finance (expense)/income for insurance contracts applying the OCI option
Reinsurance finance income/(expense) for reinsurance contracts applying the OCI option
Tax on movement in finance income/(expense) for insurance and reinsurance contracts
Total items that may be reclassified subsequently to profit or loss
Other comprehensive (expense)/income after tax
Total comprehensive income for the year
Total comprehensive income/(expense) for the year attributable to:
Non-controlling interests
Equity holders
2023
£m
443
Restated1
2022
£m
782
(29)
8
(21)
(6)
(37)
9
75
(18)
(73)
43
6
(1)
(22)
421
(14)
435
26
(6)
20
(21)
40
(10)
(132)
28
1,753
(1,030)
(169)
459
479
1,261
(1)
1,262
1. Prior year comparatives have been restated to reflect the implementation of IFRS 17 and IFRS 9. They also reflect a small number of adjustments to the (unaudited) prior period
comparatives that were included in the Group’s interim financial statements for the period ending 30 June 2023. Further information can be found in Note 1. These corrections have
been applied consistently to all affected disclosure notes in the consolidated financial statements.
Primary statements and performance
Legal & General Group Plc Annual report and accounts 2023
139
Primary statements and performance
continued
Consolidated Balance Sheet
As at 31 December 2023
Assets
Goodwill
Intangible assets
Investment in associates and joint ventures accounted for using the equity method
Property, plant and equipment
Investment property
Financial investments
Reinsurance contract assets
Deferred tax assets
Current tax assets
Receivables and other assets
Cash and cash equivalents
Total assets
Equity
Share capital
Share premium
Employee scheme treasury shares
Capital redemption and other reserves
Retained earnings
Attributable to owners of the parent
Restricted Tier 1 convertible notes
Non-controlling interests
Total equity
Liabilities
Insurance contract liabilities
Reinsurance contract liabilities
Investment contract liabilities
Core borrowings
Operational borrowings
Provisions
Deferred tax liabilities
Current tax liabilities
Payables and other financial liabilities
Other liabilities
Net asset value attributable to unit holders
Total liabilities
Total equity and liabilities
Notes
9
10
11
11
20
28
28
13
14
32
32
32
33
34
20
20
21
22
22
23
28
28
24
35
2023
£m
73
477
616
433
Restated1
2022
£m
Restated1
2021
£m
71
441
554
326
68
365
375
316
8,893
9,372
10,150
471,405
446,558
537,629
7,306
1,714
885
9,780
20,513
4,713
1,440
802
13,209
35,784
4,652
1,167
670
8,543
16,487
522,095
513,270
580,422
149
1,030
(147)
326
2,973
4,331
495
(42)
149
1,018
(144)
337
3,707
5,067
495
(29)
149
1,012
(99)
(135)
4,033
4,960
495
(38)
4,784
5,533
5,417
91,446
78,214
93,627
220
52
2
316,872
286,830
372,954
4,280
1,840
258
107
77
4,338
1,219
890
206
69
78,439
93,905
680
763
23,092
41,251
4,256
932
1,238
60
84
73,858
1,028
26,966
517,311
507,737
575,005
522,095
513,270
580,422
1. Prior year comparatives have been restated to reflect the implementation of IFRS 17 and IFRS 9. They also reflect a small number of adjustments to the (unaudited) prior period
comparatives that were included in the Group’s interim financial statements for the period ending 30 June 2023. Further information can be found in Note 1. These corrections have
been applied consistently to all affected disclosure notes in the consolidated financial statements.
The notes on pages 144 to 255 form an integral part of these financial statements.
The financial statements on pages 138 to 255 were approved by the Board of directors on 5 March 2024 and were signed on their behalf by:
Sir John Kingman
Chairman
António Simões
Group Chief Executive Officer
Stuart Jeffrey Davies
Group Chief Financial Officer
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Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
Consolidated Statement of Changes in Equity
Share
capital
£m
Share
premium
£m
Employee
scheme
treasury
shares
£m
Capital
redemption
and other
reserves1
£m
Equity
attributable
to owners
of the parent
£m
Restricted
Tier 1
convertible
notes
£m
Non-
controlling
interests
£m
For the year ended 31 December 2023
As at 1 January 2023
Profit/(loss) for the year
Exchange differences on translation of
overseas operations
Net movement in cross-currency hedge
Net actuarial remeasurements on defined
benefit pension schemes
Net movement in financial investments
measured at FVOCI
Net insurance finance expense
Total comprehensive (expense)/income for
the year
Options exercised under share option
schemes
Shares purchased
Shares vested
Employee scheme treasury shares:
– Value of employee services
Share scheme transfers to retained earnings
Dividends
Coupon payable in respect of restricted Tier 1
convertible notes net of tax relief
Movement in third party interests
As at 31 December 2023
149
1,018
(144)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(18)
15
–
–
–
–
–
Retained
earnings
£m
3,707
457
–
–
337
–
(6)
(28)
–
(21)
57
(24)
–
–
5,067
457
(6)
(28)
(21)
57
(24)
(1)
436
435
–
–
(69)
59
–
–
–
–
–
–
–
–
24
12
(18)
(54)
59
24
(1,172)
(1,172)
(22)
–
(22)
–
495
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
equity
£m
5,533
443
(6)
(28)
(21)
57
(24)
(29)
(14)
–
–
–
–
–
(14)
421
–
–
–
–
–
–
–
1
12
(18)
(54)
59
24
(1,172)
(22)
1
149
1,030
(147)
326
2,973
4,331
495
(42)
4,784
1. Capital redemption and other reserves as at 31 December 2023 include share-based payments £89m, foreign exchange £41m, capital redemption £17m, hedging £46m, insurance and
reinsurance finance for contracts applying the OCI option £176m and financial assets at FVOCI £(43)m.
Primary statements and performance
Legal & General Group Plc Annual report and accounts 2023
141
Primary statements and performance
continued
Consolidated Statement of Changes in Equity continued
For the year ended 31 December 2022
Share
capital
£m
Share
premium
£m
Employee
scheme
treasury
shares
£m
Capital
redemption
and other
reserves1
£m
Equity
attributable
to owners
of the parent
£m
Restricted
Tier 1
convertible
notes
£m
Non-
controlling
interests
£m
Retained
earnings
£m
Total
equity
£m
As at 1 January 2022 (as previously reported)
149
1,012
(99)
196
9,228
10,486
495
(38)
10,943
Impact of initial application of IFRS 17
Impact of initial application of IFRS 9
–
–
–
–
–
–
(334)
(4,654)
(4,988)
3
(541)
As at 1 January 2022 (Restated)2
149
1,012
(99)
(135)
4,033
Profit/(loss) for the year
Exchange differences on translation of
overseas operations
Net movement in cross-currency hedge
Net actuarial remeasurements on defined
benefit pension schemes
Net movement in financial investments
measured at FVOCI
Net insurance finance income
Total comprehensive income/(expense) for
the year
Options exercised under share option
schemes
Shares purchased
Shares vested
Employee scheme treasury shares:
– Value of employee services
Share scheme transfers to retained earnings
Dividends
Coupon payable in respect of restricted Tier 1
convertible notes net of tax relief
Movement in third party interests
As at 31 December 2022 (Restated)2
–
783
(21)
30
–
(104)
554
–
–
20
–
–
(538)
4,960
783
(21)
30
20
(104)
554
459
803
1,262
–
–
(41)
54
–
–
–
–
–
–
–
–
10
6
(59)
(27)
54
10
(1,116)
(1,116)
(23)
–
(23)
–
–
–
495
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(38)
(1)
–
–
–
–
–
(4,988)
(538)
5,417
782
(21)
30
20
(104)
554
(1)
1,261
–
–
–
–
–
–
–
10
6
(59)
(27)
54
10
(1,116)
(23)
10
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(59)
14
–
–
–
–
–
149
1,018
(144)
337
3,707
5,067
495
(29)
5,533
1. Capital redemption and other reserves as at 31 December 2022 include share-based payments £99m, foreign exchange £43m, capital redemption £17m, hedging £78m, insurance and
reinsurance finance for contracts applying the OCI option £205m and financial assets at FVOCI £(105)m.
2. Prior year comparatives have been restated to reflect the implementation of IFRS 17 and IFRS 9. They also reflect a small number of adjustments to the (unaudited) prior period
comparatives that were included in the Group’s interim financial statements for the period ending 30 June 2023. Further information can be found in Note 1. These corrections have
been applied consistently to all affected disclosure notes in the consolidated financial statements.
142
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
Consolidated Statement of Cash Flows
For the year ended 31 December 2023
Cash flows from operating activities
Profit for the year
Adjustments for non-cash movements in net profit for the year
Net (gains)/losses on financial investments and investment property
Investment income
Interest expense
Tax (credit)/expense
Other adjustments
Net (increase)/decrease in operational assets
Investments mandatorily measured at FVTPL
Investments measured at FVOCI
Investments measured at amortised cost
Other assets
Net increase/(decrease) in operational liabilities
Insurance contracts and reinsurance contracts held
Investment contracts
Other liabilities
Cash (utilised in)/generated from operations
Interest paid
Interest received2
Rent received
Tax paid3
Dividends received
Net cash flows from operations
Cash flows from investing activities
Acquisition of property, plant and equipment, intangibles and other assets
Acquisition of operations, net of cash acquired
Investment in joint ventures and associates
Disposal of joint ventures and associates
Net cash flows utilised in investing activities
Cash flows from financing activities
Dividend distributions to ordinary equity holders during the year
Coupon payment in respect of restricted Tier 1 convertible notes, gross of tax
Options exercised under share option schemes
Treasury shares purchased for employee share schemes
Payment of lease liabilities
Proceeds from borrowings
Repayment of borrowings
Net cash flows utilised in financing activities
Net (decrease)/increase in cash and cash equivalents
Exchange (losses)/gains on cash and cash equivalents
Cash and cash equivalents at 1 January
Total cash and cash equivalents at 31 December
Notes
2023
£m
Restated1
2022
£m
443
782
(21,567)
107,469
(11,406)
(9,117)
347
(248)
112
(7,478)
(1,344)
(126)
3,218
290
157
113
22,052
(1,025)
(93)
(5,215)
11,153
30,045
(15,625)
(86,132)
(26,682)
(952)
(23,533)
12,704
(469)
5,210
437
(186)
4,297
(290)
3,525
404
(570)
4,691
(14,244)
20,464
(237)
(9)
(184)
8
(422)
(187)
(2)
(101)
64
(226)
(1,172)
(1,116)
(28)
12
(18)
(32)
1,226
(544)
(556)
(28)
6
(59)
(44)
945
(737)
(1,033)
(15,222)
19,205
(49)
35,784
20,513
92
16,487
35,784
28
4
33
32
14
1. Prior year comparatives have been restated to reflect the implementation of IFRS 17 and IFRS 9. They also reflect a small number of adjustments to the (unaudited) prior period
comparatives that were included in the Group’s interim financial statements for the period ending 30 June 2023. Further information can be found in Note 1. These corrections have
been applied consistently to all affected disclosure notes in the consolidated financial statements.
Interest received comprises of net interest received from financial instruments at fair value through profit or loss and other financial instruments.
2.
3. Tax paid comprises UK corporation tax of £nil (2022: £358m), withholding tax of £179m (2022: £204m) and overseas corporate tax of £7m (2022: £8m).
Primary statements and performance
Legal & General Group Plc Annual report and accounts 2023
143
Primary statements and performance
continued
1 Basis of preparation and accounting policies
Legal & General Group Plc, a public limited company incorporated and domiciled in England and Wales, operates across four broad business areas
of retirement, investment management, capital investment and insurance through its subsidiaries and associates in the United Kingdom (UK), the
United States (US) and other countries throughout the world.
(i) Basis of preparation
The Group financial statements have been prepared in accordance with UK-adopted international accounting standards, comprising International
Accounting Standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB),
and related interpretations issued by the IFRS Interpretations Committee. Endorsement is granted by the UK Endorsement Board (UKEB). The Group
financial statements have been prepared under the historical cost convention, as modified by the revaluation of investment property, financial assets
at fair value through other comprehensive income, and certain assets and financial liabilities (including derivative instruments) at fair value through
profit or loss.
The Group has selected accounting policies which state fairly its financial position, financial performance and cash flows for a reporting period.
The accounting policies have been consistently applied to all years presented unless otherwise stated.
Financial assets and financial liabilities are disclosed gross in the Consolidated Balance Sheet unless a legally enforceable right of offset exists and
there is an intention to settle recognised amounts on a net basis. Income and expenses are not offset in the Consolidated Income Statement unless
required or permitted by any accounting standard or International Financial Reporting Interpretations Committee (IFRIC) interpretation, as detailed
in the applicable accounting policies of the Group.
(ii) Going concern
The Group’s business activities, together with the factors likely to affect its future development, performance and position in the current economic
environment are set out in this Annual report & accounts. The financial position of the Group, its cash flows, liquidity position and borrowing facilities
are described in these consolidated financial statements. Principal risks and uncertainties are detailed on pages 56 to 59.
The directors have made an assessment of the Group’s going concern, considering both the current performance and the outlook for a period of at
least, but not limited to, 12 months from the date of approval of these consolidated financial statements, using the information available up to the
date of issue of this Annual report & accounts.
The Group manages and monitors its capital and liquidity, and applies various stresses, including adverse inflation and interest rate scenarios, to
those positions to understand potential impacts from market downturns. Our key sensitivities and the impacts on our capital position from a range
of stresses are disclosed in section 5.01 of the Full year results in the 2023 Preliminary Management Report1. These stresses do not give rise to any
material uncertainties over the ability of the Group to continue as a going concern. Based upon the available information, the directors consider that
the Group has the plans and resources to manage its business risks successfully and that it remains financially strong and well diversified.
Having reassessed the principal risks and uncertainties (both financial and operational) in light of the current economic environment, as detailed on
pages 56 to 59, the directors are confident that the Group and Company will have sufficient funds to continue to meet its liabilities as they fall due for
a period of, but not limited to, 12 months from the date of approval of the financial statements and therefore have considered it appropriate to adopt
the going concern basis of accounting when preparing the financial statements.
(iii) New standards, interpretations and amendments to published standards that have been adopted by the Group
The Group has applied the following standards and amendments for the first time in its annual reporting period commencing 1 January 2023.
IFRS 17 – Insurance Contracts and IFRS 9 – Financial Instruments
The Group has applied IFRS 17, ‘Insurance Contracts’ and IFRS 9, ‘Financial Instruments’ for the first time from 1 January 2023. These standards
have brought significant changes to the accounting for insurance and reinsurance contracts and financial instruments respectively, and have had
a material impact on the Group’s financial statements in the period of initial application.
IFRS 17, ‘Insurance Contracts’ was originally issued in May 2017 by the IASB, and subsequent amendments were issued in June 2020. Endorsement
for use in the UK was granted in May 2022. The standard replaced IFRS 4, ‘Insurance Contracts’, and has been applied retrospectively, in line with the
transitional options provided for in the standard. IFRS 17 provides a comprehensive approach for accounting for insurance contracts including their
measurement, income statement presentation and disclosure.
IFRS 9, ‘Financial Instruments’ was issued in July 2014 by the IASB, effective for annual periods beginning on or after 1 January 2018. The IASB
subsequently issued ‘Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts’ which allowed entities that
met certain requirements to defer their implementation of IFRS 9 until adoption of IFRS 17, ‘Insurance Contracts’ or 1 January 2021, whichever is the
earlier. In June 2020, the IASB agreed to extend the temporary exemption in IFRS 4 from applying IFRS 9 to annual reporting periods beginning on or
after 1 January 2023. The Group qualified for, and made use of this deferral option, and has therefore applied IFRS 9 for the first time on 1 January
2023. The standard replaced IAS 39, ‘Financial Instruments: Recognition and Measurement’. It includes new principles around classification and
measurement of financial instruments, introduces an impairment model based on expected credit losses (replacing the previous model based on
incurred losses) and new requirements on hedge accounting. IFRS 9 has been applied retrospectively.
Section (vii) includes the new accounting policies adopted by the Group for IFRS 17 and IFRS 9.
1. Section 5.01 of the Full year results in the 2023 Preliminary Management Report is unaudited.
144
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
IFRS 17 and IFRS 9 have been applied retrospectively and prior period comparative information has been restated, with all restatements clearly
labelled as such throughout this report.
Prior period comparative information reflecting the implementation of IFRS 17 and IFRS 9 was initially provided in the Group’s interim financial
statements for the period ending 30 June 2023. This information was unaudited. Since that time, and in particular as a result of the detailed work and
review undertaken to finalise the numbers included in this report, which has now been audited, certain adjustments have been identified which have
now been reflected in the prior period comparatives. This includes a £154m reclassification between Change in investment contract liabilities and
Other expenses in the Consolidated Income Statement, with no impact on profit. In total, the impact of these adjustments on equity attributable to
owners of the parent was an increase of £19m as at 1 January 2022, and a decrease of £45m as at 31 December 2022.
As at the transition date of 1 January 2022, the impacts on the key line items in the Group’s Consolidated Balance Sheet are set out below.
Balance sheet item
Financial investments
Net insurance contract liabilities1
Net deferred tax (liabilities)/assets
Other
Equity attributable to owners of the parent
31 December
2021
(as reported)
£m
Reclassification
due to adoption of
IFRS 9 and IFRS 17
£m
Impact of the
adoption of IFRS 9
£m
Impact of the
adoption of IFRS 17
£m
538,374
(82,645)
(249)
(444,994)
10,486
(29)
(199)
–
228
–
(716)
–
178
–
(538)
–
(6,133)
1,178
(33)
(4,988)
1 January
2022
(restated)
£m
537,629
(88,977)
1,107
(444,799)
4,960
1. Net insurance contract liabilities reflect insurance contract assets and liabilities, net of reinsurance contracts.
The adoption of the new accounting standards does not change the total profit recognised over the life of the Group’s insurance contracts, nor the
underlying economics or cash generation of the Group’s businesses. It does not change the Group’s strategy, solvency position nor dividend paying
capacity or appetite.
Transition to IFRS 17
On transition to IFRS 17, the Group has applied the full retrospective approach unless impracticable. The full retrospective approach requires the
Group to:
identify, recognise and measure each group of insurance and reinsurance contracts as if IFRS 17 had always applied;
•
• derecognise any existing balances that would not exist had IFRS 17 always applied; and
•
recognise any resulting net difference in equity.
If it was impracticable to apply a full retrospective approach to a group of contracts then the Group has chosen between the modified retrospective
approach and the fair value approach. If the Group could not obtain reasonable and supportable information necessary to apply the modified
retrospective approach, then the fair value approach has been chosen.
The Group has applied the following transition approaches to its material insurance contract portfolios on transition to IFRS 17, by year of issue:
Transition approach
Full retrospective
Modified retrospective
Fair value
Annuities
2021
2016-2020
Pre-2016
UK Protection
2021
2012-2020
Pre-2012
US Protection
2021
2011-2020
Pre-2011
Full retrospective approach
For insurance and reinsurance contracts where the full retrospective approach has been adopted, the best estimate and risk adjustment
components of fulfilment cash flows have been recognised and measured using the accounting policies set out in section (vii) from the inception
date of the contracts to the date of transition.
The full retrospective approach has been determined to be impracticable where: the effects of retrospective application are not determinable
because information required has not been collected (or not with sufficient granularity); application would require the application of hindsight;
or information is unavailable because of system migrations, data retention requirements or other reasons. Specific examples include:
• historic calibration of IFRS 17 specific judgements, such as the scale of the risk adjustment;
• expectations about a contract’s profitability and risks of becoming onerous required for identifying groups of contracts;
•
information about historical cash flows and discount rates required for determining the estimates of cash flows on initial recognition and their
subsequent changes on a retrospective basis;
information required to allocate fixed and variable overheads to groups of contracts, because the Group’s current accounting policies do not
require such information; and
information about certain changes in assumptions and estimates because they were not documented on an ongoing basis.
•
•
Primary statements and performance
Legal & General Group Plc Annual report and accounts 2023
145
Primary statements and performance
continued
1 Basis of preparation and accounting policies continued
(iii) New standards, interpretations and amendments to published standards that have been adopted by the Group continued
IFRS 17 – Insurance Contracts and IFRS 9 – Financial Instruments continued
Modified retrospective approach
The objective of the modified retrospective approach is to achieve the closest outcome to retrospective application possible using reasonable and
supportable information available without undue cost or effort.
For insurance and reinsurance contracts where the full retrospective approach has been adopted, the best estimate and risk adjustment
components of fulfilment cash flows have been recognised and measured using the accounting policies set out in section (vii) except for the
application of a permitted transition modification that, for some groups of contracts issued before 1 January 2021, the risk adjustment for
non-financial risk on initial recognition has been determined by adjusting the amount at 1 January 2022 for the expected release of risk before
that date. The expected release has been determined with reference to the release of risk of similar contracts that the Group issued in 2022.
This modification has been used to avoid the application of hindsight to the calibration of the risk adjustment in prior periods.
Fair value approach
For insurance and reinsurance contracts where the fair value approach has been adopted, the best estimate and risk adjustment components of
fulfilment cash flows have been determined as at 1 January 2022. The Group has determined the Contractual Service Margin (CSM) of the liability
for remaining coverage at the transition date, as the difference between the fair value of the group of insurance contracts and the fulfilment cash
flows measured at that date. In determining fair value, the Group has applied the requirements of IFRS 13, ‘Fair Value Measurement’, except for the
demand deposit floor requirement. The fair value attributed to the in-scope business is calculated with reference to a price generated using the
Group’s pricing models and pricing assumptions at the transition date. The pricing models discount the future capital releases emerging at the
internal rate of return (IRR). The assessment of the valuation includes consideration of:
•
•
•
•
the most appropriate assumptions for use by a third party market participant;
the contractual terms and expected cash flows of the contracts;
the capital requirements over the contract duration; and
the required internal rate of return.
The fair value calculations at 1 January 2022 used economic assumptions at that date. The most significant judgements for each portfolio were:
•
•
the most relevant market participants for the business being valued; and
the IRR and level of required regulatory capital applied in the calculations, which were together calibrated with reference to relevant market
transactions where available.
The net of reinsurance CSM calculated using the fair value approach at transition was £4.1bn, comprising £3.9bn for annuities and £0.2bn for
protection. A reasonably possible alternative valuation for the net of reinsurance annuity fair value CSM derived by reducing the required IRR by 1%
would reduce the transition CSM by £0.3bn.
The Group has aggregated contracts issued more than one year apart in determining groups of insurance contracts under the fair value approach at
transition, applying the permitted transition simplification. The Group did not have reasonable and supportable information to disaggregate groups
into those including only contracts issued within one year.
For portfolios of protection contracts, the Group has elected to disaggregate insurance finance income or expenses between amounts included in
profit or loss and amounts included in other comprehensive income. For these portfolios, transitioned under the fair value approach, the cumulative
amount of insurance finance income or expense recognised in other comprehensive income at the transition date has been reset to zero in line with
the transitional provisions of the standard.
Transition assumptions
The Group’s material insurance and reinsurance contract fulfilment cash flow assumptions at the date of transition are set out below.
(i) Mortality and morbidity
Mortality and morbidity assumptions for the UK businesses are set with reference to standard tables drawn up by the Continuous Mortality
Investigation Bureau (CMI), a subsidiary of the Institute and Faculty of Actuaries, and/or UK death registrations. US assumptions are set with
reference to standard tables drawn up by the American Academy of Actuaries. Tables are based on industry-wide mortality and morbidity
experience for insured lives.
146
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
Mortality tables
Non-linked individual assurance business
UK term assurances1
UK term assurances with terminal illness1
UK term assurances with critical illness2
US term assurances3
Whole of Life Protection Plan4
Whole of Life over 504
Annuity business
UK Annuities in deferment5
UK Vested annuities6
Pension risk transfer
Other annuities
US annuities7
1 January 2022
90% – 92% TM08/TF08 Sel 5
58% – 86% TM08/TF08 Sel 5
89% – 132% ACL08 Sel 2
Adjusted SOA 2014 VBT
Bespoke tables based on TM08/TF08 and UK death registrations
Bespoke tables based on ELT15 and Whole of Life Protection Plan
assumptions
76.2% – 86.3% PNMA00/PNFA00
76.2% – 86.3% PCMA00/PCFA00
65.9% – 109.3% PCMA00/PCFA00
Bespoke tables based on RP-2014 Healthy Annuitant Total table
Improvement assumptions applied of 1.0% p.a. for males and females.
1.
2. Morbidity rates are assumed to deteriorate at a rate of 0.5% p.a. for males and 0.75% p.a. for females.
3. Adjustments are made for gender, select period, smoker status, policy size, policy duration and year, issue year and age.
4. Mortality rates are assumed to reduce based on CMI 2020 model with a long-term annual improvement rate of 1.5% for males and 1.0% for females.
5. Table created by blending PCXA00 with PNXA00 tables. The base table to be used for bulk purchase annuity policies in deferment is PNMA00 up to and including age 55 and
PCMA00 for age 65 and above for males. The identical method is applied to females using PNFA00 and PCFA00.
6. Mortality rates are assumed to reduce according to an adjusted version of the mortality improvement model CMI 2019 with the following parameters: Males: Long-term Rate of
1.5% p.a. up to age 85 tapering to 0% at 110.
Females: Long-term Rate of 1.0% p.a. up to age 85 tapering to 0% at 110.
Smoothing is applied to derive initial rates using a smoothing parameter (Sk) value of 7.5 applied to Legal & General bespoke population data up to 2019. The resulting initial rates
are then adjusted to reflect socio economic class.
For individual annuities distributed through retail channels, a further allowance is made for the effect of initial selection.
The basis above is applicable up to age 90. After age 90 the basis is blended towards a bespoke table from age 105 onwards.
Improvement table is MP2018 for Females and MP2019 for Males.
7.
(ii) Valuation rates of interest and discount rates
The interest rates used to discount the cash flows for the purpose of valuing insurance contract liabilities should reflect the timing and liquidity
characteristics of those insurance liability cash flows and current market conditions. The valuation interest rate assumptions are derived as interest
rate curves with full term structure.
In deriving the discount rate assumptions for annuity business, an explicit allowance for risk is deducted from the yield on the assets backing annuity
liabilities. The allowance for risk comprises long-term assumptions about defaults and the market risk premiums for taking credit risk. In the case of
lifetime mortgage assets a best estimate expectation of losses arising from the no negative equity guarantee, and the market risk premiums for this
risk, are deducted from the yield. For the UK annuity business, the deduction for risk of default for corporate bonds and direct investments equated
to 43bps. For lifetime mortgages the deductions equated to £0.6bn.
For US and UK protection business, the yield is calculated based on notional asset portfolios of AA rated corporate bonds and cash, which reflect
the characteristics of the liability cash flows. An explicit allowance for risk is deducted from the yield, to reflect the default risk associated with the
notional portfolio assets.
The discount rate curves used for the material product lines are shown below. The discount rate curves are used to discount the cash flows on the
underlying contracts and the reinsurance cash flows on those contracts.
1 January 2022 Discount Rates
4%
3%
e
t
a
R
2%
1%
0%
0
10
20
30
Years ahead
40
50
60
● GBP Risk-free ● Annuity GBP ● Protection GBP ● USD Risk-free ● Annuities USD ● Protection USD
Primary statements and performance
Legal & General Group Plc Annual report and accounts 2023
147
Primary statements and performance
continued
1 Basis of preparation and accounting policies continued
(iii) New standards, interpretations and amendments to published standards that have been adopted by the Group continued
IFRS 17 – Insurance Contracts and IFRS 9 – Financial Instruments continued
(iii) Persistency
Lapse Rates
UK Level term
UK Decreasing term
UK Accelerated critical illness cover
Whole of Life (conventional non profit)
US term – 10 year guarantee period
US term – 15 year guarantee period
US term – 20 year guarantee period
US term – 30 year guarantee period
US Universal Life
1 January 2022
2.0% – 28.7%
4.4% – 15.0%
3.2% – 31.5%
0.7% – 8.7%
7.1% – 8.1%
4.2% – 5.8%
3.0% – 6.1%
2.1% – 6.5%
2.7%
(iv) Risk Adjustment
The Group calculates its risk adjustment using a Provision for Adverse Deviations (PADs) approach, where adjustments are applied to best estimate
non-financial risk assumptions to calculate the risk adjustment required over and above the best estimate liability. These adjustments (which vary
by risk) are calibrated such that the total Group risk adjustment calculated aligns to the Group’s view of compensation for non-financial risks and the
risk adjustment at contract level is representative of the compensation required for that contract. For the majority of risks, the Group’s view on the
compensation required for non-financial risks is determined with reference to an 85th percentile confidence level, calculated using a one-year
Value-at-Risk (VaR) measure. This VaR measure reflects the Group’s view on how non-financial risks behave (risk distributions), diversification of
risks across the Group (risk correlations), and the costs and benefits from reinsurance in place (risk mitigation). This is consistent with how risks
are priced for and managed across the Group. We have estimated the equivalent confidence level for the entire Group on a multi-year basis, using a
weighted average of the key risks. Overall, the Group risk adjustment as at 1 January 2022 is aligned to a c75th percentile multi-year confidence
level over the full runoff of the portfolio.
Financial impact of transition
The increase in insurance liabilities on adoption of IFRS 17 at 1 January 2022 can be attributed to the following:
Remeasurement of liabilities: the IFRS 17 cash flows are best estimate and exclude all prudent margins included in the IFRS 4
liabilities. Removal of these margins coupled with other changes to the insurance contract measurement, including discount rates
and the exclusion of non-attributable expenses, results in a lower best estimate liability
Creation of a risk adjustment: IFRS 17 incorporates a specific risk adjustment for non-financial risk
Creation of a CSM: determined using the transition approaches described above and reflecting the unearned profit of these contracts
Total
Transition to IFRS 9
On transition, changes in accounting policies resulting from the adoption of IFRS 9 have been applied retrospectively.
Impact on net
insurance contract liabilities
on transition to IFRS 17
£m
7,484
(2,501)
(11,116)
(6,133)
In line with IFRS 17 the Group has chosen to restate comparative periods under IFRS 9. While the standard does not apply to financial assets already
derecognised by 1 January 2023, the Group has applied a ‘classification overlay’ as allowed by the standard. When applying IFRS 9 and IFRS 17 at
the same time, the classification overlay permits presentation of comparative information as if the classification, measurement and impairment
requirements of IFRS 9 had been applied to such assets, irrespective of derecognition date.
For the purpose of classification and measurement, financial assets’ business models have been assessed as at the date of initial application and
have been applied consistently in all periods presented. If an asset was in scope of the classification overlay described above, the Group aligned the
classification and measurement of each financial asset in the comparative periods with what it expected it would have been on 1 January 2023.
Such assessment was performed based on reasonable and supportable information available at 1 January 2022, the transition date. Any difference
between the IAS 39 carrying amount of a financial asset and the carrying amount at the transition date that results from applying IFRS 9 or the
classification overlay was recognised in opening retained earnings.
For the purpose of impairment, the Group assessed whether as at 1 January 2023 there had been a significant increase in credit risk as compared
to the date that a financial instrument was initially recognised, and applied a 12-month or lifetime ECL accordingly. The Group chose to apply the
impairment requirements of IFRS 9 consistently to all of the applicable financial instruments on its books during the comparative periods. To the
extent the classification overlay applied and therefore an asset was derecognised by 1 January 2023, any expected credit losses recognised in the
comparative periods were reversed upon disposal. On transition, the Group made use of a practical expedient available in IFRS 9 whereby it can be
assumed that the credit risk on a financial instrument has not increased significantly since initial recognition if the financial instrument is
determined to have low credit risk at the reporting date (e.g. investment grade as determined by the Group’s asset managers).
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On transition to IFRS 9, any additional provision recognised when compared to IAS 39 was recognised in opening retained earnings. However, if this
related to a financial asset at FVOCI, an equal and opposite movement was reflected in the OCI reserve.
Changes to hedge accounting policies have been applied prospectively from 1 January 2023. All hedging relationships designated under IAS 39 at
31 December 2022 met the criteria for hedge accounting under IFRS 9 at 1 January 2023 and were therefore regarded as continuing hedging
relationships.
Classification and measurement
The following table explains the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class
of the Group’s financial assets as at 1 January 2023, including the reasons for any reclassifications out of the FVTPL category. No changes to
classification and measurement of financial liabilities have resulted from the implementation of IFRS 9.
Reclassification
(before
remeasurement)
Remeasurement
1 January 2023
IFRS 9 measurement
£m
ECL
£m
Other
£m
Category
Amount
£m
Financial investments at FVTPL
Equity securities
Debt securities
– To debt securities at amortised cost
– To debt securities at FVOCI
Loans
Derivative assets – held for trading
Total financial investments at FVTPL
Financial investments – available for sale
Debt securities
– To debt securities at amortised cost
Total financial investments AFS
Financial investments at FVOCI
Debt securities
– From debt securities at FVTPL
Total financial investments at FVOCI
Total financial investments at fair value
Financial investments at amortised cost
Loans
Debt securities
– From debt securities AFS
– From debt securities at FVTPL
Total financial investments at amortised cost
Other financial assets
Reinsurance receivables
Insurance and intermediaries receivables
Other receivables
Cash and cash equivalents
Total other financial assets
Total financial assets
31 December 2022
IAS 39 measurement
Category
Amount
£m
FVTPL1
167,335
FVTPL1
217,613
FVTPL1
FVTPL1
14,283
45,427
444,658
AFS3
789
789
(6,425)
(5,946)
(479)
(6,425)
(789)
(789)
(789)
479
479
479
FVTPL2
167,335
FVTPL2
211,188
FVTPL2
FVTPL2
14,283
45,427
438,233
FVOCI
479
479
438,712
445,447
(6,735)
L&R4
28
28
291
76
9,632
35,784
45,783
491,258
L&R4
L&R4
L&R4
L&R4
6,735
789
5,946
6,735
(27)5
1,145
(35)
AC
AC
1
7,845
(35)
1,118
7,846
(291)5
(76)5
(9)5
(376)
742
(35)
N/A
N/A
AC
AC
9,623
35,784
45,407
491,965
1. Designated at fair value through profit or loss under IAS 39.
2. Mandatorily measured at fair value through profit or loss under IFRS 9.
3. Available-for-sale. Under IAS 39, financial assets classified as available-for-sale were measured at fair value with unrealised gains and losses recognised in a separate reserve within equity.
4. Loans and receivables. Under IAS 39, loans and receivables were non-derivative financial assets with fixed or determinable payments not quoted in an active market. These excluded
assets held for trading and those designated as available for sale or fair value through profit or loss.
5. Derecognition of balances that do not exist under IFRS 17 as they are now included in the insurance contract liability on an IFRS 17 basis.
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1 Basis of preparation and accounting policies continued
(iii) New standards, interpretations and amendments to published standards that have been adopted by the Group continued
IFRS 17 – Insurance Contracts and IFRS 9 – Financial Instruments continued
Remeasurement from FVTPL to amortised cost
As part of the implementation of IFRS 9, the Group has reassessed the classification and measurement of certain financial assets backing annuity
liabilities, in order to better match interest rate and inflation sensitivities to IFRS 17 liabilities, and reclassified a portion of its portfolio of debt
securities previously held at FVTPL. This is because, while the best estimate liability and risk adjustment under IFRS 17 for annuities are measured
with current financial assumptions, the CSM is measured with locked-in discount rates. Therefore, a sub-portfolio of long dated debt instruments
amounting to £5,603m (including accrued interest, as at 1 January 2023) backing annuity contracts but in surplus to the IFRS 17 best estimate
liability and risk adjustment, and passing the SPPI test, was separately identified. Starting 1 January 2023 these assets have been used to manage
interest and inflation rate exposure. They are held to maturity in a ‘held to collect’ business model and accounted for at amortised cost. Other assets
reclassified in the Group’s Insurance business, notably private placements and commercial mortgage loans in the US business, were previously
accounted for at FVTPL in order to eliminate or reduce an accounting mismatch. Following the implementation of IFRS 17 this is no longer required
as finance income and expense on the insurance liabilities that these assets are held to back are presented in OCI. The assets pass the SPPI test
and are held in a ‘held to collect’ business model, and are therefore accounted for at amortised cost.
Had such assets remained at FVTPL after 1 January 2023, the Group would have recorded fair value losses in the Consolidated Income Statement
of £322m during the year. Interest income recognised in the Consolidated Income Statement in the year was £209m, and the effective interest rate
as at 1 January 2023 was 3.59%. The fair value of these assets as at 31 December 2023 is £6,839m.
Remeasurement from FVTPL to FVOCI
Under IAS 39, bonds (including US Treasury bonds) backing certain protection liabilities were held at FVTPL in order to eliminate or reduce an
accounting mismatch. Following the implementation of IFRS 17 this is no longer required, as finance income and expense on the insurance liabilities
that these assets are held to back, are presented in OCI. The assets pass the SPPI test and are held in a ‘held to collect and sell’ business model, and
are therefore accounted for at FVOCI.
Had such assets remained at FVTPL after 1 January 2023, the Group would have recorded fair value gains in the Consolidated Income Statement
of £15m during the year. Interest income recognised in the Consolidated Income Statement in the year was £8m, and the effective interest rate as at
1 January 2023 was 2.75%. The fair value of these assets as at 31 December 2023 is £356m.
Impairment
The following table reconciles the closing impairment allowance under IAS 39 as at 31 December 2022 with the opening loss allowance under IFRS 9
as at 1 January 2023 for financial assets subject to the impairment requirements of IFRS 9.
Debt securities at FVOCI
From debt securities at FVTPL
Debt securities at amortised cost
From debt securities at FVTPL
From debt securities AFS
Other receivables
Total
31 December 2022
IAS 39
£m
Remeasurement
£m
1 January 2023
IFRS 9
£m
–
–
–
4
4
3
34
1
–
38
3
34
1
4
42
Tax impacts from adoption of IFRS 17 and IFRS 9
The implementation of IFRS 17 and IFRS 9 has resulted in a reduction of the Group’s equity of £6,882m before tax as at 1 January 2022. A deferred
tax credit of £1,356m was recognised in respect of this, resulting in a net impact on adoption of IFRS 17 and IFRS 9 of £5,526m.
Of the deferred tax credit of £1,356m, £1,302m relates to the UK and £54m relates to the US.
The introduction of this new accounting standard impacts the tax the Group pays in the UK, as the UK tax regime is based on the IFRS results of the
Group’s UK businesses. HMRC consulted widely on how the introduction of IFRS 17 should be treated for tax purposes. The UK tax regime requires the
reduction in equity on transition to IFRS 17 for UK companies to be treated as a tax loss, which is spread over 10 years and will reduce the cash tax
payments over this period. This tax loss has been recognised as a deferred tax asset on the Group’s balance sheet, valued at £1.2bn at 1 January 2022.
The Group’s US businesses’ tax position is based on their regulatory filings rather than on the IFRS result, and therefore the implementation of
IFRS 17 and IFRS 9 does not impact their local tax position. The Group recognises deferred tax on the difference between the profits and losses
on which the local tax position is based on, and the IFRS results.
Amendments to IAS 12 – Income Taxes: ‘International Tax Reform — Pillar Two Model Rules’
These amendments, issued in May 2023, were introduced in response to the Organisation for Economic Co-operation and Development (OECD)
Inclusive Framework on Base Erosion and Profit Shifting (BEPS) Pillar Two model rules, and include:
• A mandatory temporary exception to the recognition and disclosure of deferred taxes arising from the jurisdictional implementation of the Pillar
Two model rules; and
• Disclosure requirements for affected entities to help users of the financial statements better understand an entity’s exposure to Pillar Two income
taxes arising from that legislation, particularly before its effective date.
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Note 28 includes disclosure of the Group’s application of these amendments.
Other standards
The Group has also applied the following standards and amendments for the first time in the year commencing 1 January 2023, which did not give
rise to a material impact on the Group’s consolidated financial statements.
• Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12);
• Definition of Accounting Estimates (Amendments to IAS 8); and
• Disclosure of Accounting policies (Amendments to IAS 1 and IFRS Practice Statement 2).
The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.
(iv) Standards, interpretations and amendments to published standards which are not yet effective
Amendments to IAS 1 – Presentation of Financial Statements: ‘Classification of Liabilities as Current or Non-Current’
These amendments, issued in January 2020, clarify the existing requirements for classifying liabilities as current or non-current. The amendments
are effective for annual reporting periods beginning on or after 1 January 2024.
Amendments to IAS 1 – Presentation of Financial Statements: ‘Non-current Liabilities with Covenants’
These amendments, issued in October 2022, clarify that only covenants with which an entity must comply on or before the reporting date will affect
a liability’s classification as current or non-current. The amendments are effective for annual reporting periods beginning on or after 1 January 2024.
Amendments to IFRS 16 – Leases: ‘Lease Liability in a Sale and Leaseback’
These amendments, issued in September 2022, specify requirements for seller-lessees to measure the lease liability in a sale and leaseback
transaction. The amendments are effective for annual reporting periods beginning on or after 1 January 2024.
Amendments to IAS 7 – Statement of Cash Flows and IFRS 7 – Financial Instruments: Disclosures: ‘Supplier Finance Arrangements’
These amendments, issued in May 2023, address the disclosure requirements to enhance the transparency of supplier finance arrangements and
their effects on a company’s liabilities, cash flows and exposure to liquidity risk. The amendments are effective for annual reporting periods
beginning on or after 1 January 2024.
(v) Critical accounting judgements and the use of estimates
The preparation of the financial statements includes the use of estimates and assumptions which affect items reported in the Consolidated Balance
Sheet and Consolidated Income Statement and the disclosure of contingent assets and liabilities at the date of the financial statements. Although
these estimates are based on management’s best knowledge of current circumstances and future events and actions, material adjustments could
be made to the carrying amounts of assets and liabilities within the next financial year. The Audit Committee reviews the reasonableness of
judgements associated with and the application of material accounting policies. The significant accounting matters considered by the Audit
Committee in respect of the year ended 31 December 2023 are included within the Audit Committee Report on page 86.
The major areas of critical accounting judgement on policy application are considered below:
Insurance and investment contract liabilities (Notes 20 and 21): Product classification and the assessment of the significance of insurance risk
transferred to the Group in determining whether a contract should be accounted for as an insurance or investment contract
Contracts which transfer significant insurance risk to the Group are classified as insurance contracts. Contracts that transfer financial risk (e.g. change
in interest rate or security price) to the Group but not significant insurance risk are classified as investment contracts.
Judgement is required in order to assess the significance of the transfer of insurance risk within a contract. This assessment is based on whether
the occurrence of an insured event could cause the Group to make significant additional payments, i.e. if the occurrence of the event causes
significantly higher cash out flows for the Group than its non-occurrence.
Certain contracts, which are both insurance and investment, can contain discretionary features representing the contractual right to receive
additional benefits as a supplement to guaranteed benefits under certain conditions, being:
•
•
•
that the additional benefits are a significant portion of the total contractual benefits;
the timing and amount of the additional benefits is at the discretion of the Group; and
that the additional benefits are contractually dependent upon the performance of an entity, fund or specified pool of assets.
Insurance contracts and investment contracts with such discretionary participation features are accounted for under IFRS 17, while investment
contracts without discretionary participation features are accounted for as financial instruments under IFRS 9.
Judgement is therefore required in order to establish whether any additional benefits in an insurance or investment contract meet the above
requirements for being considered discretionary participation features.
Consolidation (Notes 39 to 41): Assessment of whether the Group controls underlying entities and should therefore consolidate them
The assessment takes account of various criteria, including decision making ability, equity holding and the rights to a variable return from the entity.
Control arises when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those
returns through its power over the entity.
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1 Basis of preparation and accounting policies continued
(v) Critical accounting judgements and the use of estimates continued
Consolidation (Notes 39-41): Assessment of whether the Group controls underlying entities and should therefore consolidate them continued
For operating entities this generally accompanies a shareholding of 50% or more in the entity. Subsidiaries that are consolidated where the Group
owns less than 50% of the ordinary share capital (structured entities), are consolidated based on an assessment of control normally arising from
special rights attaching to the class of share owned, other contractual arrangements and factors such as the purpose of the investee, the nature of
its relevant activities, voting rights (including potential voting rights) and substantive and protective rights.
The Group invests in various fund and unit trust entities where it also acts as the asset manager to those entities. In these instances, in determining
whether the Group controls the entities, the assessment focuses on the aggregate economic interests of the Group (direct interest and expected
management fees) and on whether the Group acts as a principal or agent. This includes an assessment of the removal rights of other investors
(their practical ability to allow the Group not to control the fund). Additionally, holdings in such investments can fluctuate on a daily basis according
to the participation of the Group and other investors in them. As a result, in determining control, we look at an assessment of these factors over a
longer period to mitigate the impact of daily fluctuations which do not reflect the wider facts and circumstances of the Group’s involvement. This is
performed in line with the following principles:
• where the entity is managed by a Group asset manager, and the Group’s ownership holding in the entity exceeds 50%, the Group is judged to have
control over the entity;
• where the entity is managed by a Group asset manager, and the Group’s ownership holding in the entity is between 30% and 50%, the facts and
circumstances of the Group’s involvement in the entity are considered, including the rights to any fees earned by the asset manager from the
entity, in forming a judgement as to whether the Group has control over the entity; and
• where the entity is managed by a Group asset manager, and the Group’s ownership holding in the entity is less than 30%, the Group is judged to
not have control over the entity, but again the facts and circumstances of the Group’s involvement in the entity are considered.
The following sets out information about the critical accounting assumptions made by the Group about the future, and other major sources of
estimation uncertainty at the end of the reporting period, that have a significant risk of resulting in a material adjustment to the carrying amounts
of assets and liabilities within the next financial year:
Valuation of insurance contract liabilities (Notes 18-20)
The key judgements around the valuation of insurance contract liabilities relate to the following assumptions:
• Determination of the longevity, mortality and morbidity assumptions used in the calculation of the insurance contract liabilities; the assumptions
for the rate of future longevity, mortality and morbidity are based on the Group’s internal experience and judgements about how experience may
vary in the future. This assessment takes into account market benchmarking, internal experience studies and independent industry data. The
long-term assumptions are adjusted to reflect the Group’s view on the effects of the Covid-19 pandemic on claims experience in the medium to
long-term, informed by emerging experience and industry studies.
• Determination of the directly attributable expense assumptions used in the calculation of the insurance liabilities. These represent the expected
future costs that relate directly to the fulfilment of the underlying insurance policies, and are based on management’s best estimate of these
future costs, and on an appropriate allocation between servicing new and existing business.
• Determination of valuation interest rates used to discount the liabilities, which are sensitive to the assumptions made, for example, on credit
default of the backing assets. These assumptions take into account consideration of market experience and historic internal data. The valuation
interest rate is also sensitive to the selection of the reference portfolio of assets chosen to back the liabilities.
• Determination of the compensation required for bearing the uncertainty about the amount and timing of the cash flows arising from non-financial
risks as insurance contracts are fulfilled, in the calculation of the risk adjustment.
• Determination of the weighting of the coverage units, used to calculate the CSM amortisation in the year, between the payment phase and the
deferral phase for deferred annuities. Judgement is required to combine the different coverage units so that they fairly reflect the services provided.
• Determination of the transition date contractual service margin under IFRS 17 incorporated judgement. In particular, the transition date CSM for
business transitioned using the fair value methodology persists into the closing valuation of the CSM until those portfolios expire. These
judgements are discussed in detail in the Basis of Preparation.
Note 19 includes a sensitivity analysis on post-tax Group profit and Group equity to reasonable alternative assumptions.
Valuation of unquoted illiquid assets and investment property (Note 11)
Determination of fair value of unquoted and illiquid assets, and investment property involves judgements in model valuations, through the
incorporation of both observable and unobservable market inputs, which include assumptions that lead to the existence of a range of plausible
valuations for financial assets.
In assessing asset valuation, in line with applicable standards and guidance, the Group has both projected the short-term impact on earnings and
cash flows of the current market volatility, while continuing to review the assets’ ability to deliver longer term returns aligned to their investment cases.
Note 11 includes a sensitivity analysis on the fair value of unquoted illiquid assets and investment property to reasonable alternative assumptions.
(vi) Consideration of climate change
The Group recognises emerging risks from both climate change and the crisis with nature, and the interrelationship between our climate and the
natural world. Climate change is the Group’s most material sustainability issue, but the Group continues to develop its understanding of its impacts
and dependencies on nature, concurrently with its consideration of the impacts from climate change.
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The Group is exposed to climate change through two broad categories: transition risks from the move to a low-carbon economy and the impact this
has on asset valuation and the economy; and physical risks from the impact on asset holdings as a result of severe weather events and longer-term
shifts in climate.
The Group has integrated climate risk management into its governance framework and has carried out a detailed assessment of how we could
expect climate risk to emerge across our business model. The Group risk mitigation strategy includes setting portfolio carbon intensity targets,
integrating carbon controls into the investment processes through stock exclusions and high carbon escalation, corporate engagement and
implementing high energy efficiency standards into the Group’s directly owned commercial property and housing businesses.
The Group is committed to net zero, targeting a 1.5°C ‘Paris’ outcome. In order to meet its environmental goals, the Group has set for itself a number
of metrics and targets, clearly linked with its business strategy and risk management controls. These are based on a three-pillar climate strategy
encompassing ‘Invest, Influence and Operate’. Metrics and targets have been defined around the Group’s operational carbon footprint, investment
portfolio economic carbon intensity, and implied portfolio temperature alignment. These are being targeted through the decarbonisation of the
Group’s balance sheet, investments in clean energy and start-ups, development of climate friendly investment products, and focus on own
operations. The Group also continues to use its influence as a large investor to promote the transition.
Scenario analysis is performed to help understand the strategic implications of possible climate pathways, including the key features of a transition
to a net zero economy. Plausible scenarios have been developed based on estimations of how the energy system may evolve over the next 30 years,
using the most recent carbon budgets from the Intergovernmental Panel on Climate Change’s Sixth Assessment Report (AR6) and incorporated
latest data on technology costs. These include two different pathways to ‘below 2°C’, and a scenario assuming achievement of net zero. Given the
Group’s long-term climate risk relates to transition risk, a fourth scenario assuming global failure to act on climate change and emissions growth at
historical rates has been modelled, but the impacts have not been applied to our portfolio. Such impacts are driven by physical risks which tend to
be highly localised and manifest further into the future and are therefore more uncertain.
In preparing the consolidated financial statements, the Group has considered the impact of climate change, and in particular the transition to a lower
carbon economy, on the valuation of the Group’s assets and liabilities. In the Strategic report, with additional information in the Group’s Climate and
nature report, we have set out in detail the various risks and opportunities that are created by this transition, and how they may impact the Group
across various time horizons. In line with the recommendations of the Task Force on Climate-related Financial Disclosures, we have further
described the resilience of the Group’s strategy, taking into consideration different climate-related scenarios, as described above. There is no one
single scenario that underpins the financial statements. The scenarios help challenge the Group’s perspectives on the future business and economic
environment as a result of the transition to a lower carbon economy, including consideration of events that may be only remotely possible. As a
result, the scenarios covered are not intended to be predictions of likely future events or outcomes and are not the basis on which the Group’s
consolidated financial statements have been prepared.
At the current time, the Group does not consider climate risk to represent a significant area of judgement or of estimation uncertainty. As at
31 December 2023, no material impacts on the Group’s financial position, nor on the valuation of assets or liabilities on the Group’s Consolidated
Balance Sheet as a result of climate change risk have been identified. In arriving at this determination, the Group has in particular taken into account
the following areas of judgement, which we consider to be those most exposed to the potential impact of climate change in the preparation of the
financial statements:
Going concern and viability
In preparing the consolidated financial statements, the directors are required to assess the Group’s ability to continue as a going concern, by taking
into account all available information related to at least 12 months from the date of their approval. Additionally, the preparation of the viability
statement takes into consideration the Group’s overall business model and strategy, forecast financial strength and resilience, and the liquidity
profile over the planning horizon. Climate-related matters have been considered as part of these assessments and have not been deemed to create
material uncertainties as to their conclusions or to require specific disclosure.
Valuation of Level 3 financial investments and investment property
The valuation of unquoted illiquid assets and investment property has been separately identified as an area of significant estimation uncertainty.
The assumptions used in the models underpinning these assets’ valuations, such as cash flows forecasts, discount rates, and multiples, are often
unobservable. Due to the need to apply significant judgements, these assumptions can be impacted by transition risk, with climate-related inputs
gaining more traction (e.g. construction methods and materials, EPC ratings, ESG credentials and climate resilience). This is particularly relevant for
the Group’s direct investments portfolio, including alternative assets. Where possible, the Group’s assets are valued using standard market pricing
sources or appropriately qualified external valuers, and therefore reflect current market sentiments around climate risk. In this respect, market and
investor expectations have also been evolving, with greater demand towards net zero-aligned assets, and away from traditional carbon-intensive
methods, impacting expected investor returns and therefore discount rates and multiples. Exposure to the risks of climate change is minimised
through rigorous assessment of potential investments and active monitoring of the carbon intensity of the current portfolio. Additionally, investment
properties are being reviewed by independent third parties, where applicable, with regards to potential retrofitting, to help reduce carbon emissions
and make them more efficient and sustainable for the future.
Asset impairment and residual economic life
The carrying value of goodwill, intangible and certain tangible assets on the Consolidated Balance Sheet which are subject to impairment testing
could be affected by climate change risk. For example, inventory may become obsolete or restricted, causing selling prices to decline or their costs
of completion to increase. If, as a result, the cost of inventories is not recoverable, they would need to be written down to their net realisable value.
Primary statements and performance
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Primary statements and performance
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1 Basis of preparation and accounting policies continued
(vi) Consideration of climate change continued
Asset impairment and residual economic life continued
Property, plant and equipment, right-of-use assets, goodwill and intangible assets may see their recoverable amount decrease in light of climate
change, and significant changes in the environment (including for example changes in regulation) in which the Group operates, where adverse
effects can represent an indication of impairment. The estimation of recoverable amount as ‘value in use’ requires an assessment of future expected
cash flows based on assumptions potentially affected by climate-related matters, particularly for goodwill and intangible assets, which are subject
to a higher degree of judgement. Where assets are subject to amortisation or depreciation, consideration needs to be given to whether climate risk
suggests that the residual economic life is shorter than anticipated, which would give rise to increased charges in the income statement. Due to the
nature of the Group’s assets, we do not anticipate any material additional impairments or increased amortisation and depreciation charges to arise
from climate change. Risks will continue to be monitored against judgements and estimates used in the assessment of impairment.
Insurance contract liabilities
The Group’s insurance contracts are valued using discount rates derived from the backing asset portfolios with deductions made to remove risks
that are present in the assets but are not relevant to the insurance liability. Climate-related risks could impact on the Group’s exposure to future credit
losses which would impact on the appropriate yield deductions in the discount rate calculation and therefore the insurance contract valuations.
Provisions and contingent liabilities
The recognition, measurement and disclosure of provisions and contingent liabilities is subject to setting assumptions around future events and the
probability of their occurrence. Climate-related matters could affect these elements, for example by requiring recognition or disclosure of a legal
obligation (e.g. levies imposed for failing climate-related targets) or of a constructive obligation (e.g. requirements to remediate environmental
damage caused by the Group’s operations and investment portfolios).
Deferred tax assets
Deferred tax assets are recognised for deductible temporary differences and unused tax losses and credits, to the extent it is probable that future
taxable profit will be available, against which those amounts can be utilised. Climate-related matters could affect the Group’s estimate of future
taxable profits, and therefore it may be required to derecognise deferred tax assets previously on the balance sheet.
Share-based payments
The Group’s performance share plans provide a direct and transparent link between executive pay and the delivery of shareholder returns over the
longer-term. They are a conditional award of shares subject to a performance period of at least three years. Performance metrics for the Group’s
share plans are now clearly linked to ESG metrics. As such, the effects of climate change could have an impact on amount and timing, recognition
and measurement of amounts in the Group’s income statement and statement of comprehensive income.
Financial instruments
Expected credit losses are required to be recognised on receivables and certain financial investments, representing the counterparty’s probability of
default over a certain time horizon. Climate-related matters may affect the Group’s exposure to these losses, for example by negatively affecting the
borrower’s ability to meet their obligations, or by affecting assumptions used in the models adopted to estimate expected credit losses.
(vii) Material accounting policies
Consolidation principles
Subsidiary undertakings
The consolidated financial statements incorporate the assets, liabilities, equity, income, expenses and cash flows of the Company and of its
subsidiary undertakings drawn up to 31 December each year. All intra-group balances, transactions, income and expenses are eliminated in full.
Subsidiaries are those entities (including special purpose entities, mutual funds and unit trusts) over which the Group directly or indirectly has control
(i.e. when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns
through its power over the investee) (Note 40).
Business combinations are accounted for by applying the acquisition method of accounting, which requires the Group to record the identifiable
assets and liabilities of the acquired business at fair value on the date of acquisition. The excess of the fair value of acquisition consideration over
the recorded value of the assets and liabilities of the acquired entity is recorded in the Consolidated Balance Sheet as goodwill. Profits or losses of
subsidiary undertakings sold or acquired during the year are included in the consolidated results up to the date of disposal or from the date of
gaining control.
Puttable instruments held by external parties in consolidated investment vehicles, such as unit trusts, are classified as liabilities and appear as
‘Net asset value attributable to unit holders’ in the Consolidated Balance Sheet.
Associates and joint ventures
Associates are entities over which the Group has significant influence but which it does not control. It is presumed that the Group has significant
influence where it has between 20% and 50% of the voting rights in the investee unless indicated otherwise. Joint ventures are entities where the
Group and other parties have joint control over their activities.
The Group has interests in associates and joint ventures (Note 40) which form part of an investment portfolio held through private equity vehicles,
mutual funds, unit trusts and similar entities. In accordance with the choice permitted by IAS 28, ‘Investments in associates’, these interests have
been classified as fair value through profit or loss and measured at fair value within financial investments, with changes in fair value recognised in
the Consolidated Income Statement.
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Associates and joint ventures which do not form part of an investment portfolio are initially recognised in the Consolidated Balance Sheet at cost.
Goodwill arising on the acquisition of these associates or joint ventures is included within the carrying value of those investments. Their carrying
amount is increased or decreased to reflect the Group’s share of total comprehensive income after the date of the acquisition. Where the carrying
amount of an associate or joint venture is greater than its estimated recoverable amount, which is the higher of the asset’s fair value less costs of
disposal and value in use, it is written down immediately to its recoverable amount, with an impairment loss recognised in the Consolidated
Income Statement.
Insurance contracts
Long term insurance contracts – initial measurement
Insurance contracts are contracts which transfer significant insurance risk to the insurer at the inception of the contract. This is the case if, and only
if, an insured event could cause an insurer to make significant additional payments in any scenario, other than a scenario which lacks commercial
substance. Such contracts remain insurance contracts until all rights and obligations are extinguished or expire.
At inception, the Group separates the following components from an insurance or reinsurance contract and accounts for them as if they were
stand-alone financial instruments:
• derivatives embedded in the contract whose economic characteristics and risks are not closely related to those of the host contract, and whose
terms would not meet the definition of an insurance or reinsurance contract as a stand-alone instrument; and
• distinct investment components, i.e. investment components that are not highly inter-related with the insurance components and for which
contracts with equivalent terms are sold, or could be sold, separately in the same market or the same jurisdiction.
After separating any financial instrument components, the Group separates any promises to transfer to policyholders distinct goods or services
other than insurance coverage and investment services and accounts for them as separate contracts with customers (i.e. not as insurance
contracts). A good or service is distinct if the policyholder can benefit from it either on its own or with other resources that are readily available to the
policyholder. A good or service is not distinct and is accounted for together with the insurance component if the cash flows and risks associated
with the good or service are highly inter-related with the cash flows and risks associated with the insurance component, and the Group provides a
significant service of integrating the good or service with the insurance component.
Recognition and level of aggregation
An insurance contract is recognised at the earliest of the following:
(a) the beginning of the coverage period;
(b) the date when the first payment from a policyholder becomes due; and
(c) for onerous contracts, when the contract becomes onerous.
The level of aggregation determines the unit of account at which IFRS 17 calculations are performed. This is determined firstly by dividing the
business written into portfolios. Portfolios comprise groups of contracts with similar risks which are managed together. Portfolios are further
divided based on expected profitability at inception into three categories: onerous contracts, contracts with no significant risk of subsequently
becoming onerous, and the remainder. IFRS 17 also requires that no group for level of aggregation purposes may contain contracts issued more
than one year apart.
All of the Group’s in scope insurance contracts are accounted for under the general measurement model which measures a group of insurance
contracts as the total of:
• fulfilment cash flows; and
• a contractual service margin (CSM) representing the unearned profit the Group will recognise as it provides services under the insurance contract.
Fulfilment cash flows
Fulfilment cash flows comprise unbiased and probability-weighted estimates of future cash flows, discounted to present value to reflect the time
value of money and financial risks, plus a risk adjustment for non-financial risk. The Group’s objective in estimating future cash flows is to determine
the expected value, or the probability weighted mean, of the full range of possible outcomes, considering all reasonable and supportable information
available at the reporting date without undue cost or effort. The Group estimates future cash flows considering a range of scenarios which have
commercial substance and give a good representation of possible outcomes. The cash flows from each scenario are probability-weighted and
discounted using current assumptions.
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1 Basis of preparation and accounting policies continued
(vii) Material accounting policies continued
Insurance contracts continued
Long term insurance contracts – initial measurement continued
When estimating future cash flows, the Group includes all cash flows that are within the contract boundary. The cash flows include:
investment management costs incurred in the provision of an investment return service or to enhance the benefits of an insurance contract;
• premiums and related cash flows;
• claims and benefits, including reported claims not yet paid, incurred claims not yet reported and expected future claims;
•
• payments to policyholders resulting from embedded surrender value options;
• an allocation of insurance acquisition cash flows attributable to the portfolio to which the contract belongs;
• claims handling costs;
• policy administration and maintenance costs, including recurring commissions that are expected to be paid to intermediaries for future services;
• an allocation of fixed and variable overheads directly attributable to fulfilling insurance contracts; and
•
transaction-based taxes.
The Group incorporates, in an unbiased way, all reasonable and supportable information available without undue cost or effort about the amount,
timing and uncertainty of those future cash flows. The Group estimates the probabilities and amounts of future payments under existing contracts
based on information obtained, including:
information about claims already reported by policyholders;
•
• other information about the known or estimated characteristics of the insurance contracts;
• historical data about the Group’s own experience, supplemented when necessary, with data from other sources (historical data is adjusted to
reflect current conditions); and
• current pricing information, when available.
The measurement of fulfilment cash flows includes insurance acquisition cash flows which are allocated as a portion of premium to profit or loss
(through insurance revenue) over the period of the contract.
Pre-recognition, insurance acquisition cash flow assets are recognised on the balance sheet prior to allocation to new insurance contracts and are
considered for impairment at each reporting date.
Risk adjustment
The risk adjustment for non-financial risk for a group of insurance contracts reflects the compensation that the Group would require for bearing
uncertainty about the amount and timing of the cash flows that arise from non-financial risk after diversification. The Group’s risk adjustment is
calibrated using a Value at Risk (VAR) methodology. In some cases, the compensation for risk on reinsured business is linked directly to the price
paid for reinsurance.
Discounting
The insurance contract fulfilment cash flows are discounted at rates that reflect the characteristics of the insurance contract liabilities. These are
determined by starting from an appropriate asset portfolio with deductions to remove risks in the assets that are not present in the insurance
liabilities.
Contractual service margin (CSM)
The Group’s CSM is a component of the asset or liability for the group of insurance contracts that represents the unearned profit the Group will
recognise as it provides services in the future. The Group measures the CSM on initial recognition at an amount that, unless the group of contracts
is onerous, results in no income or expenses arising from:
initial recognition of the fulfilment cash flows;
•
• any cash flows arising from the contracts in the Group at that date;
•
the derecognition at the date of initial recognition of:
– any asset for insurance acquisition cash flows; and
– any other asset or liability previously recognised related to the group of insurance contracts.
Onerous contracts
For groups of contracts assessed as onerous, the Group recognises a loss in profit or loss for the net outflow, resulting in the carrying amount of the
liability for the Group being equal to the fulfilment cash flows and the CSM of the Group being zero. A loss component is established by the Group for
the liability for remaining coverage for an onerous group, which represents the losses recognised.
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Reinsurance contracts – initial measurement
The initial measurement of reinsurance contracts held follows the same principles as those for insurance contracts issued, with the exception of
the following:
•
reinsurance contracts are recognised from the earlier of the following:
– the beginning of the coverage period; and
– the date the entity recognises an onerous group of underlying insurance contracts, if the entity entered into the related reinsurance contract
held in the group of reinsurance contracts held at or before that date.
• measurement of the cash flows includes an allowance on a probability-weighted basis for the effect of any non-performance by the reinsurers,
including the effects of collateral and losses from disputes;
the Group determines the risk adjustment for non-financial risk so that it represents the amount of risk being transferred to the reinsurer;
•
• both day one gains and day one losses are not recognised at initial recognition in the Consolidated Balance Sheet but are deferred into the CSM
and released to profit or loss as the reinsurer renders services, except for any portion of a day one loss that relates to events before initial
recognition; and
if the reinsurance contract is recognised prior to a loss-making underlying contract, the reinsurance CSM can be adjusted to offset a portion of
the inception loss (the loss recovery component). This offsets a portion of the loss recognised on inception of the underlying onerous contract.
•
Long term insurance contracts – subsequent measurement
The Group measures the carrying amount of a group of insurance contracts at the end of each reporting period as the sum of:
(i) the liability for remaining coverage comprising fulfilment cash flows related to future service allocated to the Group at that date and the CSM of
the Group at that date; and
(ii) the liability for incurred claims for the Group reflecting the fulfilment cash flows related to past service allocated to the Group at that date.
Contractual service margin – measurement
The CSM at the end of the reporting period represents the profit in the group of insurance contracts that has not yet been recognised in profit or loss,
because it relates to future service to be provided.
For a group of insurance contracts the carrying amount of the CSM of that group at the end of the reporting period equals the carrying amount at the
beginning of the reporting period adjusted for:
the effect of any new contracts added;
interest accreted on the carrying amount of the CSM during the reporting period, measured at the discount rates at initial recognition;
•
•
• changes in fulfilment cash flows relating to future service, except to the extent that:
– such increases in the fulfilment cash flows exceed the current carrying amount of the CSM, giving rise to a loss; or
– such decreases in the fulfilment cash flows are allocated to the loss component of the liability for remaining coverage;
the amount recognised as insurance revenue because of the transfer of services in the period, determined by allocation of the contractual service
margin at the end of the period over the current and remaining coverage period; and
the effect of any currency exchange differences on the CSM.
•
•
The changes in fulfilment cash flows relating to future service that adjust the CSM comprise of:
• experience adjustments that arise from the difference between the premium receipts (net of refunds) and any related cash flows such as
insurance acquisition cash flows and insurance premium taxes and the estimate, at the beginning of the period, of the amounts expected.
Differences related to premiums received (or due) in respect of current or past services are recognised immediately in profit or loss while
differences related to premiums received (or due) for future services are adjusted in the CSM;
• changes in estimates of the present value of future cash flows in the liability for remaining coverage, except those relating to the time value of
money and changes in financial risk (which are instead recognised in the profit or loss or in other comprehensive income);
• differences between any investment component expected to become payable in the period and the actual investment component that becomes
payable in the period; and
• changes in the risk adjustment for non-financial risk that relate to future service.
Adjustments to the CSM noted above are measured at discount rates that reflect the characteristics of the cash flows of the group of insurance
contracts at initial recognition (i.e. the weighted average of the rates applicable at the date of initial recognition of contracts that joined a group over
a 12-month period).
Onerous contracts
Groups of contracts that were not onerous at initial recognition can subsequently become onerous if assumptions and experience extinguish the
CSM. In this case, the Group establishes a loss component for the future losses recognised. The loss component is released based on a systematic
allocation of the subsequent changes in the fulfilment cash flows to: (i) the loss component; and (ii) the liability for remaining coverage excluding the
loss component. The loss component is also updated for subsequent changes in estimates of the fulfilment cash flows related to future service.
The systematic allocation of subsequent changes to the loss component results in the total amounts allocated to the loss component being equal
to zero by the end of the coverage period of a group of contracts (since the loss component will have materialised in the form of incurred claims).
The loss component ensures that over the duration of the contract, the correct amounts are recognised as insurance revenue and insurance
service expenses.
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1 Basis of preparation and accounting policies continued
(vii) Material accounting policies continued
Insurance contracts continued
Contractual service margin – recognition
The amount of contractual service margin recognised in the income statement for a group of insurance contracts reflects the insurance contract
services provided. The proportion of the CSM earned is calculated as the amount of coverage units provided in the period divided by the sum of
all the future and current period coverage units. The Group has elected to discount the future coverage units in this calculation. The table below
indicates the main insurance contracts services provided under the Group’s insurance contracts and selected coverage unit(s) used to measure
those services.
Insurance contract
Immediate annuity
Insurance service
Payment of insurance claims
Coverage unit(s)
Expected annual claims payments
Deferred annuity
Longevity swaps
Retail Protection
Group Protection
• Payment of insurance claims (payment phase)
• Investment return service (deferral phase)
• Lump sum death benefits (deferral phase)
• Expected annual claims payments
• Expected investment return on backing assets
• Sum assured
Payment of floating leg of swap
Expected annual floating leg payments
Potential mortality or morbidity claims
Potential mortality or morbidity claims
Sum assured
Sum assured
Where a specific unit of account contains a mixture of services, and therefore coverage units, it is necessary to weight the coverage units so that
the resulting profile of CSM release reflects the overall package of benefits provided. This is particularly pertinent to units of account incorporating a
combination of immediate and deferred annuities. Under IFRS 17, deferred annuities usually provide multiple services, split between the two phases
of benefit provision (the deferral phase and the payment phase). Judgement is therefore required to combine the different coverage units so that
they fairly reflect the services provided. The weighting between the deferral phase and the payment phase coverage units is calculated so that the
services provided in the deferral phase reflect the investment return provided and the probability weighted delivery of any lump sum death benefits,
both adjusted so that all of the CSM is earned in the deferral phase for all contracts which do not enter the payment phase either through transfer
out, withdrawal of funds or death.
Investment components
The Group identifies the investment component of a contract by determining the amount that it would be required to repay to the policyholder in all
scenarios with commercial substance. Investment components are not included in insurance revenue and insurance service expenses.
Insurance finance income and expenses
Insurance finance income and expenses comprise changes in the carrying amounts of groups of insurance contracts arising from the effects of
the time value of money, financial risk and changes therein. IFRS 17 requires an accounting policy decision as to whether to recognise all finance
income or expense in profit or loss, or whether to disaggregate the income or expense that relates to changes in financial assumptions into other
comprehensive income. Finance income and expense has been included in profit or loss for all insurance products except for the Group’s protection
business where it has been disaggregated between profit and loss and other comprehensive income. Where insurance finance income and expense
has been disaggregated the amount included in profit or loss is determined by a systematic allocation of the expected total insurance finance
income or expenses over the duration of the group of contracts, using the discount rates determined on initial recognition.
Changes in the risk adjustment for non-financial risk have been disaggregated between insurance service result and insurance finance income
and expenses.
Reinsurance contracts held – subsequent measurement
The subsequent measurement of reinsurance contracts held follows the same principles as those for insurance contracts issued except that
changes in the fulfilment cash flows are recognised in profit or loss if the related changes arising from the underlying ceded contracts are
recognised in profit or loss.
Derecognition and contract modification of insurance contracts
The Group derecognises a contract when it is extinguished, i.e. when the specified obligations in the contract expire or are discharged or cancelled.
The Group also derecognises a contract if its terms are modified in a way that would have changed the accounting for the contract significantly had
the new terms always existed, in which case a new contract based on the modified terms is recognised. If a contract modification does not result in
derecognition, then the Group treats the changes in cash flows caused by the modification as changes in estimates of fulfilment cash flows.
Financial instruments
Recognition and derecognition
Initial recognition of financial assets and liabilities is on the trade date, which is the date on which the Group becomes a party to the contractual
provisions of the instrument. A financial asset or financial liability is initially measured at fair value plus, for a financial asset or financial liability not
measured at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue. When the fair value of financial
assets and liabilities differs from the transaction price on initial recognition, the Group recognises the difference as follows:
• when the fair value is evidenced by a quoted price in an active market for an identical asset or liability (i.e. a Level 1 input) or based on a valuation
•
technique that uses only data from observable markets, the difference is recognised as a gain or loss; and
in all other cases, the difference is deferred and the timing of recognition of deferred day one profit or loss is determined individually. It is either
amortised over the life of the instrument, deferred until the instrument’s fair value can be determined using market observable inputs or realised
through settlement.
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Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire, or when the Group transfers substantially
all the risks and rewards of ownership to another entity. This is the case for cash collateral pledged, where the counterparty has contractual rights to
receive the cash flows generated, and which is derecognised from the Consolidated Balance Sheet and a corresponding receivable recognised for its
return.
The Group enters into transactions whereby it transfers assets recognised in its Consolidated Balance Sheet, but retains either all or substantially
all of the risks and rewards of the transferred assets. In these cases, the transferred assets are not derecognised. Examples of such transactions are
repurchase agreements and non-cash collateral pledged, unless the Group defaults on its obligations under the relevant agreement.
In transactions in which the Group neither retains nor transfers substantially all of the risks and rewards of ownership of a financial asset and it
retains control over the asset, the Group continues to recognise the asset to the extent of its continuing involvement, determined by the extent to
which it is exposed to changes in the value of the transferred asset.
The Group derecognises a financial liability when its contractual obligations expire or are discharged or cancelled. The Group also derecognises
a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial
liability based on the modified terms is recognised at fair value.
On derecognition of a financial asset or financial liability, the difference between the carrying amount at the date of derecognition and the
consideration received (including any new asset obtained less any new liability assumed) is recognised in profit or loss.
Modification
If the terms of a financial asset are modified, then the Group evaluates whether the cash flows of the modified asset are substantially different.
If the cash flows are substantially different, then the contractual rights to cash flows from the original financial asset are deemed to have expired.
In this case, the original financial asset is derecognised and a new financial asset is recognised at fair value plus any eligible transaction costs.
Classification and measurement of financial assets
The Group classifies its financial assets on initial recognition as measured at amortised cost, fair value through other comprehensive income
(FVOCI) and fair value through profit or loss (FVTPL).
The classification and measurement of financial assets depends on their contractual cash flow characteristics and how they are managed (the
entity’s business model). The contractual cash flow characteristics test aims to identify those assets with cash flows consistent with a basic lending
arrangement, i.e. which are ‘solely payments of principal and interest’ (SPPI). The business model test refers to how an entity manages its financial
assets with the objectives of generating cash flows. These factors determine whether the financial assets are measured at amortised cost, FVOCI or
FVTPL. Assets are therefore typically characterised as follows:
• amortised cost: financial assets with contractual terms that give rise solely to interest and principal cash flows, and which are held in a business
model whose objective is to hold the assets to collect their cash flows. They are measured at amortised cost using the effective interest method.
Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is also
recognised in profit or loss;
• FVOCI: financial assets with contractual terms that give rise solely to interest and principal cash flows, and which are held in a business model
whose objective is achieved by holding the assets to collect their cash flows and selling them. Interest income calculated using the effective
interest method, foreign exchange gains and losses and impairment are recognised in profit or loss. Other net gains and losses are recognised
in other comprehensive income. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss; and
• FVTPL: all other financial assets. Net gains and losses, including any interest or dividend income and foreign exchange gains and losses, are
recognised in profit or loss, unless they arise from derivatives designated as hedging instruments in cash flow or net investment hedges.
Notwithstanding the above, on initial recognition the Group may irrevocably designate to FVTPL a financial asset that would otherwise be measured
at amortised cost or FVOCI if doing so eliminates or greatly reduces an accounting mismatch.
In making the SPPI assessment, the Group considers whether the contractual cash flows are consistent with a basic lending arrangement (that is,
interest includes only consideration for the time value of money, credit risk, other basic lending risks and a profit margin that is consistent with a
basic lending arrangement). This includes evaluating whether the financial asset contains a contractual term that could change the timing or amount
of contractual cash flows such that it would not meet this condition. Examples of such contractual terms to be considered are contingent events that
would change the amount or timing of cash flows, leverage features, prepayment and extension features, non-recourse asset arrangements and
features that modify consideration for the time value of money (e.g. periodic reset of interest rates).
The business model reflects how the Group manages assets in order to generate cash flows, i.e. it reflects whether the Group’s objective is solely to
collect the contractual cash flows from assets or to collect both the contractual cash flows and cash flows arising from the sale of assets. If neither
of these is applicable (for example, financial assets are held for trading purposes), the business model is ‘other’ and the financial asset is measured
at FVTPL. Factors considered by the Group in determining the business model for a group of assets include past experience on how the cash flows
for these assets were collected, how the asset’s performance is evaluated and reported to key management personnel, how risks are assessed and
managed, and how managers are compensated.
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1 Basis of preparation and accounting policies continued
(vii) Material accounting policies continued
Financial instruments continued
Modification continued
The objective of the Group’s business model for certain debt instruments, in particular those instruments backing annuity or investment contract
liabilities, including surplus assets, is to fund its liabilities. Consistent with the Group’s investment strategy their performance is evaluated on a total
return basis, as significant buying and selling activity is undertaken on a regular basis to rebalance its portfolio and to ensure that contractual cash
flows from those assets are sufficient to settle the underlying liabilities. These investments do not follow a ‘held to collect’ or ‘held to collect and sell’
business model, and are therefore accounted for at FVTPL. This business model is also applicable to reverse repurchase agreements and to
derivatives. Equity instruments are accounted for at FVTPL.
Certain debt securities are held in separate portfolios for longer-term yield. These include long dated debt instruments backing annuities liabilities,
but in surplus to the IFRS 17 best estimate liability and risk adjustment, used to manage interest and inflation rate exposure, as well as assets
backing protection liabilities. These assets represent instruments consistent with the SPPI principles, and are accounted for at amortised cost or
FVOCI depending on the expected level of trading.
Receivables are accounted for at amortised cost.
Classification and measurement of financial liabilities
The Group classifies and subsequently measures financial liabilities at amortised cost or FVTPL.
Investment contract liabilities
Investment contract liabilities are measured at FVTPL. This is because these liabilities, as well as the related assets, are managed and their
performance evaluated on a fair value basis. For unit linked liabilities, fair value is determined by reference to the value of the underlying net asset
values of the Group’s unitised investment funds at the balance sheet date.
Core and operational borrowings
Borrowings are recognised initially at fair value, net of transaction costs. Borrowings are subsequently stated at amortised cost. The difference between
the net proceeds and the redemption value is recognised in the income statement over the borrowing period using the effective interest method.
Other financial liabilities
Other financial liabilities include derivative liabilities, repurchase agreements and trail commission, which are measured at FVTPL, while other
payable balances are measured at amortised cost.
Derivatives
Derivatives are initially recognised at fair value on the date on which the derivative contract is entered into. The Group’s derivatives, other than those
designated as hedging instruments in cash flow or net investment hedges, are instruments held for trading and, are therefore accounted for at FVTPL.
Derivatives may be embedded in another contractual arrangement. If such a hybrid contract contains a host that is a financial asset, the Group
assesses the entire contract for classification and measurement purposes. Otherwise, the Group accounts for an embedded derivative separately
from the host contract when:
•
•
•
its economic characteristics and risks are not closely related to those of the host contract;
the terms of the embedded derivative would have met the definition of a derivative if they were contained in a separate contract; and
the hybrid contract is not measured at FVTPL.
These embedded derivatives are separately accounted for at FVTPL, unless the Group chooses to designate the entire hybrid contract at FVTPL.
A derivative embedded in a host insurance or reinsurance contract is not accounted for separately from the host contract if the embedded derivative
itself meets the definition of an insurance or reinsurance contract.
Collateral
Collateral received in the form of cash, which is not legally segregated from the Group, is recognised as an asset in the Consolidated Balance Sheet
with a corresponding liability for the repayment in Payables and other financial liabilities. However, where the Group has a currently enforceable legal
right of set-off and the ability and intent to net settle, the collateral liability and associated derivative balances are shown net.
Non-cash collateral received is not recognised in the Consolidated Balance Sheet unless the transfer of the collateral meets the derecognition
criteria from the perspective of the transferor. Such collateral is typically recognised when the Group either: (a) sells or repledges these assets in the
absence of default, at which point the obligation to return this collateral is recognised as a liability; or (b) the counterparty to the arrangement
defaults, at which point the collateral is seized and recognised as an asset.
Collateral pledged in the form of cash, which is legally segregated from the Group, is derecognised from the statement of financial position with a
corresponding receivable recognised for its return. Non-cash collateral pledged is not derecognised from the statement of financial position unless
the Group defaults on its obligations under the relevant agreement, and therefore continues to be recognised in the Consolidated Balance Sheet
within Financial investments.
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Impairment of financial assets
The Group assesses on a forward-looking basis the expected credit loss (ECL) associated with its financial assets measured at amortised cost
and FVOCI, and recognises a loss allowance for such losses at each reporting date. Expected credit losses are defined as the present value of the
difference between all contractual cash flows that are due and all cash flows that the entity expects to receive (i.e. the cash shortfall), weighted
based on their probability of occurrence. The loss allowance recognised under the new standard can be equal to an amount corresponding to a
12-month ECL or a lifetime ECL. A lifetime ECL is the ECL resulting from all possible default events over the expected life of the financial asset; a
12-month ECL is the portion of lifetime ECL resulting from default events on a financial asset that are possible within the 12 months after the reporting
date. For a financial asset that is credit-impaired at the reporting date, but that is not a purchased or originated credit-impaired financial asset,
expected credit losses are measured as the difference between the asset’s gross carrying amount and the present value of estimated future cash
flows, discounted at the financial asset’s original effective interest rate. Any adjustment is recognised in profit or loss as an impairment gain or loss.
The Group defines default on a financial asset as the inability to meet in full and on time an original promise of expected cash flows, the amount and
timing of which are defined with certainty. Any breach of this promise, by any amount or time (in excess of any potential planned grace period),
constitutes a default. This is consistent with the definition of default used for internal credit risk management purposes.
The ECL model is run from the date of initial recognition of a financial asset, and its output updated at every reporting period, even if no actual loss
events have taken place. The impact of updating the inputs of the ECL model in the reporting period is recognised in profit or loss directly where it
affects the carrying value of financial assets at amortised cost, while for assets at FVOCI an equal and opposite movement is recorded in other
comprehensive income.
In order to determine whether the Group measures ECLs at an amount equal to 12-month ECL or lifetime ECL, at each reporting period the Group is
required to assess which ‘stage’ a financial asset falls into. Stages reflect the general pattern of deterioration in credit risk of a financial instrument
that ultimately defaults, as follows:
• Stage 1 includes financially healthy financial assets that are expected to perform in line with their contractual terms, and which have no signs of
increased credit risk;
• Stage 2 includes financial assets for which a significant increase in credit risk has occurred since initial recognition, but which are not credit-
impaired; and
• Stage 3 applies to credit-impaired financial instruments.
When financial assets are under Stage 1, 12-month ECLs are recognised. When financial assets are under Stage 2 or 3, lifetime ECLs are recognised.
An instrument moves down (or up) the stages when a significant increase in credit risk (SICR) has happened (or has reversed).
When determining whether the credit risk of a financial instrument has increased significantly since initial recognition, the Group considers
reasonable and supportable information, both qualitative and quantitative, that is relevant and is available without undue cost or effort, including
forward-looking information at its disposal. Key indicators used in order to determine whether a SICR has occurred (either in isolation or in
combination) are:
• deterioration in rating grade between origination date and reporting date. The level of deterioration required by an individual asset is determined
using a relative rating matrix;
• exposure is identified on the investment managers’ ‘watchlist’;
• exposure is identified on internal ‘credit watchlists’; and
• a manual shift of an exposure to Stage 2 on an exceptional basis (where required, using management judgement).
The provisions of IFRS 9 include a rebuttable presumption that the credit risk on a financial asset has increased significantly since initial recognition
when contractual payments are more than 30 days past due, which is taken into account for this assessment.
The Group makes use of a practical expedient available in IFRS 9 whereby it can be assumed that the credit risk on a financial instrument has not
increased significantly since initial recognition if the financial instrument is determined to have low credit risk at the reporting date (e.g. investment
grade as determined by the Group’s asset managers). This allows recognition of 12-month ECLs as opposed to, potentially, lifetime ECLs. This is
deemed to be the case where assets that have been downgraded remain of good credit quality (i.e. investment grade as determined by the Group’s
asset managers) as at the reporting date, to the extent that, where relevant, the Group’s internal credit risk ratings are considered to be consistent
with a globally understood definition of ‘low credit risk’.
The Group estimates ECLs on its financial investments at amortised cost and debt instruments at FVOCI which are not credit impaired by using
the probability of default approach. Based on this method, the ECLs are a probability-weighted estimate of the present value of estimated cash
shortfalls, i.e. the weighted average of credit losses, with the respective risks of a default occurring used as the weightings. For this purpose, the key
elements to be calculated are the Probability of Default (PD), i.e. the estimate of the likelihood of default over a given time horizon (either 12 months
or lifetime); the respective Loss Given Default (LGD); and the Exposure at Default (EAD).
In order to determine 12-month or lifetime PDs the Group’s models utilise historical data obtained from S&P and Moody’s in order to evaluate
transitions (i.e. the probability that a security changes rating in a given year) and defaults, plus scenario-specific annual scaling factors which adjust
the PDs for forward-looking information. The final PDs produced by the model are unconditional, i.e. they incorporate both the probability of not
defaulting until the start of the period, and the subsequent probability of default in that period, conditional on the position not having defaulted to
that point. This allows them to be summed over 12 months to provide 12-month PD estimates, or over all remaining months to produce lifetime
PD estimates.
Primary statements and performance
Legal & General Group Plc Annual report and accounts 2023
161
Primary statements and performance
continued
1 Basis of preparation and accounting policies continued
(vii) Material accounting policies continued
Financial instruments continued
Impairment of financial assets continued
LGD is the magnitude of the likely loss if there is a default, based on the history of recovery rates of claims against defaulted counterparties,
and taking into account collateral values where applicable.
EAD represents the expected exposure in the event of a default. The Group estimates LGD based on the history of recovery rates of claims against
defaulted counterparties. Appropriate haircuts are applied to baseline unsecured LGDs and used in conjunction with forecast collateral values to
estimate LGD for assets secured by collateral.
The Group has adopted a simplified approach for trade receivables, contract assets and finance and operating lease receivables. This allows
measurement of lifetime ECLs only, thereby removing the need to identify SICRs. For these balances, the Group makes use of provision matrices in
order to calculate such lifetime ECLs. This is a practical expedient allowed by IFRS 9 whereby historical credit loss experience and fixed loss rates
are applied to the balances outstanding. Historical loss rates are adjusted to allow for forward looking information.
Hedge accounting
The Group uses hedge accounting, provided the prescribed criteria are met, to recognise the offsetting effects of changes in the fair value or cash
flow of the derivative instrument and the hedged item. Hedge accounting can be applied in order to:
• hedge the exposure to fair value movements of a recognised asset or liability or an unrecognised firm commitment, or a component of any such
item, that is attributable to a particular risk and could affect the Consolidated Income Statement;
• hedge the exposure to variability in cash flows attributable to a particular risk associated with all, or a component of, a recognised asset or liability,
or a highly probable forecast transaction, that could affect the Consolidated Income Statement; and
• hedge the exposure to the currency risk associated with a net investment in a foreign operation.
The relationship between the hedging instrument and the hedged item, together with the risk management objective and strategy for undertaking
the hedge transaction, are documented formally at the inception of the transaction. The documentation includes identification of the hedging
instrument, the hedged item, the nature of the risk being hedged and how the Group will assess whether the hedging relationship meets the hedge
effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging
relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:
•
•
•
there is an economic relationship between the hedged item and the hedging instrument;
the effect of credit risk does not dominate the value changes that result from that economic relationship; and
the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and
the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.
Currently, the Group hedges foreign exchange translation and interest rate risks on its fixed rate USD denominated borrowings (the hedged items),
using cross currency interest rate swaps (the hedging items). It recognises the effective portion of the gain or loss on the hedging items in the
Consolidated Statement of Comprehensive Income and in a separate reserve within equity. The gain or loss relating to the ineffective portion is
recognised immediately in the Consolidated Income Statement. Amounts accumulated in equity are reclassified in the periods when the hedged
item affects profit or loss.
Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date.
Fair value measurements are based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent
sources, while unobservable inputs reflect the Group’s view of market assumptions in the absence of observable market information. The Group
utilises techniques that maximise the use of observable inputs and minimise the use of unobservable inputs.
The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price. In certain circumstances, the fair
value at initial recognition differs from the transaction price. If the fair value is evidenced by comparison to a quoted price in an active market for an
identical instrument, or is based on a valuation technique that uses only data from observable markets, the difference between the fair value at initial
recognition and the transaction price is recognised as a gain or loss in the Consolidated Income Statement. In all other cases, the difference
between the fair value at initial recognition and the transaction price is deferred and recognised in the Consolidated Income Statement over the life
of the instrument to the extent that it arises from a change in a factor (including time) that market participants would take into account when pricing
the instrument.
Revenue
Insurance revenue
The Group’s insurance revenue depicts the provision of services arising from a group of insurance contracts, reflecting the consideration the Group
expects to be entitled to in exchange for those services. Insurance revenue from a group of insurance contracts is therefore the relevant portion for
the period of the total consideration for the contracts (i.e. the amount of premiums paid to the Group adjusted for financing effect (the time value of
money) and excluding any investment components).
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Other information
The total consideration for a group of contracts covers amounts related to the provision of services and is comprised of:
the release of the CSM;
•
• changes in the risk adjustment for non-financial risk relating to current service;
• claims and other insurance service expenses expected at the beginning of the period;
• experience adjustments arising from premiums received in the period other than those that relate to future service;
•
insurance acquisition cost recovery determined by allocating the portion of premiums related to the recovery of those costs on the basis of
insurance coverage provided; and
• other amounts, including any other pre-recognition cash flow assets derecognised at the date of initial recognition.
Fees from fund management and investment contracts
The Group generates revenue from acting as the investment manager for clients. Fees charged on investment management services are based on
the contractual fee arrangements applied to assets under management and recognised as revenue as the services are provided.
The Group’s income from investment contracts is primarily derived from fees for administration and managing of funds in pension plans. Revenue
generated on investment contracts is recognised as services are provided. No significant judgements are applied on the timing or transaction price.
In the instances of performance fees where revenue is subject to meeting a certain performance threshold, such revenue is not recognised until the
condition has been met, and it is highly probable that no significant reversal of amounts would occur. Variable costs directly related to securing new
contracts are capitalised and amortised over the estimated period over which the revenue is earned.
Transaction fees are charged to implement trades for clients. Such fees are charged at the time the transaction takes place and are based on the
size of the underlying contract.
Other operational income from contracts with customers
House building
House building revenue arises from the sale of residential properties and land and is recognised net of discounts and sales incentives. It also
includes sale proceeds of part exchange properties. Sales of private houses are recognised on legal completion. Sales of social housing, where
multiple units are developed and sold under a contractual agreement with a single customer, typically a housing association, are recognised over
time in accordance with construction progress. Sales of land and commercial property are recognised on unconditional exchange, namely when
contracts are exchanged or missives concluded and, where appropriate, construction is complete. The transaction price is determined using
extensive research and expert judgement, current market values and regional variations.
Warranties are provided on all properties and range from 2-10 years. Due to their features, these do not represent separate performance obligations.
Professional services fees
The Group’s professional services fees revenue arises from professional services provided by employed surveyors and third-party providers, panel
management fees and administration fees. These fees are based on fee scales or contracts. Revenue is recognised when the service has been
rendered.
In addition, the Group derives professional fees from facilitation of mortgage arrangements and related products such as conveyancing. These are
based on an agreement/contract and could be tiered based on volume. The obligation in such instances is satisfied on completion of the mortgage/
service, at which point the revenue is recognised. There is no significant judgement applied on the timing or amount of fee recognised.
Insurance broker fees
Fees are charged on each performance obligation offered to the customer as per the agreed structure. Revenue for placement services is
recognised at the point in time when the intermediary has satisfied its performance obligation, that is when the terms of the insurance policy have
been agreed contractually by the insurer and policyholder, and the insurer has a present right to payment from the policyholder. No significant
judgements are applied on the timing or transaction price.
Investment return
Investment return includes unrealised fair value gains and losses on financial investments at fair value through profit or loss, realised gains and
losses, dividends, rent and interest. Dividends are accrued on an ex-dividend basis. Interest income is recognised as it accrues, taking into account
the effective yield on the investment. Rental income is recognised on an accruals basis, and is generally recognised on a straight line basis unless
there is compelling evidence that benefits do not accrue evenly over the period of the lease. Interest income for financial assets which are not
classified as fair value through profit or loss (FVTPL) is recognised using the effective interest method.
A gain or loss on a financial investment is only realised on disposal or transfer, and is the difference between the proceeds received, net of
transaction costs and its original cost or amortised cost, as appropriate. Realised gains or losses on investment property represent the difference
between the net disposal proceeds and the carrying value of the property.
Unrealised gains and losses represent the difference between the carrying value at the end of the year and the carrying value at the previous year end
or purchase value during the year, less the reversal of previously unrealised gains and losses in respect of disposals made during the year.
Primary statements and performance
Legal & General Group Plc Annual report and accounts 2023
163
Primary statements and performance
continued
1 Basis of preparation and accounting policies continued
(vii) Material accounting policies continued
Insurance service expenses
Insurance service expenses arising from insurance contracts are recognised in profit or loss as they are incurred. They exclude repayments of
investment components and comprise the following items:
•
•
•
•
incurred claims and benefits, excluding investment components reduced by loss component allocations;
incurred directly attributable expenses;
insurance acquisition cost amortisation; and
insurance acquisition cost asset impairment.
Dividends
Interim dividends on ordinary shares are deducted from retained earnings in the period in which they are paid. Final dividends on ordinary shares
are recognised as a liability in the period in which they have been approved by shareholders of the Company.
Earnings per share
Earnings per share is a measure of the portion of the Group’s profit allocated to each outstanding share. It is calculated by dividing net income
attributable to ordinary equity holders by the weighted average number of ordinary shares in issue during the year, excluding employee scheme
treasury shares. For this purpose, net income is defined as the profit after tax, attributable to equity holders of the Company, derived from
continuing operations.
For diluted earnings per share, the weighted average number of ordinary shares in issue, excluding employee scheme treasury shares, is adjusted
to assume conversion of all dilutive potential ordinary shares, such as share options granted to employees. Potential or contingent share issuances
are treated as dilutive when their conversion to shares would decrease net earnings per share.
Intangible assets
Intangible assets mainly consist of capitalised software costs and intangible assets acquired as part of a business combination (customer
relationships and brand).
Where software costs are separately identifiable and measurable, they are capitalised at cost and amortised over their expected useful life on a
straight-line basis. Costs incurred to internally develop software are only capitalised if the expenditure can be measured reliably, the product or
process is technically and commercially feasible, future economic benefits are probable and the Group intends to and has sufficient resources to
complete such development and to use or sell the asset. Otherwise, such costs are recognised in profit or loss as incurred.
Intangible assets acquired via business combinations are recognised at fair value and are subsequently amortised on a straight-line basis over their
estimated useful life.
The estimated amortisation periods for intangible assets with finite useful lives are as follows:
IT development and software: 3 – 10 years
•
• Customer relationship: 3 years
Amortisation methods, useful lives and any expected residual values are reviewed at each reporting date and adjusted if appropriate.
The brand balance acquired by the Group is deemed to have an indefinite useful life and is therefore not amortised.
Intangible assets are tested for impairment either individually or at the cash-generating unit level. Intangible assets with indefinite useful lives and
intangible assets not yet available for use are tested for impairment at least annually, or whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. Intangible assets with finite useful lives are tested when there are indications of impairment. The
recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use.
Investment property
Investment property comprises land and buildings which are held for long-term rental yields and capital growth, as well as right-of-use assets of the
same nature, and are not occupied by the Group. Completed investment property is carried at fair value with changes in fair value recognised in the
Consolidated Income Statement within investment return. Investment properties under construction are included within Property, plant and
equipment, and are stated at cost less any impairment until construction is completed or fair value becomes reliably measurable.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at call with banks, treasury bills and other short-term highly liquid investments with
maturities of three months or less from the date of acquisition.
Property, plant and equipment
Property, plant and equipment includes tangible assets owned by the Group (such as land and office and other buildings) or held under lease
arrangements (such as office buildings, IT equipment and vehicles). Property, plant and equipment includes owner occupied property held by a fund,
the units of which determine benefits for its investors. In accordance with IAS 16, ‘Property, Plant and Equipment’ the Group has elected to measure
this asset at fair value, with changes in fair value recognised in the Consolidated Income Statement within investment return.
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Other information
All other assets within Property, plant and equipment are carried at historical cost less accumulated depreciation, calculated on a straight-line basis
over their estimated useful life. Amortisation methods, useful lives and any expected residual values are reviewed at each reporting date and
adjusted if appropriate.
An impairment review of Property, plant and equipment not carried at fair value is performed whenever events or changes in circumstances indicate
that their carrying amount may not be recoverable. Where the carrying amount of an asset is greater than its estimated recoverable amount, which is
the higher of the asset’s fair value less costs of disposal and value in use, it is written down immediately to its recoverable amount, with an
impairment loss recognised in the Consolidated Income Statement.
Leases
Lessee
Where the Group is a lessee, it recognises leases on the balance sheet as ‘right-of-use’ assets and lease liabilities.
The right-of-use assets’ value is initially recognised as the calculated value of the lease liabilities, initial direct costs and incentives received. The
right-of-use assets are subsequently accounted for in accordance with the cost model in IAS 16, ‘Property, Plant and Equipment’ or as investment
property under IAS 40, ‘Investment Property’. The Group also assesses right-of-use assets classified as Property, plant and equipment for
impairment when such indicators exist.
The initial measurement of the lease liabilities is made up of the present value of lease payments to be made over the lease term, including fixed
lease payments and excluding lease incentive receivables. The Group uses the incremental borrowing rate as a discount rate for calculating the
lease liabilities. The lease liabilities are unwound over the term of the lease giving rise to an interest expense. Additionally, the liabilities are reduced
when lease payments are made. The Group reassesses the carrying amount of lease liabilities and right-of-use assets if certain events occur that
modify the original assumptions used to calculate the lease balances upon initial recognition.
The Group leases offices, vehicles, IT equipment and investment properties under non-cancellable operating lease agreements. The Group has
elected to make use of the recognition exemptions as permitted in respect of short-term leases (lease contracts with a term of 12 months or less),
and lease contracts for which the underlying asset is of low value. Such leases are not recognised on the Consolidated Balance Sheet but the Group
recognises the associated lease payments as an expense over the lease term.
Lessor
Where the Group is the lessor, leases are classified as finance leases if the risks and rewards of ownership are substantially transferred to the lessee,
and operating leases if they are not substantially transferred.
The Group leases certain investment properties to third parties. Under these agreements, substantially all the risks and reward incidental to
ownership are transferred to the lessee, and therefore the contracts have been classified as finance leases. At the lease commencement date, the
Group derecognises the investment property asset and recognises a receivable asset on its balance sheet to reflect the net investment in the lease,
equal to the present value of the lease payments. The Group recognises finance income over the lease term to reflect the rate of return on the net
investment in the lease.
Under other lease agreements the Group is considered to substantially retain all the risks and reward of ownership of the underlying asset,
therefore these contracts have been classified as operating leases. Lease income from operating leases is recognised in the income statement
on a straight-line basis over the lease term.
Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow
of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be
made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a
separate asset but only when the reimbursement is virtually certain. The Group recognises a provision for onerous contracts when the expected
benefits to be derived from a contract are less than the unavoidable costs of meeting the obligations under the contract.
Defined benefit and defined contribution schemes
The liability recognised in the Consolidated Balance Sheet in respect of defined benefit pension schemes is the present value of the defined benefit
obligation at the balance sheet date less the fair value of plan assets, provided any surplus in the Fund and Scheme is not restricted. Plan assets
exclude insurance contracts issued by the Group. The defined benefit obligation is calculated actuarially each year using the projected unit method.
The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows. The discount rate is based on
market yields of high quality corporate bonds which are denominated in the currency in which the benefits will be paid, and that have terms to
maturity which approximate to those of the related pension liability.
The Group pays contractual contributions in respect of defined contribution schemes. The Group has no further payment obligations once the
contributions have been paid. The contributions are recognised as employee benefit expenses when they are due. Prepaid contributions are
recognised as an asset to the extent that a cash refund or a reduction in future payments is available.
Tax
Current tax
Current tax comprises tax payable on current year profits, adjusted for non-tax deductible or non-taxable items, and any adjustments to tax payable
in respect of previous periods. Current tax is recognised in the Consolidated Income Statement unless it relates to items which are recognised in the
Consolidated Statement of Comprehensive Income or directly in equity.
Primary statements and performance
Legal & General Group Plc Annual report and accounts 2023
165
Primary statements and performance
continued
1 Basis of preparation and accounting policies continued
(vii) Material accounting policies continued
Tax continued
Deferred tax
Deferred tax is calculated on differences between the accounting value of assets and liabilities and their respective tax values. Deferred tax is also
recognised in respect of unused tax losses to the extent it is probable that future taxable profits will arise against which the losses can be utilised.
Deferred tax is charged or credited to the Consolidated Income Statement, except when it relates to items charged or credited to the Consolidated
Statement of Comprehensive Income or charged or credited directly in equity.
Tax attributable to policyholders and equity holders
The total tax expense shown in the Group’s Consolidated Income Statement includes income tax borne by both policyholders and equity holders.
This has been split between tax attributable to policyholders’ returns and equity holders’ profits. Policyholder tax comprises the tax suffered on
policyholder investment returns, while equity holder tax is corporation tax charged on equity holder profit. The separate presentation is intended
to provide more relevant information about the tax that the Group pays on the profits that it makes.
Use of estimates
Tax balances include the use of estimates and assumptions which affect items reported in the Consolidated Balance Sheet, Consolidated Income
Statement and Consolidated Statement of Comprehensive Income. Although these estimates are based on management’s best knowledge of
current circumstances and future events and actions, actual results may differ from those estimates.
For tax this includes the determination of assets and liabilities recognised in respect of uncertain tax positions and the estimation of future taxable
income supporting deferred tax asset recognition.
As the Group operates internationally, it is exposed to uncertain tax positions and changes in legislation in the jurisdictions in which it operates. The
assessment of uncertain tax positions is subjective and significant management judgement is required. This judgement is based on interpretation of
legislation, management experience and professional advice. The directors have assessed the Group’s uncertain tax positions and are comfortable
that the provisions in place are not material individually or in aggregate, and that a reasonable possible alternative outcome in the next financial year
would not have a material impact to the results of the Group.
Foreign exchange and exchange rates
Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transactions. The
functional currency of the Group’s foreign operations is the currency of the primary economic environment in which the entity operates. The assets
and liabilities of all of the Group’s foreign operations are translated into sterling, the Group’s presentation currency, at the closing rate at the date of
the Consolidated Balance Sheet. Income and expenses are translated at average exchange rates. On consolidation, exchange differences arising
from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such
investments, are taken to a separate component of shareholders’ equity.
Foreign exchange gains and losses are recognised in the Consolidated Income Statement, except when recognised in equity as qualifying cash flow
or net investment hedges.
Share-based payments
The Group accounts for options and awards under equity compensation plans, until such time as they are fully vested, using the fair value based
method of accounting. The fair value at the date of grant of the equity instrument is recognised as an expense, spread over the vesting period of the
instrument. The total amount to be expensed is determined by reference to the fair value of the awards, excluding the impact of any non-market
vesting conditions. At each balance sheet date, the Group revises its estimate of the number of equity instruments which are expected to become
exercisable. It recognises the impact of the revision of original estimates, if any, in the income statement and a corresponding adjustment is made to
equity. On vesting or exercise, the difference between the expense charged to the income statement and the actual cost to the Group is transferred
to retained earnings. Where new shares are issued, the proceeds received are credited to share capital and share premium.
Share capital, share premium and employee scheme treasury shares
An equity instrument is any contract which evidences a residual interest in the net assets of an entity. It follows that a financial instrument is treated
as equity if:
•
•
there is no contractual obligation to deliver cash or other financial assets or to exchange financial assets or liabilities on unfavourable terms; and
the instrument is either a non-derivative which contains no contractual obligation to deliver a variable number of own equity instruments, or is a
derivative which will be settled only by the Group exchanging a fixed amount of cash, or other financial assets, for a fixed number of its own equity
instruments.
Where any Group entity purchases the Company’s equity share capital, the consideration paid, including any directly attributable incremental costs
(net of income taxes), is deducted from equity attributable to shareholders. Where such shares are subsequently sold, reissued or otherwise disposed
of, any consideration received is included in equity attributable to shareholders, net of any directly attributable incremental transaction costs and the
related income tax effects. Shares held on behalf of employee share schemes are disclosed as such on the Consolidated Balance Sheet.
Fiduciary activities
Assets associated with fiduciary activities and the income arising from those assets, together with associated commitments to return such assets
to customers, are not included in these financial statements. Where the Group acts in a fiduciary capacity, for instance as a trustee or agent, it has
no contractual rights over the assets concerned.
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Financial statements
Strategic report
Governance
Financial statements
Other information
(viii) Foreign exchange and exchange rates
The principal foreign exchange rates used for translation are:
Year end exchange rates
United States dollar
Euro
Average exchange rates
United States dollar
Euro
2 Adjusted operating profit information and segmental analysis
(i) Adjusted operating profit
Legal & General Retirement Institutional (LGRI)
Legal & General Capital (LGC)
Legal & General Investment Management (LGIM)
Retail
– Insurance
– Retail Retirement
Adjusted operating profit from divisions
Group debt costs1
Group investment projects and expenses
Adjusted operating profit
Investment and other variances
Losses on non-controlling interests
Adjusted profit before tax attributable to equity holders
Tax credit/(expense) attributable to equity holders
Profit for the year
Total tax (credit)/expense
Profit before tax
Profit attributable to equity holders
1. Group debt costs exclude interest on non-recourse financing.
2023
1.27
1.15
2023
1.24
1.15
2023
£m
886
510
274
408
138
270
2,078
(212)
(199)
1,667
(1,577)
(14)
76
367
443
(248)
195
457
2022
1.21
1.13
2022
1.24
1.17
Restated
2022
£m
807
509
340
415
165
250
2,071
(214)
(194)
1,663
(794)
(1)
868
(86)
782
157
939
783
Notes
2(ii)
2(iii)
2(iv)
2(ii)
2(v)
28
28
This supplementary adjusted operating profit information (one of the Group’s key performance indicators) provides additional analysis of the results
reported under IFRS, and the Group believes that it provides stakeholders with useful information to enhance their understanding of the performance
of the business in the year. While the calculation of adjusted operating profit has been updated to reflect the accounting and presentational impacts
of IFRS 17, the key principles of what is measured by adjusted operating profit, as set out below and except as noted, remain unchanged from the
prior year.
Adjusted operating profit measures the pre-tax result excluding the impact of investment volatility, economic assumption changes caused by
changes in market conditions or expectations and exceptional items. Key considerations in relation to the calculation of adjusted operating profit for
the Group’s long-term insurance businesses and shareholder funds are set out below.
Exceptional income and expenses which arise outside the normal course of business in the year, such as merger and acquisition and start-up costs,
are excluded from adjusted operating profit.
Long-term insurance
Adjusted operating profit reflects longer-term economic assumptions for the Group’s retirement and insurance businesses. Variances between
actual and long-term expected investment return on traded and real assets are excluded from adjusted operating profit, as well as economic
assumption changes caused by changes in market conditions or expectations (e.g. credit default and inflation) and any difference between the
actual allocated asset mix and the target long-term asset mix on new pension risk transfer business. Assets held for future new pension risk transfer
business are excluded from the asset portfolio used to determine the discount rate for annuities on insurance contract liabilities. The impact of
investment management actions that optimise the yield of the assets backing the back book of annuity contracts is now included within adjusted
operating profit; prior to the implementation of IFRS 17 the impact of such actions was not included in operating profit.
Primary statements and performance
Legal & General Group Plc Annual report and accounts 2023
167
Primary statements and performance
continued
2 Adjusted operating profit information and segmental analysis continued
(i) Adjusted operating profit continued
Long-term insurance continued
For the Group’s long-term insurance businesses, reinsurance mismatches are also excluded from adjusted operating profit. Reinsurance
mismatches arise where the reinsurance offset rules in IFRS 17 do not reflect management’s view of the net of reinsurance transaction. In particular,
during a year of reinsurance renegotiation, reinsurance gains cannot be recognised to offset any inception losses on the underlying contracts where
they are recognised before the new reinsurance agreement is signed. In these circumstances, the onerous contract losses are reduced to reflect the
net loss (if any) after reinsurance, and future contractual service margin (CSM) amortisation is reduced over the duration of the contracts.
Shareholder funds
Shareholder funds include both the Group’s traded investments portfolio and certain direct investments for which adjusted operating profit is based
on the long-term economic return expected to be generated. For these direct investments, as well as for the Group’s traded investments portfolio,
deviations from such long-term economic return are excluded from adjusted operating profit. Direct investments for which adjusted operating profit
is reflected in this way include the following:
• Development assets, predominantly in the specialist commercial real estate and housing sectors within the LGC alternative asset portfolio: these
•
are assets under construction and contracted to either be sold to other parts of the Group or for other commercial usage, and on which LGC
accepts development risks and expects to realise profits once construction is complete.
‘Scale-up’ investments, predominantly in the alternative finance sector within the LGC alternative asset portfolio as well as the fintech business
within Retail: these are investments in early-stage ventures in a fast-growing phase of their life cycle, but which have not yet reached a
steady-state level of earnings.
Shareholder funds also includes other direct investments for which adjusted operating profit reflects the IFRS profit before tax. Direct investments
for which adjusted operating profit is reflected in this way include the following:
•
‘Start-up’ investments: these are companies in the beginning stages of their business lifecycle (i.e. typically less than 24 months) and which
therefore have limited operating history available and typically are in a pre-revenue stage.
• Mature assets: these are companies in their final stages of business lifecycle. They are stable businesses and have sustainable streams of
income, but the growth rate in their earnings is expected to remain less pronounced in the future.
Business segments
The Group reports its results across the following business segments:
• LGRI represents worldwide pension risk transfer business including longevity insurance.
• LGC represents shareholder assets invested in direct investments primarily in the areas of specialist commercial real estate, clean energy,
housing and alternative finance, as well as traded and treasury assets.
• LGIM represents institutional and retail investment management.
•
• Retail Retirement primarily represents retail annuity and drawdown products, workplace savings and lifetime mortgage loans.
Insurance primarily represents UK protection (both Group and retail) and fintech business, as well as US retail protection business.
(ii) Analysis of LGRI and Retail adjusted operating profit
Amortisation of the CSM in the year1
Release of risk adjustment in the year
Experience variances
Development of losses on onerous contracts
Other expenses2
Insurance investment margin3
Investment contracts and non-insurance operating profit
Total LGRI and Retail adjusted operating profit
LGRI
2023
£m
591
119
(14)
1
(160)
344
5
886
Retail
2023
£m
446
74
(17)
(27)
(121)
81
(28)
408
LGRI
2022
£m
497
136
15
1
(130)
280
8
807
Retail
2022
£m
424
85
(92)
(7)
(113)
60
58
415
1. Contractual service margin (CSM) amortisation for Retail has been reduced by £16m (2022: £17m) to exclude the impact of reinsurance mismatches.
2. Other expenses are non-attributable expenses on both new business and existing business. These are overhead costs which are not allowed for in the CSM or the best estimate liability
3.
unit cost assumptions, and instead are reported within the Consolidated Income Statement as part of the profit or loss for the year.
Insurance investment margin comprises the expected investment return on assets backing insurance contract liabilities, the unwind of the discount rate on insurance contract
liabilities and the optimisation of the assets backing the annuity back book.
(iii) LGC adjusted operating profit
Direct investments1
Traded investment portfolio including treasury assets2
Total LGC adjusted operating profit
2023
£m
371
139
510
2022
£m
400
109
509
1. Direct investments represents LGC’s portfolio of assets across specialist commercial real estate, clean energy, housing and alternative finance. Direct investments includes operating
profit in relation to CALA Homes of £106m (2022: £172m).
2. The traded investment portfolio holds a diversified set of exposures across equities, bonds, derivative assets, loans and cash.
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(iv) LGIM adjusted operating profit
Asset management revenue (excluding third-party market data)1
Asset management transactional revenue2
Asset management expenses (excluding third-party market data)1
Total LGIM adjusted operating profit
2023
£m
876
26
(628)
274
2022
£m
944
26
(630)
340
1. Asset management revenue and expenses exclude income and costs of £26m in relation to the provision of third-party market data (2022: £30m).
2. Transactional revenue from external clients includes execution fees, asset transition income, trigger fees, arrangement fees on property transactions and performance fees.
(v) Investment and other variances
LGRI and Retail
– Net impact of investment returns less than expectation and change in liability discount rates1
– Other
Total LGRI and Retail
LGC investment variance
Other investment variance2
Investment variance
M&A related and other variances3
Total investment and other variances
2023
£m
(584)
(16)
(600)
(351)
(427)
(1,378)
(199)
(1,577)
Restated
2022
£m
(115)
–
(115)
(428)
(119)
(662)
(132)
(794)
Investment variance for LGRI and Retail includes a £318m expense (2022: £167m expense) arising from rate differences on longevity assumption changes in the period.
1.
2. Other investment variance includes the £167m one-off settlement cost associated with the buy-out of the Group’s UK defined benefit pension schemes (see Note 23 (iii) for further
information) along with the current service costs and net interest expense up until that transaction. It also includes costs that LGIM is committed to incur on the extension of its
existing partnership with State Street announced in 2021, to increase the use of Charles River technology across the front office and to deliver middle office services.
3. M&A related and other variances includes gains and losses, expenses and intangible amortisation relating to acquisitions, disposals and restructuring as well as business start-up
costs. The total for the year ended 31 December 2023 includes £181m of costs incurred relating to the announced intent to cease production within the Modular Homes business and
impairment of the Group’s investment in Onto.
Investment variance includes differences between actual and long-term expected investment return on traded and real assets (including
development assets and scale-up equity direct investments within LGC and Retail’s Insurance business), the impact of economic assumption
changes caused by changes in market conditions or expectations (e.g. credit default and inflation), the impact of any difference between the actual
allocated asset mix and the target long-term asset mix on new pension risk transfer business, and the yield associated with assets held for future
new pension risk transfer business. Changes in non-financial assumptions, including longevity, recalibrate the CSM at locked-in point-of-sale
discount rates whilst the fulfilment cash flows are measured at current discount rates, thereby creating a component of investment variance
between these different bases.
The long-term expected investment return is based on opening economic assumptions applied to the assets at the start of the reporting year. The
assumptions underlying the calculation of the expected returns for traded equity, commercial property and residential property are based on market
consensus forecasts and long-term historic average returns expected to apply through the cycle.
The long-term expected investment returns are:
Equities
Commercial property
Residential property
2023
7%
5%
3.5%
2022
7%
5%
3.5%
For fixed interest securities measured at FVTPL, the expected investment returns are based on average prospective yields for the actual assets held
less an adjustment for credit risk (assessed on a best estimate basis). Where securities are measured at amortised cost or FVOCI, the expected
investment return comprises interest income on an effective interest rate basis.
For equity direct investments, the LGC alternative asset portfolio and Retail’s Insurance business comprise investments in housing, specialist
commercial real estate, clean energy, alternative finance and fintech. Where used for the determination of adjusted operating profit, the long-term
expected investment return is on average between 10% and 12%, in line with our stated investment objectives. Rates of return specific to each asset
are determined at the point of underwriting and reviewed and updated annually. The expected investment return includes assumptions on
appropriate discount rates and inflation as well as sector specific assumptions including retail and commercial property yields and power prices.
Primary statements and performance
Legal & General Group Plc Annual report and accounts 2023
169
Primary statements and performance
continued
2 Adjusted operating profit information and segmental analysis continued
(vi) Segmental analysis
The Group has five reportable segments, comprising LGRI, LGC, LGIM, Insurance and Retail Retirement, as set out in Note 6. Group central expenses
and debt costs are reported separately. Transactions between reportable segments are on normal commercial terms, and are included within the
reported segments.
In the UK, annuity liabilities relating to LGRI and Retail Retirement are backed by a single portfolio of assets, and once a transaction has been
completed the assets relating to any particular transaction are not tracked to the related liabilities. Investment variance is allocated to the two
business segments based on the relative average size of the underlying insurance contract liabilities across the year.
Reporting of assets and liabilities by reportable segment has not been included, as this is not information that is provided to key decision makers on
a regular basis. The Group’s asset and liabilities are managed on a legal entity rather than reportable segment basis, in line with regulatory requirements.
Financial information on the reportable segments is further broken down where relevant in order to better explain the drivers of the Group’s results.
(a) Profit/(loss) for the year
For the year ended 31 December 2023
Adjusted operating profit/(loss)
Investment and other variances
Losses attributable to non-controlling interests
Profit/(loss) before tax attributable to equity holders
Tax credit/(expense) attributable to equity holders
Profit/(loss) for the year
For the year ended 31 December 2022 (Restated)
Adjusted operating profit/(loss)
Investment and other variances
Losses attributable to non-controlling interests
Profit/(loss) before tax attributable to equity holders
Tax (expense)/credit attributable to equity holders
Profit/(loss) for the year
LGRI
£m
886
(449)
–
437
244
681
LGRI
£m
807
(137)
–
670
(121)
549
LGC
£m
510
(487)
–
23
18
41
LGC
£m
509
(428)
–
81
(26)
55
LGIM
£m
274
(76)
–
198
(49)
149
LGIM
£m
340
(81)
–
259
(30)
229
Insurance
£m
Retail
Retirement
£m
138
(81)
–
57
(40)
17
270
(119)
–
151
63
214
Insurance
£m
Retail
Retirement
£m
165
69
–
234
(11)
223
250
(47)
–
203
(32)
171
Group
expenses
and debt
costs
£m
(411)
(365)
(14)
(790)
131
(659)
Group
expenses
and debt
costs
£m
(408)
(170)
(1)
(579)
134
(445)
Total
£m
1,667
(1,577)
(14)
76
367
443
Total
£m
1,663
(794)
(1)
868
(86)
782
(b) Total revenue – summary
Total revenue includes insurance revenue, fees from fund management and investment contracts and other operational income from contracts
with customers. Further details on the components of insurance revenue are disclosed in Note 20. Other operational income from contracts with
customers is a component of other operational income and excludes the share of profit/loss from associates and joint ventures, as well as
gains/losses on disposal of subsidiaries, associates, joint ventures and other operations.
The tables below split the revenue by the geographic location of the client.
For the year ended 31 December 2023
Insurance revenue
Fees from fund management and investment contracts
Other operational income from contracts with customers
Total revenue
For the year ended 31 December 2022
Insurance revenue
Fees from fund management and investment contracts
Other operational income from contracts with customers
Total revenue
United Kingdom
£m
7,679
652
1,661
9,992
United Kingdom
£m
6,929
719
1,584
9,232
USA
£m
1,830
80
1
1,911
USA
£m
1,669
87
–
1,756
Rest of World
£m
115
93
–
208
Rest of World
£m
85
93
–
178
Total
£m
9,624
825
1,662
12,111
Total
£m
8,683
899
1,584
11,166
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Legal & General Group Plc Annual report and accounts 2023
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Other information
(c) Total revenue – internal/external analysis
For the year ended 31 December 2023
Internal revenue
External revenue
Total revenue
For the year ended 31 December 2022 (Restated)
Internal revenue
External revenue
Total revenue
LGRI
£m
–
5,255
5,255
LGRI
£m
–
4,492
4,492
LGIM1,2
£m
Insurance
£m
169
720
889
–
3,114
3,114
LGIM1,2
£m
Insurance
£m
178
801
979
–
3,086
3,086
Retail
Retirement
£m
–
1,469
1,469
Retail
Retirement
£m
–
1,335
1,335
LGC and
other3
£m
(169)
1,553
1,384
LGC and
other3
£m
(178)
1,452
1,274
Total
£m
–
12,111
12,111
Total
£m
–
11,166
11,166
1. LGIM internal income relates to investment management services provided to other segments.
2. LGIM external income primarily includes fees from fund management.
3. LGC and other includes LGC income, inter-segmental eliminations and Group consolidation adjustments.
(d) Fees from fund management and investment contracts
Fees from fund management and investment contracts include fees for administration and managing of funds in pension plans, as well as revenue
generated from acting as the investment manager for clients. Transaction fees are charged to implement trades for clients.
For the year ended 31 December 2023
Investment contracts and management fees
Transaction fees
Total fees from fund management and investment contracts
For the year ended 31 December 2022
Investment contracts and management fees
Transaction fees
Total fees from fund management and investment contracts
LGIM
£m
864
25
889
LGIM
£m
953
26
979
Retail
Retirement
£m
104
–
104
Retail
Retirement
£m
98
–
98
LGC and
other1
£m
(168)
–
(168)
LGC and
other1
£m
(178)
–
(178)
Total
£m
800
25
825
Total
£m
873
26
899
1. LGC and other includes LGC income, inter-segmental eliminations and Group consolidation adjustments.
(e) Other operational income from contracts with customers
Other operational income from contracts with customers includes house building revenue, revenue arising from professional services and insurance
broker fees.
For the year ended 31 December 2023
House building
Professional services fees
Insurance broker fees
Total other operational income from contracts with customers1
For the year ended 31 December 2022
House building
Professional services fees
Insurance broker fees
Total other operational income from contracts with customers1
Insurance
£m
Retail
Retirement
£m
–
46
57
103
–
7
–
7
LGC and
other
£m
1,531
21
–
Total
£m
1,531
74
57
1,552
1,662
Insurance
£m
Retail
Retirement
£m
–
78
47
125
–
7
–
7
LGC and
other
£m
1,429
23
–
1,452
Total
£m
1,429
108
47
1,584
1. Total other operational income from contracts with customers excludes the share of profit/loss from associates and joint ventures, and the gain on disposal of subsidiaries, associates
and joint ventures.
Primary statements and performance
Legal & General Group Plc Annual report and accounts 2023
171
Primary statements and performance
continued
3 Insurance service and other expenses
Claims and benefits
Fees and commissions
Losses and reversals of losses on onerous contracts
Staff costs (including pension costs and share-based payments)
Redundancy costs
Lease rentals1
Auditor’s remuneration
Depreciation and impairment of plant and equipment
Amortisation and impairment of intangible assets
House building expenses2
Other administrative expenses
Amounts attributed to insurance acquisition cash flows incurred during the year
Amortisation of insurance acquisition cash flows
Net impairment loss on assets for insurance acquisition cash flows
Total Insurance service and other expenses
Represented by:
– Insurance service expenses
– Other expenses
Total Insurance service and other expenses
Notes
30
29
10
9
2023
£m
7,201
573
329
1,309
9
2
23
81
54
1,308
1,090
(335)
151
8
Restated
2022
£m
6,536
543
116
1,194
4
–
18
57
46
1,123
919
(285)
137
–
11,803
10,408
8,373
3,430
11,803
7,497
2,911
10,408
1. Lease rentals represent expenses on short-term leases or low value leases.
2. House building expenses represent the cost of sales of the Group’s housing businesses, including CALA Homes. A total of £1,531m (2022: £1,429m) of house building income has been
recognised in the year (see Note 2 (vi) (e)).
4 Dividends
Ordinary dividends paid and charged to equity in the year:
– Final 2021 dividend paid in June 2022
– Interim 2022 dividend paid in September 2022
– Final 2022 dividend paid in June 20232
– Interim 2023 dividend paid in September 2023
Total dividends
Dividend
2023
£m
Per share1
2023
p
Dividend
2022
£m
Per share1
2022
p
–
–
831
341
1,172
–
–
13.93
5.71
19.64
792
324
–
–
13.27
5.44
–
–
1,116
18.71
1. The dividend per share calculation is based on the number of equity shares registered on the ex-dividend date.
2. The dividend proposed at 31 December 2022 was £829m based on the current number of eligible equity shares at that date.
Subsequent to 31 December 2023, the directors declared a final dividend for 2023 of 14.63 pence per ordinary share. This dividend will be paid on
6 June 2024. It will be accounted for as an appropriation of retained earnings in the year ended 31 December 2024 and is not included as a liability
in the Consolidated Balance Sheet as at 31 December 2023.
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Other information
5 Earnings per share
(i) Basic earnings per share
Profit for the year attributable to equity holders
Less: coupon payable in respect of restricted Tier 1 convertible notes net of tax relief
Total basic earnings
After tax
2023
£m
Per share1
2023
p
457
(22)
435
7.73
(0.38)
7.35
Restated
After tax
2022
£m
783
(23)
760
Restated
Per share1
2022
p
13.23
(0.39)
12.84
1. Basic earnings per share is calculated by dividing profit after tax by the weighted average number of ordinary shares in issue during the year, excluding employee scheme treasury shares.
(ii) Diluted earnings per share
For the year ended 31 December 2023
Profit for the year attributable to equity holders
Net shares under options allocable for no further consideration
Conversion of restricted Tier 1 notes
Total diluted earnings
For the year ended 31 December 2022
Profit for the year attributable to equity holders
Net shares under options allocable for no further consideration
Conversion of restricted Tier 1 notes
Total diluted earnings
Weighted
average
number of
shares
m
5,915
59
307
6,281
Weighted
average
number of
shares
m
5,917
55
307
6,279
After tax
£m
457
–
–
457
Restated
After tax
£m
783
–
–
783
Per share1
p
7.73
(0.08)
(0.37)
7.28
Restated
Per share1
p
13.23
(0.12)
(0.64)
12.47
1. For diluted earnings per share, the weighted average number of ordinary shares in issue, excluding employee scheme treasury shares, is adjusted to assume conversion of all potential
ordinary shares, such as share options granted to employees and conversion of restricted Tier 1 notes.
Primary statements and performance
Legal & General Group Plc Annual report and accounts 2023
173
Balance sheet management
6 Principal products
Product classification
The Group’s products are classified for accounting purposes as either insurance or investment contracts. The basis of accounting for these
products is outlined in Note 1. The following table summarises the classification of the Group’s key insurance and investment contracts as well as
investment products for each applicable business.
Reportable segment
Insurance contracts
Investment contracts and investment products
LGRI
Retail
LGIM
• Pension risk transfers
• Longevity insurance
• UK Retail protection
• UK Group protection
• US protection
• US universal life
• Individual annuities
• Lifetime care plan
• Assured payment policies
• Lifetime mortgages
• Fixed term individual annuities
• Retirement interest only mortgages
• Workplace savings
• Institutional pension
• Segregated investment management mandates
• Collective investment schemes
A significant part of the Group’s business involves the acceptance and management of risk.
A description of the principal products offered by the Group’s segments is outlined below. The Group seeks to manage its exposure to risk through
controls which ensure that the residual exposures are within acceptable tolerances agreed by the Board. The Group’s risk appetite framework and
the methods used to monitor risk exposures can be found on pages 52 to 59.
Details of the risks associated with the Group’s principal products and the controls used to manage these risks can be found in Notes 7 and 15 to 17.
Legal & General Retirement Institutional (LGRI)
Annuity contracts
Pension risk transfer (PRT) represents bulk annuities, whereby the Group accepts the assets and liabilities of a company pension scheme or a life
fund. Annuities provide guaranteed income for a specified time, usually the life of the policyholder and may include a guaranteed payment period.
PRT business consists of both immediate and deferred annuities.
Immediate annuities provide a regular income stream to the policyholder and are in payment at the date of the transaction.
Deferred annuities provide a regular income stream to the policyholder where the income stream starts at a future date after the transaction. Some
deferred contracts accepted by the Group contain guaranteed cash options, predominantly minimum factors for commuting part of the annuity
income into cash at the date of vesting.
There is a block of immediate and deferred annuities within the UK business with benefits linked to changes in the RPI or for a minority the CPI, but
with contractual maximum or minimum increases. Impact on profit due to changes in inflation can be found within the IFRS sensitivity analysis note.
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Legal & General Group Plc Annual report and accounts 2023
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Other information
Investment contracts
The Group writes Assured Payment Policies (APP). An APP is a long-term contract under which the policyholder (a registered UK pension scheme)
pays a day-one premium and in return receives a contractually fixed and/or inflation-linked set of payments over a fixed period of time from the insurer.
Longevity insurance contracts
The Group also provides longevity insurance products for company pension schemes, under which regular payments are made to the scheme
reflecting their actual longevity experience, while the scheme makes an agreed set of regular payments in return. Some policies contain a
guaranteed surrender value which is currently immaterial.
Legal & General Investment Management (LGIM)
LGIM offers both active and passive management on either a pooled or segregated basis to clients domiciled globally. Assets are managed in London
and Chicago on behalf of pension funds, institutional clients, sovereign wealth clients, retail clients and subsidiary companies within the Group.
The key products provided by LGIM are unit linked institutional pensions, segregated investment management mandates and collective
investment schemes.
The core strategies applied for managing the products are set out below.
Index fund management
LGIM provides a diversified range of pooled index funds, providing a wide choice and the ability to pursue specific benchmarks efficiently. In addition,
segregated solutions are offered to institutional clients providing large scale customisation against established market capitalisation weighted and
alternative indices.
The LGIM Exchange Traded Fund (ETF) business provides clients access to LGIM’s index fund management capabilities via our ETF platform. ETF
products cover a broad range of traditional and thematic asset classes.
Active strategies
LGIM offers a range of pooled and segregated active fixed income funds. The LGIM liquidity funds offer institutional investors a solution for their
cash management requirements across a range of core currencies. The liquidity funds aim to deliver competitive returns with a high level of
diversification, whilst focusing on capital preservation through portfolios of high quality, liquid assets.
Active strategies also includes an active equity management business comprising focused teams managing stock selection across different regions.
Solutions and Liability Driven Investment (LDI)
LGIM provides a range of pooled and bespoke solutions to help de-risk defined benefit pension schemes. These solutions will usually combine
active or passive underlying portfolios with derivative overlays designed to meet clients’ specific requirements. An allocation strategy service is also
offered to institutional clients, which may also allocate some of the portfolio to managers other than LGIM.
Multi-asset funds
Multi-asset funds for retail and institutional clients, built using LGIM’s expertise in asset allocation which is informed by an in-house research
capability. The underlying asset classes may be managed on an active or passive basis within LGIM.
Real assets
LGIM offers a range of pooled funds, segregated accounts and joint ventures investing on behalf of UK and overseas investors across physical real
estate, private corporate debt, infrastructure debt and real estate loans. The business has specialist teams of fund and asset managers and an
in-house research team.
Legal & General Capital (LGC)
Investment strategy and implementation
Legal & General Capital manages shareholder assets which are not directly required to meet contractual obligations to policyholders. LGC’s
investments fall into two distinct categories; direct investments and traded assets. The value of, and income from, both categories is sensitive to
conditions within investment markets and the broader economy. Potential volatility in returns is managed using a range of techniques, including
foreign exchange and interest rate hedging, and exposure concentration limits by asset type, sector and geographic region.
Direct investments and structuring
Direct investments are an integral part of the wider Group strategy. LGC’s direct investments are typically illiquid investments entered into through
acquisition, joint venture with strategic partners or by the creation of new companies. LGC seeks to make direct investments in sectors where there
are structural funding shortfalls, and is organised into four sectors: specialist commercial real estate, clean energy, housing and alternative finance.
LGC deploys capital and sector expertise to such investments to target attractive risk-adjusted returns which can deliver higher returns and/or lower
volatility for our shareholder capital than listed equity.
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
175
Balance sheet management
continued
6 Principal products continued
Retail
The Retail division comprises Insurance and Retail Retirement businesses.
UK protection business (Retail and Group)
The Group offers protection products which provide mortality or morbidity benefits. They may include health, disability, critical illness and accident
benefits; these additional benefits are commonly provided as supplements to main life policies but can also be sold separately. The benefit amounts
would usually be specified in the policy terms. Some sickness benefits cover the policyholder’s mortgage repayments and are linked to the prevailing
mortgage interest rates. In addition to these benefits, some contracts may guarantee premium rates, provide guaranteed insurability benefits and
offer policyholders conversion options.
US protection business
US protection represents individual term assurance, which provides death benefits over the medium to long-term. The contracts have level
premiums for an initial period with premiums set annually thereafter. During the initial period, there is generally an option to convert the contract to
a universal life contract. After the initial period, the premium rates are not guaranteed, but cannot exceed the age-related guaranteed premium.
US universal life
Universal life contracts written by Legal & General America (LGA) provide savings and death benefits over the medium to long-term. The savings
element has a guaranteed minimum growth rate. LGA has exposure to loss in the event that interest rates decrease and it is unable to earn enough
on the underlying assets to cover the guaranteed rate. LGA is also exposed to loss should interest rates increase, as the underlying market value of
assets will generally fall without a change in the surrender value.
Reinsurance is used within the protection businesses to manage exposure to large claims for individual term business and virtually all universal life
business. These practices lead to the establishment of reinsurance assets on the Group’s balance sheet. Within our US business, reinsurance and
securitisation are also used to provide regulatory solvency relief (including relief from regulation governing term insurance).
Annuities
Immediate annuities have similar characteristics as products sold by LGRI. The Group also offers products for individuals that provide a guaranteed
level of income over a chosen fixed period of time, in exchange for an initial lump sum payment from the policyholder. The products can provide a
fixed lump sum at maturity and/or options to surrender on non-guaranteed terms.
Deferred annuity contracts written by LGA contain a provision that, at maturity, a policyholder may move the account value into an immediate
annuity, at rates which are either those currently in effect, or rates guaranteed in the contract.
Lifetime care plan
The lifetime care plan provides a monthly payment to a UK registered care provider that helps meet the cost of care for the policyholder’s life.
A policyholder can choose to receive a fixed monthly payment or opt to have escalation built in. A death benefit exists within the product so that if
a policyholder dies within the first 6 months of the start date a percentage of the original premium less any payments already made is payable to
the estate.
Lifetime mortgages
Lifetime mortgages are a form of equity release mortgage that provide non-commercial borrowers with a loan secured against their main residence,
without the need for regular repayments. They are regulated retail mortgages offered only to borrowers over the age of 55 through specialist
intermediaries. Interest accrues over the term of the loan and is repayable at the time the principal becomes due. Loans can be advanced in a single
lump sum amount or in several subsequent drawdowns of an agreed facility. All lifetime mortgages provide a ‘no negative equity’ guarantee, which
means that if the loan is repaid from the sale of the property and if the net sale proceeds are lower than the balance of the loan, the Group will accept
the net sale proceeds as full settlement.
Retirement interest-only mortgages
A retirement interest-only (RIO) mortgage is a standard residential mortgage available for non-commercial borrowers above 55 years old. A RIO
mortgage is very similar to a standard interest-only mortgage, with two key differences:
•
•
the loan is usually only paid off on death, move into long-term care or sale of the house
the borrowers only have to prove they can afford the monthly interest repayments and not the capital remaining at the end of the mortgage term.
No repayment solution is required as repayment defaults to sale of property.
Workplace savings
Workplace savings provides corporate pension scheme solutions to enable companies to meet their auto-enrolment obligations. Workplace savings
acts as scheme operator and administrator for these products while the customers hold the individual or scheme level pension policies issued by
Legal and General Assurance Society Limited (LGAS).
176
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Other information
7 Asset risk
The Group is exposed to the following categories of asset risk as a consequence of offering the principal products outlined in Note 6.
Market risk
Exposure to loss as a direct or indirect result of fluctuations in the value of, or income from, specific assets.
Credit risk
Exposure to loss if another party fails to perform its financial obligations to the Group or suffers a rating downgrade.
Liquidity risk
The risk that the Group, though solvent, either does not have sufficient financial resources available to enable it to meet its obligations as they fall
due, or can secure them only at excessive cost.
The Group is also exposed to insurance risk as a consequence of offering these products – more detail on insurance risk can be found in Note 17.
The Group is not directly exposed to any market risk, credit risk or liquidity risk associated with LGIM’s businesses, and as a result, the detailed risk
disclosures have not been presented. However, LGIM’s income is related to the value of funds under management, and so they are indirectly exposed
to market risks that impact the value of assets underlying those funds.
The Group seeks to manage its exposures to risk through controls which ensure that the residual risk exposures are within acceptable tolerances
agreed by the Board. A description of the risks associated with the Group’s principal products and the associated controls is detailed in the table below.
Market risk
Principal risks
Division
Controls to mitigate risks
Investment performance risk
The Group is exposed to the risk that the income from,
and value of, assets held to back insurance liabilities and
capital requirements do not perform in line with investment
and product pricing assumptions leading to a potential
financial loss.
LGC, LGRI
and Retail
LGIM and Retail
LGRI and Retail
LGC and LGRI
For unit linked contracts, there is a risk of volatility in asset
management fee income due to the impact of interest rate
and market price movements on the fair value of the assets
held in the linked funds, on which investment management
fees are based. There is also the risk of expense over-runs
should the market depress the level of charges which could
be imposed.
Property risk
Lifetime mortgages include a no-negative equity guarantee
which transfers a potential loss exposure to the Group as a
result of low house price inflation, and an exposure to
specific properties which may experience lower house
price inflation for whatever reason.
LGC businesses build homes across the residential market,
invest in large commercial and residential development
projects and along with LGRI manage several developed
real estate assets. The Group’s revenue streams are
exposed to residential sales achieved, as well as the
volume of transactions, both of which may be affected by
the performance of the housing market. Revenue streams
may also be impacted by significant increases in the cost
of raw materials or disruption to supply chains.
Independent valuations of real estate assets, either in
development or developed, also depend on an assessment
of the wider real estate market.
Models are used to assess the impact of a range of future return scenarios on
investment values and associated liabilities in order to determine optimum
portfolios of invested assets. For annuities, which are sensitive to interest rate
and inflation risk, analysis of the liabilities is undertaken to create a portfolio of
securities, the value of which changes in line with the value of liabilities when
interest rates change.
The risk is managed through maintaining a diversified range of funds in which
customers may invest. The performance of linked investment funds relative
to their investment objectives is subject to regular monitoring. Periodic
assessment is also made of the long-term profitability to the Group of these
funds. For some contracts the Group has discretion over the level of
management charges levied.
To mitigate the risk, maximum loan to value ratios are set for all lending with
further underwriting criteria setting out acceptable properties for lending
purposes. Policy terms also require properties to be fully insured and
maintained, including the right of inspection. The diversification of lending by
property type and geographic region seeks to control exposures to specific
aspects in the property market.
Diversification by geographic region and property type avoids concentration
of exposures to specific areas of the property market. Sites are developed in a
number of phases to spread the risk to local markets over several years and
where possible we seek to co-invest with local experts to manage assets.
The purchasing of new land for development requires approval from LGC’s
Investment Committee and the Group Capital Committee (the Investment
Committee from 1 January 2024). Where appropriate, key methods are adopted
to further manage the risk, such as fixed price construction contracts, forward
sales and pre-letting. These businesses can also benefit from flexible funding
arrangements available from the Group. Direct commercial property exposure
in the LGRI annuity portfolio is relatively limited and is underpinned by
long-term leases with highly rated counterparties.
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
177
Balance sheet management
continued
7 Asset risk continued
Market risk continued
Principal risks
Division
Controls to mitigate risks
Currency risk
To diversify credit risk within the annuities business corporate
bond portfolio, investments are held in corporate bonds
denominated in non-sterling currencies. LGC also invest in
overseas assets. Fluctuations in the value of, or income from,
these assets relative to liabilities denominated in sterling
could result in unforeseen foreign exchange losses.
LGC, LGRI
and Retail
To mitigate the risk of loss from currency fluctuations, currency swaps and
forwards are used to hedge exposures to corporate bonds denominated in
currencies other than sterling. Hedging arrangements are placed with strongly
rated counterparties with collateral requirements being subject to regular
review and reconciliation with the counterparties. The hedges do not eliminate
all currency risk and the Group retains some residual risk.
Inflation risk
The consolidated international subsidiaries and financial
instruments of subsidiaries are translated into sterling in
the consolidated accounts. Changes in the sterling value
can impact consolidated equity but may be mitigated by
associated hedging transactions.
Inflation risk
Inflation risk is the potential of realising a loss because of
relative or absolute changes in inflation rates. Annuity
contracts may provide for future benefits to be paid taking
account of changes in the level of inflation. Annuity
contracts in payment may include an annual adjustment
for movements in price indices.
Interest rate risk
Interest rate risk is the risk that the Group is exposed to
lower returns or loss as a direct or indirect result of
fluctuations in the value of, or income from, specific
assets and liabilities arising from changes in underlying
interest rates.
Credit risk
Principal risks
Bond default and rating downgrade risk
A significant portfolio of corporate bonds and
commercial loans are held to back the liabilities arising
from writing insurance and annuities business. Whilst
the portfolio is diversified, the asset class is inherently
exposed to the risk of issuer default and rating
downgrade, with the possibility of financial loss.
Reinsurance counterparty risk
Exposure to insurance risk is mitigated by ceding part of
the risks assumed to the reinsurance market. Default of a
reinsurer would require the business to be re-brokered
potentially on less advantageous terms, or for the risks to
be borne directly resulting in possible financial loss. The
Group is required to carry an element of associated
credit risk capital on its balance sheet should the
business not be re-brokered on the same terms.
Property lending counterparty risk
As part of our asset diversification strategy, we hold
property lending and sale and leaseback investments.
We are inherently exposed to the risk of default by a
borrower or tenant.
Banking counterparty risk
The Group is exposed to potential financial loss should
banks or the issuers of financial instruments default on
their obligations to us. We are also exposed to
counterparty risks in respect of the providers of
settlement and custody services.
Group
LGRI
To mitigate the risk of loss from currency translation the Company continuously
monitors its exposure and executes appropriate hedging transactions when
necessary. Hedging arrangements are placed with strongly rated counterparties
with collateral requirements being subject to regular review and reconciliation
with the counterparties.
The investment strategy for the annuities business takes explicit account of
the effect of movements in price indices on contracted liabilities. Significant
exposures that may adversely impact profitability are hedged using inflation
swaps. Annuity contracts also typically provide for a cap on the annual increase
in inflation linked benefit payments. The hedges do not eliminate all inflation
risk and the Group retains some residual risk.
Group, LGRI
and Retail
To mitigate the risk that guarantees and commitments are not met, financial
instruments are purchased, which broadly match the nature and terms of the
expected policy benefits payable. The composition of the investment portfolio
is governed by the nature of the insurance or savings liabilities, the expected
rate of return applicable on each class of asset and the capital available to meet
the price fluctuations of each asset class, relative to the liabilities they support.
Division
Controls to mitigate risks
LGRI and Retail
LGRI and Retail
LGC and LGRI
Group, LGC
and LGRI
Portfolio level and specific issuer limits are set by financial strength rating,
sector and geographic region to limit exposure to a default event. Issuer limits
are regularly reviewed to take account of changes in market conditions,
sector performance and the re-assessment of financial strength by rating
agencies and the Group’s own internal analysis. Exposures are monitored
relative to limits. Financial instruments are also used to mitigate the impact of
rating downgrades and defaults. If appropriate, actions are taken to trade out
investments at risk of default.
When selecting new reinsurance partners for its protection business, the
Group considers only companies which have a minimum credit rating
equivalent to A- unless collateralised. For each reinsurer, exposure limits are
determined based on credit ratings and projected exposure over the term of
the treaty. Actual exposures are regularly monitored relative to these limits.
Similarly, for longevity and credit risk syndication transactions, the Group
targets the use of strongly rated counterparties and seeks to ensure that
positions are fully collateralised. The adequacy and quality of collateral is
subject to ongoing monitoring.
Each property lending and sale and leaseback investment transaction is
subject to a due diligence process to assess the credit risks implicit in the
transaction and confirm that any risk of default has been appropriately
mitigated. We also protect our interests by taking security over the underlying
property associated with each investment transaction.
The Group controls its exposures to banking counterparties and the issuers
of financial instruments using a framework of counterparty limits. These
limits take account of the relative financial strength of the counterparty as
well as other bank counterparty exposures that the Group may have. Limits
are subject to regular review with actual exposures monitored against limits.
The Group has defined criteria for the selection of custody and settlement
services. The financial strength of providers is regularly reviewed.
178
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Strategic report
Governance
Financial statements
Other information
Division
Controls to mitigate risks
The Group seeks to ensure that it meets its obligations as they fall due and
avoids incurring material losses on forced asset sales in order to meet those
obligations. A limited level of contingent liquidity risk is, however, an accepted
element of writing insurance contracts. It is furthermore a consequence of
the markets in which the Group operates and the execution of investment
management strategies. However, the Group’s insurance businesses seek
to maintain sufficient liquid assets and standby facilities to meet a prudent
estimate of the cash outflows that may arise from contingent events. The
level of required liquidity is identified using techniques including stress tests
for shock events and the profile of actual liquid assets is regularly compared
to the required liability profile. The Group’s treasury function provides formal
facilities to other areas of the Group to cover contingent liquidity requirements
arising from more extreme events and where investment assets may not be
readily realisable.
Liquidity requirements to meet potential collateral calls under stressed
conditions are actively managed and an appropriate pool of eligible assets is
maintained with counterparties as specified in the associated agreements.
As at 31 December 2023, LGRI and Retail eligible collateral assets to post
was more than five times over the actual collateral posted (using the most
representative definition of collateral contained within the Group’s different
collateral agreements).
Liquidity risk
Principal risks
Contingent event risk
Events that result in liquidity risk include a pandemic
that could lead to significantly higher levels of claims
than would normally be expected, or extreme events
impacting the timing of cash flows or the ability to realise
investments at a given value within a specified
timeframe.
Group and Retail
Collateral liquidity risk
Within the annuities business, the use of financial
instruments to hedge default, interest rate, currency and
inflation risks can require the posting of collateral with
counterparties at short notice.
LGC, LGRI and
Retail
Investment liquidity risk
Direct lending, sale and leaseback investments and
lifetime mortgage business are inherently illiquid forms
of investment, with limited secondary markets to realise
the value of assets outside agreed redemption terms.
LGC and LGRI
Given the illiquid nature of the annuity and other liabilities the Group is able
and willing to take advantage of the premium offered by illiquid assets. The
Group, however, sets limits on the overall exposure to illiquid investments
taking account of the nature and type of liabilities that the assets are held
to meet.
As at 31 December 2023, the Group had £4,235m (2022: £4,834m) of cash and cash equivalents in shareholder funds and a £1.5bn syndicated
committed revolving credit facility in place, provided by a number of its key relationship banks, maturing in December 2028.
8 Balance sheet analysis
The Group has categorised its assets and liabilities in the following disclosure in accordance with the level of shareholder exposure to market and
credit risks. Various reinsurance and hedging arrangements are in place as mechanisms to mitigate the risks.
The two categorisations presented are:
Unit linked
For unit linked contracts, there is a direct link between the investments and the obligations. Unit linked business is written in both Legal and General
Assurance Society Limited and Legal and General Assurance (Pensions Management) Limited. The financial risk on these contracts is borne by the
policyholders. The Group is therefore not directly exposed to any market risk, currency risk or credit risk for these contracts. As a result, risk
disclosures have not been presented for unit linked assets and liabilities.
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
179
Balance sheet management
continued
8 Balance sheet analysis continued
Shareholder
All non-unit linked assets are classified as shareholder assets. Shareholders of the Group are directly exposed to market and credit risk on these
assets, including those backing the non-unit linked business.
The table below presents an analysis of the balance sheet by category. The quantitative risk disclosures in Notes 15 and 16 have been provided using
this categorisation.
As at 31 December 2023
Assets
Goodwill and Intangible assets
Investment in associates and joint ventures accounted for using the equity method
Property, plant and equipment
Investments1
Reinsurance contract assets
Other assets
Total assets
Liabilities
Contract liabilities
Core borrowings
Operational borrowings
Other liabilities
Total liabilities
As at 31 December 2022
Assets
Goodwill and Intangible assets
Investment in associates and joint ventures accounted for using the equity method
Property, plant and equipment
Investments1
Reinsurance contract assets
Other assets
Total assets
Liabilities
Contract liabilities
Core borrowings
Operational borrowings
Other liabilities
Total liabilities
1.
Investments includes financial investments, investment property and cash and cash equivalents.
Shareholder
£m
550
616
315
Unit
linked
£m
–
–
118
Total
£m
550
616
433
133,865
366,946
500,811
7,306
8,414
–
3,965
7,306
12,379
151,066
371,029
522,095
92,664
315,874
408,538
4,377
1,457
47,757
(97)
383
54,896
146,255
371,056
4,280
1,840
102,653
517,311
Restated
Shareholder
£m
Unit
linked
£m
Restated
Total
£m
512
554
252
–
–
74
512
554
326
128,373
363,341
491,714
4,713
8,836
–
6,615
4,713
15,451
143,240
370,030
513,270
79,681
4,432
963
52,660
137,736
285,415
365,096
(94)
256
84,424
370,001
4,338
1,219
137,084
507,737
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Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
9 Intangible assets
Intangible assets mainly consist of capitalised software costs and intangible assets acquired as part of a business combination (customer
relationships and brand). Amortisation charges and any impairments are recognised in the Consolidated Income Statement in Other expenses
(see Note 3).
Cost
As at 1 January
Additions
Disposals
Decrease due to currency translation
As at 31 December
Accumulated amortisation and impairment
As at 1 January
Amortisation for the year
Impairment
Disposals
As at 31 December
Total net book value as at 31 December
To be amortised within 12 months
To be amortised after 12 months
Cost
As at 1 January
Additions
Disposals
Increase due to currency translation
Other movements3
As at 31 December
Accumulated amortisation and impairment
As at 1 January
Amortisation for the year
Impairment
Disposals
Other movements3
As at 31 December
Total net book value as at 31 December
To be amortised within 12 months
To be amortised after 12 months
Capitalised
software
costs1
2023
£m
Other2
2023
£m
520
100
(23)
(4)
593
(109)
(48)
(1)
16
(142)
451
35
1
–
–
36
(5)
–
(5)
–
(10)
26
Capitalised
software
costs1
2022
£m
Other2
2022
£m
450
120
(34)
5
(21)
520
(115)
(45)
–
28
23
(109)
34
1
–
–
–
35
(4)
(1)
–
–
–
(5)
411
30
Total
2023
£m
555
101
(23)
(4)
629
(114)
(48)
(6)
16
(152)
477
57
420
Total
2022
£m
484
121
(34)
5
(21)
555
(119)
(46)
–
28
23
(114)
441
43
398
1. Total capitalised software costs include £233m of work in progress assets that were not yet available for use as at 31 December 2023 (31 December 2022: £204m).
2. Other intangible assets include brand (£24m) and product design costs (£nil) as at 31 December 2023 (31 December 2022: (£24m) and (£5m) respectively).
3. Other movements primarily reflect the removal of fully amortised assets that were no longer in use.
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
181
Balance sheet management
continued
10 Property, plant and equipment
Cost/Valuation
As at 1 January
Additions
Disposals
Decrease due to currency translation
Revaluation
As at 31 December
Accumulated depreciation and impairment
As at 1 January
Depreciation for the year
Impairment
Disposals
Decrease due to currency translation
As at 31 December
Total net book value as at 31 December
Cost/Valuation
As at 1 January
Additions
Disposals
Increase due to currency translation
Revaluation3
As at 31 December
Accumulated depreciation and impairment
As at 1 January
Depreciation for the year
Impairment
Disposals
Increase due to currency translation
As at 31 December
Total net book value as at 31 December
Right-of-use
Office
buildings
2023
£m
IT
2023
£m
Other1
2023
£m
234
4
(20)
(3)
–
215
(94)
(20)
(21)
20
–
(115)
100
57
35
(57)
–
–
35
(49)
(9)
–
53
–
(5)
30
3
6
–
–
–
9
(3)
(1)
–
–
–
(4)
5
Owned
Other2
2023
£m
285
171
(11)
(2)
(21)
422
Total
2023
£m
579
216
(88)
(5)
(21)
681
(107)
(253)
(18)
(12)
11
2
(48)
(33)
84
2
(124)
(248)
298
433
Right-of-use
Office
buildings
2022
£m
IT
2022
£m
Other1
2022
£m
Owned
Other2
2022
£m
225
6
–
7
(4)
234
(68)
(25)
–
–
(1)
(94)
140
58
–
(1)
–
–
57
(36)
(13)
–
–
–
(49)
8
5
–
(2)
–
–
3
(4)
(1)
–
2
–
(3)
–
Total
2022
£m
513
66
(6)
10
(4)
579
(197)
(56)
(1)
4
(3)
225
60
(3)
3
–
285
(89)
(17)
(1)
2
(2)
(107)
(253)
178
326
1. Other right-of-use assets comprise of vehicles and other buildings.
2. Other owned assets predominantly include land, buildings and IT, as well as owner-occupied property with a carrying value of £46m as at 31 December 2023 (2022: £nil) held under the
fair value model.
3. Revaluation in 2022 relates to early termination of a building lease.
182
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
Shareholder
2023
£m
Note
Unit
linked
2023
£m
Total
2023
£m
74,442
2,022
38,019
1,599
335,466
409,908
–
3,121
8,691
2,022
41,140
10,290
11(i)
116,082
347,278
463,360
8,032
13
–
–
8,032
13
124,127
347,278
471,405
5,503
3,390
8,893
129,630
350,668
480,298
Restated
Shareholder
2022
£m
Note
Restated
Unit
linked
2022
£m
37,513
442,785
Restated
Total
2022
£m
66,520
312,003
378,523
479
41,978
1,072
–
3,449
13,211
479
45,427
14,283
11(i)
110,049
328,663
438,712
7,845
1
–
–
7,845
1
117,895
328,663
446,558
5,644
3,728
123,539
332,391
9,372
455,930
36,296
419,634
11 Financial investments and investment property
Financial investments at fair value classified as:
Fair value through profit or loss1
Fair value through other comprehensive income
Fair value through profit or loss – derivatives1
Loans at fair value through profit or loss1
Financial investments at fair value
Debt securities at amortised cost
Loans at amortised cost
Total financial investments
Investment property
Total financial investments and investment property
Expected to be recovered within 12 months
Expected to be recovered after 12 months
Financial investments at fair value classified as:
Fair value through profit or loss1
Fair value through other comprehensive income
Fair value through profit or loss – derivatives1
Loans at fair value through profit or loss1
Financial investments at fair value
Debt securities at amortised cost
Loans at amortised cost
Total financial investments
Investment property
Total financial investments and investment property
Expected to be recovered within 12 months
Expected to be recovered after 12 months
1. Mandatorily measured at fair value through profit or loss.
Investment risks on unit linked assets are borne by the policyholders. The remaining risks associated with financial investments are outlined in Note 7.
Financial investments, cash and cash equivalents include:
• £4,034m (2022: £7,161m) of assets pledged as collateral against net derivative liability counterparty positions. The assets used as collateral
are Treasury gilts, foreign government bonds, AAA, AA, A and BBB corporate bonds and cash (2022: Treasury gilts, foreign government bonds,
AAA and AA corporate bonds and cash) having a residual maturity of over 44 years (2022: over 38 years).
• £5,257m (2022: £5,617m) of assets pledged as collateral in relation to various pension risk transfer deals. The assets used as collateral are
Treasury gilts, AAA to BBB corporate bonds and cash (2022: Treasury gilts, AAA to BBB corporate bonds and cash) having a residual maturity
of over 44 years (2022: over 88 years).
• £752m (2022: £673m) of assets pledged in respect of longevity swaps with reinsurance counterparties. The assets used as collateral are
Treasury gilts and AAA to AA corporate bonds (2022: Treasury gilts, AAA to A corporate bonds) having a residual maturity of over 34 years
(2022: over 45 years).
While pledged as collateral, the Group is entitled to receive all of the cash flows from the assets above, and there is no obligation to pay or transfer
cash flows arising from them to another entity. These assets are neither past due, nor impaired. The carrying value reflects the full exposure of
these assets.
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
183
Balance sheet management
continued
11 Financial investments and investment property continued
The Group is permitted to sell or repledge collateral as per the International Swap Dealers Association agreements in place, including where there
has been no default by the owner of the collateral. As at 31 December 2023, the Group had repledged cash collateral with a fair value of £647m
(2022: £980m) in order to fulfil other collateral requirements in relation to derivatives contracts. The counterparties have an obligation to return
the cash collateral to the Group. There are no other significant terms and conditions associated with the use of this cash collateral.
Financial investments include £25,452m (2022: £31,533m) of assets that have been sold but not derecognised and are subject to repurchase
agreements. Risks and rewards of these assets have been retained within the Group. The related obligation to repurchase the financial assets is
included within Payables and other financial liabilities (Note 24).
Financial investments have been allocated between those expected to be settled within 12 months and after 12 months in line with the expected
settlement of the backed liabilities. Assets in excess of the insurance and investment contract liabilities have been classified as expected to be
settled after 12 months.
(i) Financial investments and investment property at fair value
Equity securities
Debt securities
Derivative assets
Loans at fair value
Financial investments
Investment property
Total financial investments at fair value
Equity securities
Debt securities
Derivative assets
Loans at fair value
Financial investments
Investment property
Total financial investments at fair value
Shareholder
2023
£m
Notes
3,166
73,298
38,019
1,599
12
Unit
linked
2023
£m
182,816
152,650
3,121
8,691
Total
2023
£m
185,982
225,948
41,140
10,290
116,082
347,278
463,360
5,503
3,390
8,893
121,585
350,668
472,253
Notes
12
Restated
Shareholder
2022
£m
3,071
63,928
41,978
1,072
Restated
Unit
linked
2022
£m
164,264
147,739
3,449
13,211
Restated
Total
2022
£m
167,335
211,667
45,427
14,283
110,049
328,663
438,712
5,644
3,728
9,372
115,693
332,391
448,084
Included within unit linked equity securities are £162m (2022: £187m) of debt instruments which incorporate an embedded derivative linked to the
value of the Group’s share price.
184
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Governance
Financial statements
Other information
(ii) Fair value hierarchy
The table below breaks down the fair value of financial investments and investment property by fair value hierarchy level.
For the year ended 31 December 2023
Total
£m
Level 1
£m
Level 2
£m
Level 3
£m
Shareholder
Equity securities
Debt securities
Derivative assets
Loans at fair value
Investment property
Total Shareholder
Unit linked
Equity securities
Debt securities
Derivative assets
Loans at fair value
Investment property
Total Unit linked
Total financial investments and investment property at fair value
Debt securities at amortised cost1
Loans at amortised cost1
3,166
73,298
38,019
1,599
5,503
1,069
26,003
123
–
–
144
27,860
37,896
1,599
–
121,585
27,195
67,499
182,816
152,650
3,121
8,691
3,390
350,668
472,253
7,184
13
182,348
91,874
148
–
–
274,370
301,565
–
1
29
59,748
2,973
8,691
–
71,441
138,940
45
12
1,953
19,435
–
–
5,503
26,891
439
1,028
–
–
3,390
4,857
31,748
7,139
–
For the year ended 31 December 2022 (Restated)
Total
£m
Level 1
£m
Level 2
£m
Level 3
£m
Shareholder
Equity securities
Debt securities
Derivative assets
Loans at fair value
Investment property
Total Shareholder
Unit linked
Equity securities
Debt securities
Derivative assets
Loans at fair value
Investment property
Total Unit linked
Total financial investments and investment property at fair value
Debt securities at amortised cost1
Loans at amortised cost1
3,071
63,928
41,978
1,072
5,644
1,236
17,239
106
–
–
41
31,295
41,872
1,072
–
115,693
18,581
74,280
164,264
147,739
3,449
13,211
3,728
332,391
448,084
6,717
1
163,727
105,955
164
–
–
269,846
288,427
–
1
24
40,757
3,285
13,211
–
57,277
131,557
44
–
1,794
15,394
–
–
5,644
22,832
513
1,027
–
–
3,728
5,268
28,100
6,673
–
1. This table includes debt securities and loans which are held at amortised cost on the balance sheet at a total value of £8,045m (2022: £7,846m).
The levels of fair value measurement bases are defined as follows:
Level 1: fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: fair values measured using valuation techniques for all inputs significant to the measurement other than quoted prices included
within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: fair values measured using valuation techniques for any input for the asset or liability significant to the measurement that is not based
on observable market data (unobservable inputs).
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
185
Balance sheet management
continued
11 Financial investments and investment property continued
(ii) Fair value hierarchy continued
(a) Level 2 assets measured at fair value
All of the Group’s Level 2 assets have been valued using standard market pricing sources, such as IHS Markit, ICE and Bloomberg, or Index Providers
such as Barclays, Merrill Lynch or JPMorgan. Each uses mathematical modelling and multiple source validation in order to determine consensus
prices, with the exception of OTC Derivative holdings; OTCs are marked to market using an in-house system (Lombard Oberon), external vendor (IHS
Markit), internal model or Counterparty Broker marks. In normal market conditions, we would consider these market prices to be observable market
prices. Following consultation with our pricing providers and a number of their contributing brokers, we have considered that these prices are not
from a suitably active market and have therefore classified them as Level 2.
The Group’s policy is to re-assess categorisation of financial assets at the end of each reporting period and to recognise transfers between levels at
that point in time. At 31 December 2023 debt securities totalling net £0.7bn (2022: £6.0bn) transferred from Level 2 to Level 1 in the fair value hierarchy.
(b) Level 3 assets measured at fair value
Level 3 assets, where modelling techniques are used, comprise property, unquoted securities, untraded debt securities and securities where
unquoted prices are provided by a single broker. Unquoted securities include suspended securities, investments in private equity and property
vehicles. Untraded debt securities include private placements, commercial real estate loans, income strips, retirement interest only and other
lifetime mortgages.
In many situations, inputs used to measure the fair value of an asset or liability may fall into different levels of the fair value hierarchy. In these
situations, the Group determines the level in which the fair value falls based upon the lowest level input that is significant to the determination of the
fair value. As a result, both observable and unobservable inputs may be used in the determination of fair values that the Group has classified within
Level 3.
The Group determines the fair values of certain financial assets and liabilities based on quoted market prices, where available. The Group also
determines fair value based on estimated future cash flows discounted at the appropriate current market rate. As appropriate, fair values reflect
adjustments for counterparty credit quality, the Group’s credit standing, liquidity and risk margins on unobservable inputs.
Fair values are subject to a control framework designed to ensure that input variables and outputs are assessed independent of the risk taker.
These inputs and outputs are reviewed and approved by a valuation committee and validated independently as appropriate.
As at 1 January
Total gains/(losses) for the year
– realised gains or (losses)1
– unrealised gains or (losses)1
Purchases/Additions
Disposals/Derecognitions
Transfers into Level 3
Transfers out of Level 3
Foreign exchange rate movements
Equity
securities
2023
£m
Other
financial
investments
2023
£m
Investment
property
2023
£m
Total
2023
£m
Equity
securities
2022
£m
Restated
Other
financial
investments
2022
£m
Investment
property
2022
£m
2,307
16,421
9,372
28,100
1,988
16,599
10,150
24
(34)
278
(149)
2
(3)
(33)
(432)
357
6,009
(2,018)
241
–
(115)
3
(923)
1,264
(854)
–
–
31
(405)
(600)
7,551
(3,021)
243
(3)
(117)
28
83
504
(381)
84
(41)
42
(78)
(4,381)
10,922
(6,908)
72
–
195
81
(1,796)
1,307
(377)
–
–
7
Restated
Total
2022
£m
28,737
31
(6,094)
12,733
(7,666)
156
(41)
244
As at 31 December
2,392
20,463
8,893
31,748
2,307
16,421
9,372
28,100
1. Realised and unrealised gains/(losses) are recognised in Investment return in the Consolidated Income Statement.
Equity securities
Level 3 equity securities amount to £2,392m (2022: £2,307m), of which the majority is made up of holdings in investment property vehicles and
private investment funds. They are valued at the proportion of the Group’s holding of the Net Asset Value reported by the investment vehicles. Other
equity securities are valued by a number of third party specialists using a range of techniques which are often dependent on the maturity of the
underlying investment but can also depend on the characteristics of individual assets. Such techniques include transaction values underpinned by
analysis of milestone achievement and cash runway for early/start-up stage investments, discounted cash flow models for investments at the next
stage of development and earnings multiples for more mature investments.
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Other financial investments
Lifetime mortgage (LTM) loans and retirement interest only mortgages amount to £5,766m (2022: £4,844m). Lifetime mortgages are valued using a
discounted cash flow model by projecting best-estimate net asset proceeds and discounted using rates inferred from current LTM loan pricing. The
inferred illiquidity premiums for the majority of the portfolio range between 150 and 300bps. This ensures the value of loans at outset is consistent
with the purchase price of the loan and achieves consistency between new and in-force loans. Lifetime mortgages include a no negative equity
guarantee (NNEG) to borrowers. This ensures that if there is a shortfall between the sale proceeds of the property and the outstanding loan balance
on redemption of the loan, the value of the loan will be reduced by this amount. The NNEG on loan redemption is valued as a series of put options,
which we calculate using a variant of the Black-Scholes formula. Key assumptions in the valuation of lifetime mortgages include short-term and
long-term property growth rates, property index volatility, voluntary early repayments and longevity assumptions. The valuation as at 31 December
2023 reflects a combination of short-term and long-term property growth rate assumptions equivalent to a flat rate of 2.8% annually, after allowing
for the effects of dilapidation. The values of the properties collateralising the LTM loans are updated from the date of the last property valuation to
the valuation date by indexing using UK regional house price indices.
Private credit loans (including commercial real estate loans) amount to £10,574m (2022: £7,858m). Their valuation is determined by discounted
future cash flows which are based on the yield curve of the LGIM approved comparable bonds and the initial spread, both of which are agreed by IHS
Markit who also provide an independent valuation of comparable bonds. Unobservable inputs that go into the determination of comparators include
rating, sector, sub-sector, performance dynamics, financing structure and duration of investment. Existing private credit investments, which were
executed as far back as 2011, are subject to a range of interest rate formats, although the majority are fixed rate. The weighted average duration of
the portfolio is 7.8 years, with a weighted average life of 11.1 years. Maturities in the portfolio currently extend out to 2063. The private credit portfolio
of assets has internal ratings assigned by an independent credit team in line with internally developed methodologies. These credit ratings range
from AAA to BB-.
Private placements held by the US business amount to £1,684m (2022: £1,320m). They are valued using a pricing matrix comprised of a public
spread matrix, internal ratings assigned to each holding, average life of each holding, and a premium spread matrix. These are added to the risk-free
rate to calculate the discounted cash flows and establish a market value for each investment grade private placement. The valuation as at
31 December 2023 reflects illiquidity premiums between 20 and 70bps.
Income strip assets amount to £1,306m (2022: £1,414m). Their valuation is outsourced to Knight Frank and CBRE who apply a yield to maturity to
discounted future cash flows to derive valuations. The overall valuation takes into account the property location, tenant details, tenure, rent, rental
break terms, lease expiries and underlying residual value of the property. The valuation as at 31 December 2023 reflects equivalent yield ranges
between 4% and 7% and estimated rental values (ERV) between £18 and £310 per sq.ft.
Commercial mortgage loans amount to £784m (2022: £768m) and are determined by incorporating credit risk for performing loans at the portfolio
level and adjusted for loans identified to be distressed at the loan level. The projected cash flows of each loan are discounted along stochastic
risk-free rate paths and are inclusive of an Option Adjusted Spread (OAS), derived from current internal pricing on new loans, along with the best
observable inputs. The valuation as at 31 December 2023 reflects illiquidity premiums between 20 and 30bps.
Other debt securities which are not traded in an active market amount to £349m (2022: £217m). They have been valued using third party or
counterparty valuations, and these prices are considered to be unobservable due to infrequent market transactions.
Investment property
Level 3 investment property amounting to £8,893m (2022: £9,372m) is valued with the involvement of external valuers. All property valuations in the
UK are carried out in accordance with the latest edition of the Valuation Standards published by the Royal Institute of Chartered Surveyors, and are
undertaken by appropriately qualified valuers as defined therein. Outside the UK, valuations are produced in conjunction with external qualified
professional valuers in the countries concerned. Whilst transaction evidence underpins the valuation process, the definition of market value,
including the commentary, in practice requires the valuer to reflect the realities of the current market. In this context valuers must use their market
knowledge and professional judgement and not rely only upon market sentiment based on historic transactional comparables.
The valuation of investment properties also includes an income approach that is based on current rental income plus anticipated uplifts, where the
uplift and discount rates are derived from rates implied by recent market transactions. These inputs are deemed unobservable. The valuation as at
31 December 2023 reflects equivalent yield ranges between 3% and 13% and ERV between £5 and £310 per sq.ft.
The table below shows the valuation of investment property by sector:
Retail
Leisure
Distribution
Office space
Industrial and other commercial
Accommodation
Total
2023
£m
1,169
451
1,076
2,768
1,714
1,715
8,893
2022
£m
780
461
1,104
4,069
1,624
1,334
9,372
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
187
Balance sheet management
continued
11 Financial investments and investment property continued
(ii) Fair value hierarchy continued
(c) Effect of changes in assumptions on Level 3 assets
Fair values of financial instruments are, in certain circumstances, measured using valuation techniques that incorporate assumptions that are not
evidenced by prices from observable current market transactions in the same instrument and are not based on observable market data.
Where material, the Group assesses the sensitivity of fair values of Level 3 investments to changes in unobservable inputs to reasonable alternative
assumptions. The table below shows the impact of applying these sensitivities to the fair value of Level 3 assets as at 31 December 2023. Further
disclosure on how these sensitivities have been applied can be found in the descriptions following the table.
Lifetime mortgages
Private credit portfolios
Investment property
Other investments1
Total Level 3 assets
Fair value
2023
£m
5,766
13,042
8,893
4,047
31,748
Sensitivities
Positive
impact
£m
Negative
impact
£m
262
580
731
297
(322)
(580)
(717)
(393)
1,870
(2,012)
1. Other investments include Level 3 equity securities, income strip assets and other traded debt securities which are Level 3.
The sensitivities are not a function of sensitising a single variable relating to the valuation of the asset, but rather a function of flexing multiple
factors often at individual asset level. The following sets out a number of key factors by asset type, and how they have been flexed to derive
reasonable alternative valuations.
Lifetime mortgages
Key assumptions used in the valuation of lifetime mortgage assets are listed in Note 11(ii)(b) and sensitivities are applied to derive the values in the
above table. The most significant sensitivity by value is -20bps of market spread and overvaluation of property valuations by 10% across the portfolio
which, applied in isolation produces sensitised values of £152m and £(191)m.
Private credit portfolios
The sensitivity in the private credit portfolio has been determined through a method which estimates investment spread value premium differences
as compared to the institutional investment market. Individual investment characteristics of each holding, such as credit rating and duration are
used to determine spread differentials for the purposes of determining alternate values. Spread differentials are determined to be lower for highly
rated and/or shorter duration assets as compared to lower rated and/or longer duration assets. A significant component of the spread differential
is in relation to the selection of comparator bonds, which is the potential difference in spread of the basket of relevant comparators determined by
respective investors. If we were to take an AA rated asset it may attract a spread differential of 20bps on the selection of comparator bonds as
opposed to 40bps for a similar duration BBB rated asset. Applied in isolation the sensitivity used to reflect the spread in comparator bond selection
results in sensitised values of £220m and £(220)m.
Investment property
Investment property holdings are valued by independent valuers on the basis of open market value as defined in the appraisal and valuation manual
of the Royal Institute of Chartered Surveyors. As such, sensitivities are calculated through a mixture of asset level and portfolio level methodologies
which make reference to individual investment characteristics of the holding but do not flex individual assumptions used by the independent expert
in valuing the holdings. Each method is applied individually and aggregated with equal weighting to determine the overall sensitivity determined for
the portfolio. One method is similar to that used in the private credit portfolio as it determines the impact of an alternate property yield determined in
reference to credit ratings, remaining term and other characteristics of each holding. In this methodology we would apply a lower yield sensitivity to a
highly rated and/or shorter remaining term asset compared with a lower rated and/or longer remaining term asset. If we were to take an AA rated
asset with remaining term of 25 years in normal market conditions this would lead to a 15bps yield flex (as opposed to a 35bps yield flex for a BBB
rated asset with 30 year remaining term). The methodology which leads to the most significant sensitivity at the balance sheet date is related to an
example in case law where it was found that an acceptable margin of error in a valuation dispute is 10% either way, subject to the valuation being
undertaken with due care. If this sensitivity were to be taken without a weighting it would produce sensitised values of £594m and £(594)m.
It should be noted that some sensitivities described above are non-linear, and larger or smaller impacts should not be interpolated or extrapolated
from these results.
(iii) Interest rate benchmark reform
GBP LIBOR was replaced by SONIA from the end of 2021, and USD LIBOR was replaced by SOFR at the end of June 2023. Euribor will remain but will
be administered by the Euro Money Markets Institute (EMMI).
The Group transitioned away from GBP LIBOR by 31 December 2021, with only a few remaining cross currency positions which matured and rolled
off in March 2022. As at 31 December 2023, a residual amount of fixed to floating-rate notes remain. The issuers are either planning to call these
before they convert to floating or the floating rate will be amended via the consent solicitation process. The transition away from USD LIBOR
completed ahead of June 2023.
188
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Financial statements
Strategic report
Governance
Financial statements
Other information
12 Derivative assets and liabilities
The Group uses derivatives as a component of efficient portfolio management. This includes, but is not limited to, hedging economic exposure to
foreign currencies, interest rates, inflation and credit risks. The Group uses hedge accounting, provided the prescribed criteria in IFRS 9, ‘Financial
Instruments’ are met, to recognise the offsetting effects of changes in the fair value or cash flow of the derivative instrument and the hedged item.
Cross currency swap contracts – cash flow hedges
The Group has entered into fixed rate borrowings denominated in USD and is therefore exposed to foreign exchange and interest rate risks. In order
to hedge these risks the Group has entered into cross currency interest rate swaps, enabling the exposure to be swapped into a fixed rate in its
functional currency. These had a net asset fair value totalling £21m (2022: £115m) and a notional amount of £1,099m at 31 December 2023
(2022: £1,099m). There was no ineffectiveness recognised in the income statement in respect of these hedges during 2023.
Other derivative contracts – held for trading
The Group uses certain derivative contracts which are effective hedges of economic exposures in accordance with the Group’s risk management
policy, but for various reasons are not designated within a formal hedge accounting relationship. Therefore, these contracts must be designated as
held for trading, and gains and losses on these contracts are recognised immediately in the Consolidated Income Statement.
Shareholder derivatives
Interest rate contracts – held for trading
Forward foreign exchange contracts – held for trading
Currency swap contracts – held for trading
Currency swap contracts – cash flow hedges
Inflation swap contracts – held for trading
Inflation rate contracts – held for trading
Credit derivatives – held for trading
Equity/index derivatives – held for trading
Other derivatives – held for trading
Total shareholder derivatives
Unit linked derivatives
Interest rate contracts – held for trading
Forward foreign exchange contracts – held for trading
Credit derivatives – held for trading
Inflation swap contracts – held for trading
Inflation rate contracts – held for trading
Equity/index derivatives – held for trading
Other derivatives – held for trading
Total unit linked derivatives
Total derivative assets and liabilities
Fair values
Fair values
Assets1
2023
£m
Liabilities2
2023
£m
Assets1
2022
£m
Liabilities2
2022
£m
31,411
33,580
35,630
37,684
26
1,624
24
4,704
96
–
1
133
7
1,750
3
4,827
30
21
3
278
49
1,103
115
4,964
–
–
6
44
3,004
–
5,092
–
3
8
111
270
38,019
40,499
41,978
46,105
1,133
815
7
170
–
969
27
3,121
41,140
335
420
16
143
2
2,221
185
3,322
43,821
48
798
6
2,423
–
144
30
3,449
45,427
255
1,344
12
3,271
–
174
29
5,085
51,190
1. Derivative assets are reported in the Consolidated Balance Sheet within Financial investments and investments property (Note 11).
2. Derivative liabilities are reported in the Consolidated Balance Sheet within Payables and other financial liabilities (Note 24).
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
189
Balance sheet management
continued
12 Derivative assets and liabilities continued
The contractual undiscounted cash flows in relation to non-unit linked derivatives have the following maturity profile. Unit linked derivatives have not
been included as shareholders are not directly exposed to liquidity risks.
As at 31 December 2023
Cash inflows
Shareholder derivatives
Derivative assets
Derivative liabilities
Total
Cash outflows
Shareholder derivatives
Derivative assets
Derivative liabilities
Total
Net cash flows
As at 31 December 2022
Cash inflows
Shareholder derivatives
Derivative assets
Derivative liabilities
Total
Cash outflows
Shareholder derivatives
Derivative assets
Derivative liabilities
Total
Net cash flows
Maturity profile of undiscounted cash flows
Fair
values
£m
Within
1 year
£m
1-5 years
£m
5-15 years
£m
15-25 years
£m
Over
25 years
£m
Total
£m
38,019
(40,499)
(2,480)
17,833
9,304
27,137
35,787
21,883
57,670
47,562
30,447
78,009
21,119
16,349
37,468
11,069
10,039
21,108
133,370
88,022
221,392
38,019
(40,499)
(2,480)
(13,483)
(15,136)
(28,619)
(1,482)
(27,576)
(33,435)
(61,011)
(3,341)
(35,293)
(45,924)
(81,217)
(3,208)
(16,054)
(22,714)
(38,768)
(1,300)
(8,684)
(101,090)
(13,121)
(130,330)
(21,805)
(231,420)
(697)
(10,028)
Maturity profile of undiscounted cash flows
Fair
values
£m
Within
1 year
£m
1-5 years
£m
5-15 years
£m
15-25 years
£m
Over
25 years
£m
Total
£m
41,978
(46,105)
(4,127)
13,014
12,562
25,576
32,933
19,268
52,201
40,608
28,167
68,775
17,202
12,032
29,234
10,783
6,986
17,769
114,540
79,015
193,555
41,978
(46,105)
(4,127)
(9,050)
(17,532)
(26,582)
(1,006)
(19,698)
(35,466)
(55,164)
(2,963)
(25,866)
(46,948)
(72,814)
(4,039)
(11,688)
(18,626)
(30,314)
(1,080)
(8,073)
(74,375)
(10,095)
(128,667)
(18,168)
(203,042)
(399)
(9,487)
Future cash flows on the floating legs of interest rate and exchange derivatives are calculated using current spot rates, which may differ from the
market expectation incorporated in the fair value.
Cash flows arising from implied events covered by credit derivatives are presented in the tables above on an expected basis as cash flows within
one year.
Cash inflows or outflows are presented on a net basis where the Group is required to settle net or has a legally enforceable right of offset and the
intention is to settle on a net basis.
190
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Financial statements
Strategic report
Governance
Financial statements
Other information
13 Receivables and other assets
Receivables under finance leases
Accrued interest and rent
Prepayments and accrued income
Inventories1
Contract assets2
Other receivables3
Total receivables and other assets
Due within 12 months
Due after 12 months
Notes
13(i)
2023
£m
530
655
396
1,932
156
6,111
9,780
8,200
1,580
Restated
2022
£m
192
550
384
1,973
188
9,922
13,209
11,397
1,812
Inventories represent house building stock including land, options on land, work in progress and other inventory.
1.
2. Contract assets represent the entity’s right to consideration in exchange for goods or services that have been transferred to a customer.
3. Other receivables include amounts receivable from brokers and clients for investing activities, collateral pledges, unsettled cash, FX spots and other sundry balances.
(i) Receivables under finance leases
The Group acts as a lessor of certain finance leases, which have a weighted average duration to maturity of 35 years as at 31 December 2023
(2022: 31 years). The counterparties, as lessee, are regarded to be the economic owner of the leased assets.
The future minimum lease payments under the arrangement, together with the present value, are disclosed below:
Total
future
payments
2023
£m
Unearned
interest
income
2023
£m
Present
value
2023
£m
Total
future
payments
2022
£m
Unearned
interest
income
2022
£m
Within 1 year
1-2 years
2-3 years
3-4 years
4-5 years
After 5 years
Total
14 Cash and cash equivalents
Cash at bank and in hand
Cash equivalents
Total cash and cash equivalents
Cash at bank and in hand
Cash equivalents
Total cash and cash equivalents
32
32
32
31
31
961
1,119
(25)
(25)
(25)
(24)
(24)
(466)
(589)
7
7
7
7
7
495
530
12
12
12
12
12
266
326
Shareholder
2023
£m
1,026
3,209
4,235
Shareholder
2022
£m
942
3,892
4,834
(7)
(7)
(7)
(7)
(7)
(99)
(134)
Unit
linked
2023
£m
1,918
14,360
16,278
Unit
linked
2022
£m
1,101
29,849
30,950
Present
value
2022
£m
5
5
5
5
5
167
192
Total
2023
£m
2,944
17,569
20,513
Total
2022
£m
2,043
33,741
35,784
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
191
Balance sheet management
continued
15 Market risk
(i) Investment performance risk
(a) Equity securities
The Group controls its exposure to geographic price risks by using internal country risk exposure limits. These exposure limits are based on
macroeconomic data and key qualitative indicators. The latter take into account economic, social and political environments. The table below
indicates the Group’s exposure to different equity markets around the world. Unit linked equity investments are excluded from the table as the risk is
retained by the policyholder.
Exposure to worldwide equity markets
United Kingdom
North America
Europe
Japan
Asia Pacific
Other
Listed equities
Unlisted equities1
Holdings in unit trusts2
Total equities
2023
£m
130
231
326
10
74
31
802
958
1,406
3,166
2022
£m
171
176
375
18
99
46
885
765
1,421
3,071
1. Unlisted equities are split between £582m (2022: £532m) United Kingdom, £319m (2022: £211m) Europe and £57m (2022: £22m) North America.
2. Limited Partnerships are included within Holdings in unit trusts.
(b) Debt securities
The Group controls its exposure to geographic price risks by using internal country credit ratings. These ratings are based on macroeconomic
data and key qualitative indicators. The latter take into account economic, social and political environments. The table below indicates the Group’s
exposure to different debt security markets around the world. Unit linked debt securities are excluded from the table as the risk is retained by
the policyholder.
Total debt securities
United Kingdom
USA
Netherlands
France
Germany
GIIPS:
– Ireland
– Italy
– Spain
Belgium
Rest of Europe
Brazil
Rest of World
Collateralised debt obligations1
Total
1. All CDOs of £54m (2022: £52m) are domiciled in the Rest of World.
Total
2023
£m
37,273
29,012
2,206
1,397
277
Restated
Total
2022
£m
32,301
26,750
1,864
921
238
2,066
1,656
68
246
504
1,998
2
6,227
54
81,330
30
202
298
1,949
2
5,510
52
71,773
192
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
2023
£m
11,869
2023
%
15
Restated
2022
£m
8,244
Restated
2022
%
12
21
125
6,751
106
158
2,146
9
238
988
3,109
7,313
2,441
6,524
5,610
4,829
1,328
–
–
8
–
–
3
–
–
1
4
9
3
8
7
6
2
1
152
4,477
114
209
1,448
–
267
941
3,187
7,069
2,308
5,801
5,217
4,405
1,464
10,464
13
10,836
1,597
885
1,517
4,451
3,031
5,766
54
2
1
2
5
4
7
–
1,195
999
1,717
4,105
2,721
4,844
52
–
–
6
–
–
2
–
–
1
5
10
3
8
7
6
2
15
2
1
3
6
4
7
–
81,330
100
71,773
100
2023
£m
8,790
1,696
40
52
84
425
–
248
534
Restated
2022
£m
5,261
1,754
31
106
95
187
6
189
615
11,869
8,244
(c) Additional disclosures on shareholder securities exposure
Sovereigns, supras and sub-sovereigns
Banks:
– Tier 1
– Tier 2 and other subordinated
– Senior
– Covered
Financial services:
– Tier 2 and other subordinated
– Senior
Insurance:
– Tier 1
– Tier 2 and other subordinated
– Senior
Consumer services and goods:
– Cyclical
– Non-cyclical
– Healthcare
Infrastructure:
– Social
– Economic
Technology and telecoms
Industrials
Utilities
Energy
Commodities
Oil and gas
Real estate
Structured finance ABS/RMBS/CMBS/Other
Lifetime mortgage loans
Collateralised debt obligations
Total
Analysis of sovereigns, supras and sub-sovereigns
Market value by region
United Kingdom
USA
Netherlands
France
Germany
Ireland
Belgium
Rest of Europe
Rest of World
Total
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
193
Balance sheet management
continued
15 Market risk continued
(ii) Currency risk
The Group has minimal exposure to currency risk from financial instruments held by business units in currencies other than their functional
currencies, nearly all such holdings are either backing insurance contracts in the same currency or are hedged back to GBP.
The Group operates internationally and as a result is exposed to foreign currency exchange risk arising from fluctuations in exchange rates of various
currencies. The largest United States dollar currency exposures relate to the Group’s US business, Legal & General America. The majority of currency
exposures relating to euros are held by Legal & General Investment Management (Europe) Limited, a subsidiary of Legal & General Investment
Management (Holdings) Limited. The Group does not hedge foreign currency revenues as these are substantially retained locally to support the
growth of the Group’s business and meet local regulatory and market requirements.
Businesses aim to maintain sufficient assets in local currency to meet local currency liabilities, however movements may impact the value of the
Group’s consolidated shareholders’ equity which is expressed in sterling. This aspect of foreign exchange risk is monitored and managed centrally,
against pre-determined limits. These exposures are managed by aligning the deployment of regulatory capital by currency with the Group’s
regulatory capital requirements by currency. Currency borrowings and derivatives may be used to manage exposures within the limits that have been
set.
As at 31 December 2023, the Group held net liabilities of £0.5bn (2022: net liabilities of £4.4bn) of its total equity attributable to shareholders in
currencies, mainly United States dollar and euro, other than the functional currency of the relevant business unit. The exchange risks inherent in
these exposures may be mitigated through the use of derivatives, mainly forward currency contracts.
Consistent with the Group’s accounting policies, the profits of overseas business units (reported as functional currencies) are translated at average
exchange rates and the net assets (reported as functional currencies) at the closing rate for the reporting period. A 10% increase (weakening of
foreign currencies) or decrease (strengthening of foreign currencies) in these rates would increase or reduce the profit for the year and net assets
as follows:
Profit for the year1
Net assets attributable to USD exposures1
Profit for the year1
Net assets attributable to EUR exposures1
A 10% increase in
USD:GBP exchange rate
A 10% decrease in
USD:GBP exchange rate
2023
£m
4
20
Restated
2022
£m
–
377
2023
£m
(6)
(24)
Restated
2022
£m
(1)
(460)
A 10% increase in
EUR:GBP exchange rate
A 10% decrease in
EUR:GBP exchange rate
2023
£m
–
1
Restated
2022
£m
–
91
2023
£m
–
(2)
Restated
2022
£m
–
(111)
1. Profit for the year impacts relate only to overseas business units where the functional currency is not sterling. Net asset impacts include both functional currency and non-functional
currency exposures.
194
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
16 Credit risk
The Group’s exposure to credit risk arises from its offering of insurance and investment products. The investments of shareholders’, policyholders’
and segregated clients’ monies require credit risks to be taken, as well as the hedging of insurance (including reinsurance) and other financial risks.
Oversight of credit risk management has been delegated by the Board to the Group Risk Financial Risk Committee (GRFRC), the remit of which
includes proposing the Group’s appetite for credit risk in aggregate, and by issuers, sectors, and geography, and monitoring actual exposures relative
to appetite. The GRFRC also considers credit risk implicit in new asset classes and corporate transactions, and advises on appropriate counterparty
risk tolerances. The Group controls its exposure to counterparty credit risk through defining the minimum financial strength of the counterparties
with which it will deal and setting exposure tolerances for these counterparties, which are monitored and reviewed by operational management on
a counterparty-by-counterparty basis.
The credit profile of the Group’s assets exposed to credit risk is shown below. This includes both externally and internally rated positions. Unit linked
assets have not been included as shareholders are not directly exposed to the associated credit risk. Additionally, assets such as equity securities,
deferred acquisition costs and tax have no exposure to the associated credit risk and therefore have also been excluded.
For externally rated assets, the credit rating bands are provided by independent rating agencies. Unrated traded instruments are assigned a rating
through a portfolio review process or through a committee, depending on complexity. Certain assets require an internal rating even when an external
rating is already available, if these constitute material traded exposures or are complex securitisations or direct investments. In these cases, internal
ratings are assigned by either the LGIM Direct Investment rating team or the asset management firm that originated the transaction.
The carrying amount of the financial assets recorded in the financial statements represents the maximum exposure to credit risk before taking
account of collateral held. Collateral is held to mitigate credit risk exposures, by virtue of transactions in long-dated derivatives and stock lending
activities.
Shareholder
As at 31 December 2023
Government securities
Other fixed rate securities
Variable rate securities
Lifetime mortgages
Accrued interest
Total debt securities
Loans
Derivative assets
Cash and cash equivalents
Reinsurance contract assets
Other assets
Total
As at 31 December 2022 (Restated)
Notes
Government securities
Other fixed rate securities
Lifetime mortgages
Variable rate securities
Accrued interest
Total debt securities
Loans
Derivative assets
Cash and cash equivalents
Reinsurance contract assets
Other assets
Total
12
14
Notes
12
14
AAA
£m
242
2,083
471
–
24
AA
£m
8,141
7,080
2,734
4,835
113
2,820
22,903
–
–
985
–
15
183
35
805
4,163
253
A
£m
253
24,206
4,039
504
240
29,242
893
37,332
1,886
2,551
237
BBB
£m
98
21,646
3,328
402
283
25,757
–
–
115
256
116
BB and
below
£m
1
299
133
–
4
437
–
1
–
–
2
3,820
28,342
72,141
26,244
440
AAA
£m
1,460
2,104
3,246
491
33
AA
£m
3,723
6,072
824
2,375
85
A
£m
207
BBB
£m
105
19,855
21,968
428
3,648
220
336
3,276
306
7,334
13,079
24,358
25,991
–
1
412
–
144
303
29
2,214
3,829
355
318
38,829
1,583
648
666
47
2,938
77
1
67
BB and
below
£m
8
706
–
186
7
907
9
1
–
–
1
7,891
19,809
66,402
29,121
918
Other
£m
1
141
2
25
2
171
536
651
444
336
6,050
8,188
Other
£m
2
79
10
12
1
104
396
180
548
235
6,159
7,622
Total
£m
8,736
55,455
10,707
5,766
666
81,330
1,612
38,019
4,235
7,306
6,673
139,175
Total
£m
5,505
50,784
4,844
9,988
652
71,773
1,073
41,978
4,834
4,713
7,392
131,763
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
195
Balance sheet management
continued
16 Credit risk continued
Impairment
The table below shows a stage allocation and credit risk rating of the carrying value of the Group’s financial investments measured at FVOCI and
amortised cost, as well as the carrying value of any loss allowances on these financial investments split by stage. As at 31 December 2023, the
Group did not have any purchased or originated credit-impaired financial investments (2022: no purchased or originated credit-impaired financial
investments). Other financial assets at amortised cost are predominantly unrated Other receivables with an immaterial loss allowance (2022:
immaterial loss allowance).
FVOCI
Shareholder
AAA
AA
A
BBB
BB and below
Other
Total gross
ECL
Amortised cost
Shareholder
AAA
AA
A
BBB
BB and below
Other
Total gross
ECL
Total net amount
12-month ECL
2023
£m
Lifetime ECL
2023
£m
54
1,802
111
55
–
–
2,022
(5)
–
–
–
–
–
–
–
–
Total
2023
£m
54
1,802
111
55
–
–
2,022
(5)
12-month ECL
2022
£m
Lifetime ECL
2022
£m
203
70
125
81
–
–
479
(3)
–
–
–
–
–
–
–
–
12-month ECL
2023
£m
Lifetime ECL
2023
£m
Total
2023
£m
12-month ECL
2022
£m
Lifetime ECL
2022
£m
253
530
3,478
3,647
18
12
7,938
(25)
7,913
–
–
–
113
25
–
138
(6)
132
253
530
3,478
3,760
43
12
8,076
(31)
8,045
271
518
2,957
3,993
27
–
7,766
(29)
7,737
–
–
–
115
–
–
115
(6)
109
Total
2022
£m
203
70
125
81
–
–
479
(3)
Total
2022
£m
271
518
2,957
4,108
27
–
7,881
(35)
7,846
The following table explains the changes in the loss allowance for the above securities between the beginning and the end of the annual period.
FVOCI
Shareholder
As at 1 January
New assets originated or purchased
Assets derecognised or matured
Transfers between 12-month ECL and Lifetime ECL
Remeasurements
As at 31 December
Amortised cost
Shareholder
As at 1 January
New assets originated or purchased
Assets derecognised or matured
Transfers between 12-month ECL and Lifetime ECL
Remeasurements
As at 31 December
12-month ECL
2023
£m
Lifetime ECL
2023
£m
Total
2023
£m
12-month ECL
2022
£m
Lifetime ECL
2022
£m
Total
2022
£m
3
4
–
–
(2)
5
–
–
–
–
–
–
3
4
–
–
(2)
5
1
–
–
–
2
3
–
–
–
–
–
–
12-month ECL
2023
£m
Lifetime ECL
2023
£m
Total
2023
£m
12-month ECL
2022
£m
Lifetime ECL
2022
£m
29
1
(4)
(1)
–
25
6
–
(1)
1
–
6
35
1
(5)
–
–
31
29
–
–
–
–
29
5
–
–
–
1
6
1
–
–
–
2
3
Total
2022
£m
34
–
–
–
1
35
196
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
Offsetting
Financial assets and liabilities are offset in the Consolidated Balance Sheet when the Group has a legally enforceable right to offset and has the
intention to settle the asset and liability on a net basis, or to realise the asset and liability simultaneously.
The Group has not entered into any financial transactions resulting in financial assets and liabilities being offset in the Consolidated Balance Sheet.
The table below shows the financial assets and liabilities that are subject to master netting agreements in shareholder assets and liabilities. Unit
linked assets and liabilities have not been included as shareholders are not exposed to the risks on these policies.
As at 31 December 2023
Derivative assets
Reverse repurchase agreements
Total
Derivative liabilities
Repurchase agreements
Total
As at 31 December 2022
Derivative assets
Reverse repurchase agreements
Total
Derivative liabilities
Repurchase agreements
Total
Amounts subject to enforceable netting arrangements
Amounts under master netting arrangements
but not offset
Related
financial
instruments1
£m
(37,172)
–
(37,172)
37,172
–
37,172
Cash
collateral2
£m
(790)
–
(790)
1,385
–
1,385
Securities
collateral
pledged2
£m
(57)
(1,599)
(1,656)
1,942
2,456
4,398
Amounts subject to enforceable netting arrangements
Amounts under master netting arrangements
but not offset
Related
financial
instruments1
£m
(40,999)
–
(40,999)
40,999
–
40,999
Cash
collateral2
£m
(924)
–
(924)
2,212
–
2,212
Securities
collateral
pledged2
£m
(55)
(1,072)
(1,127)
2,894
837
3,731
Gross and
net amounts
reported in the
Consolidated
Balance
Sheet
£m
38,019
1,599
39,618
(40,499)
(2,456)
(42,955)
Gross and
net amounts
reported in the
Consolidated
Balance
Sheet
£m
41,978
1,072
43,050
(46,105)
(837)
(46,942)
Net
amount
£m
–
–
–
–
–
–
Net
amount
£m
–
–
–
–
–
–
1. Related financial instruments represents outstanding amounts with the same counterparty which, under agreements such as the ISDA Master Agreement, could be offset and settled
net following certain predetermined events.
2. Cash and securities held may exceed target levels due to the complexities of operational collateral management, timing and agreements in place with individual counterparties.
In the tables above, the amounts of assets or liabilities presented in the Consolidated Balance Sheet are offset first by financial instruments that
have the right of offset under master netting or similar arrangements with any remaining amount reduced by cash and securities collateral.
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
197
Balance sheet management
continued
17 Insurance risk
The Group is exposed to insurance risk as a consequence of offering the principal products outlined in Note 6. Insurance risk is the exposure to loss
arising from insurance risk experience being different to that anticipated. Detailed below are the insurance risks associated with each of the Group’s
segments along with the mitigating controls operated. They are applicable to all stated products across the Group.
Principal risks
Division
Controls to mitigate risks
Longevity, mortality & morbidity risks
For contracts providing death benefits, higher
mortality rates would lead to an increase in
claims costs. The cost of health related claims
depends on both the incidence of policyholders
becoming ill and the duration over which they
remain ill. Higher than expected incidence or
duration would increase costs over the level
currently assumed in the calculation of liabilities.
For annuity contracts, the Group is exposed to
the risk that mortality experience is lower than
assumed. Lower than expected mortality would
require payments to be made for longer and
increase the cost of benefits provided. Lifetime
mortgage business also explicitly has some
exposure to the life expectancy of borrowers.
Persistency risk
In the early years of a policy, lapses may result
in a loss to the Group, as the acquisition costs
associated with the contract would not have
been recovered from product margins.
Expense risk
In pricing long-term insurance business,
assumptions are made as to the future cost
of product servicing. A significant adverse
divergence in actual expenses experience
could reduce product profitability.
Retail
LGRI and Retail
The pricing of protection business is based on assumptions as to future trends in mortality
and morbidity having regard to past experience. Underwriting criteria are defined setting
out the risks that are unacceptable and the terms for non-standard risks presented by the
lives to be insured. Extensive use of reinsurance is made within the UK retail protection
business, placing a proportion of all risks meeting prescribed criteria. Mortality and
morbidity experience is compared to that assumed within the pricing basis with variances
subject to actuarial investigation.
Annuity business is priced having regard to trends in improvements in future mortality.
Enhanced annuities, which are priced taking account of impairments to life expectancy,
are subject to specific underwriting criteria. Certain annuitant mortality risks, including
enhanced annuities, are placed with reinsurers. The Group regularly reviews its mortality
experience and industry projections of longevity and adjusts the pricing and valuation
assumptions accordingly. In pricing lifetime mortgage business, account is taken of trends
in mortality rates in setting the amounts that are advanced to borrowers relative to the
value of the property on which the loan is secured.
Retail
The pricing and valuation assumptions for protection business include provision for policy
lapses. Actual trends in policy lapse rates are monitored against these assumptions with
variances being subject to actuarial investigation.
LGRI and Retail
In determining pricing assumptions, account is taken of expected price and wage inflation,
with stress testing used to evaluate the effect of significant deviations. Actual product
servicing costs are monitored relative to the costs assumed with the product pricing basis,
with variances investigated.
Concentration (catastrophe) risk
Insurance risk may be concentrated in geographic
regions, altering the risk profile of the Group. The
most significant exposure of this type arises for
group protection business, where a single event
could result in a large number of related claims.
Epidemic (catastrophe) risk
The spread of an epidemic could cause large
aggregate claims across the Group’s portfolio
of protection businesses.
Retail
Retail
Group protection business contracts include an ‘event limit’ capping the total liability under
the policy from a single event. Excess of loss reinsurance further mitigates loss from the
exposure. Additionally, exposure by location is monitored to ensure there is a geographic
spread of risk. Catastrophe reinsurance cover also mitigates loss from concentrations
of risk.
The pricing basis for protection business includes an assessment of potential claims as a
result of epidemic risks. Quota share and excess of loss reinsurance contracts are used by
individual and group protection, respectively, to further mitigate the risk. Depending on the
nature of an epidemic, mortality experience may lead to a reduction in the cost of claims
for annuity business. Pricing for new business can also be updated to reflect the change in
expected claims.
Accumulation of risks
There is limited potential for single incidents to give rise to a large number of claims across the different contract types written by the Group.
However, there are potentially material correlations of insurance risk with other types of risk exposure. The Group’s capital model seeks to measure
risk correlations particularly those that would tend to be more acute as the underlying risk scenarios become more extreme. An example of the
accumulation of risk is the correlation between reinsurer credit risk with mortality and morbidity exposures.
Operational risk
Operational risk is defined as loss arising from inadequate or failed internal processes, people, systems or external events. Potential for exposure
to such risk extends to all of the Group’s businesses. The Group has constructed a framework of internal controls to minimise material loss from
operational risk events recognising that no system of internal control can completely eliminate the risk of error, financial loss, fraudulent action or
reputational damage.
198
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
18 Long-term insurance valuation assumptions
The Group’s insurance assumptions, described below, relate to the UK insurance (both annuities and protection) business and material lines of the
US insurance (both annuities and protection) business. Other non-UK businesses do not constitute a material component of the Group’s operations
and consideration of geographically determined assumptions is therefore not included.
For the purpose of producing IFRS 17 best estimate liabilities, the Group seeks to make best estimate assumptions about future experience based
on current market conditions and recent experience.
31 December 2022 assumptions have been rebased to those used for the preparation of IFRS 17 comparatives and hence differ from the IFRS 4
assumptions published in the 2022 Annual report and accounts.
(i) Mortality and morbidity
Mortality and morbidity assumptions for the UK business are set with reference to standard tables drawn up by the Continuous Mortality
Investigation Bureau (CMI), a subsidiary of the Institute and Faculty of Actuaries, and/or UK death registrations. US assumptions are set with
reference to standard tables drawn up by the American Academy of Actuaries. Tables are based on industry-wide mortality and morbidity
experience for insured lives.
The Group conducts statistical investigations of its mortality and morbidity experience, the majority of which are carried out at least annually.
Investigations determine the extent to which the Group’s experience differs from that underpinning the standard tables, and suggest appropriate
adjustments which need to be made to the valuation assumptions. In particular, the recent mortality experience observed as a result of Covid-19
and industry studies on its potential endemic effects have been used to derive appropriate adjustments to the assumptions.
In most cases, mortality rates are set separately for gender and smoker status, and the percentage of mortality table will vary for the first 2 – 5 years
of the policy’s duration to allow for underwriting selection.
Mortality tables
Non-linked individual assurance business
UK term assurances1
UK term assurances with terminal illness1
UK term assurances with critical illness2
US term assurances3
Whole of Life Protection Plan4
Whole of Life over 504
Annuity business
UK Annuities in deferment5
UK Vested annuities6
Pension risk transfer
Other annuities
US annuities7
2023
Restated
2022
90% TM08/TF08
74% – 86% TM08/TF08 Sel 5
91% – 135% ACL08 Sel 2
Adjusted SOA 2014 VBT
90% – 92% TM08/TF08 Sel 5
58% – 86% TM08/TF08 Sel 5
89% – 132% ACL08 Sel 2
Adjusted SOA 2014 VBT
Bespoke Tables based on TM08/TF08 and UK
death registrations
Bespoke Tables based on TM08/TF08 and UK
death registrations
Bespoke Tables based on ELT15 and
Whole of Life Protection Plan assumptions
Bespoke Tables based on ELT15 and
Whole of Life Protection Plan assumptions
95.6% – 95.3% PMA16_PBO/PFA16_PBO
75.7% – 85.6% PNMA00/PNFA00
95.6% – 95.3% PMA16_PBO/PFA16_PBO
75.7% – 85.6% PCMA00/PCFA00
79.0% – 131.6% PMA16_PBO/PFA16_PBO
66.4% – 105.5% PCMA00/PCFA00
RP-2014 Healthy Annuitant Total table
RP-2014 Healthy Annuitant Total table
Improvement assumptions applied of 1.0% p.a. for males and females (2022: 1.0% p.a. for males and females).
1.
2. Morbidity rates are assumed to deteriorate at a rate of 0.50% p.a. for males and 0.75% p.a. for females (2022: 0.50% p.a. for males and 0.75% p.a. for females).
3. Adjustments are made for gender, select period, smoker status, policy size, policy duration and year, issue year, age, and calendar year.
4. Mortality rates are assumed to reduce based on CMI 2021 model with a long-term annual improvement rate of 1.75% for males and 1.25% for females (2022: Mortality rates are
assumed to reduce based on CMI 2020 model with a long-term annual improvement rate of 1.5% for males and 1.0% for females).
5. Table for male is created by using PMA16_PBO and for female it is PFA16_PBO (2022: PCXA00 and PNXA00). These tables are used for both immediate and deferred annuities.
6. Mortality rates are assumed to reduce according to an adjusted version of the mortality improvement model CMI 2021 (2022: CMI 2020) with the following parameters:
Males: Long-term Rate of 1.75% p.a. up to age 85 tapering to 0% at 110 (2022: Long-term Rate of 1.50% p.a. up to age 85 tapering to 0% at 110).
Females: Long-term Rate of 1.25% p.a. up to age 85 tapering to 0% at 110 (2022: Long-term Rate of 1.00% p.a. up to age 85 tapering to 0% at 110).
Smoothing is applied to derive initial rates using a smoothing parameter (Sk) value of 7.5 applied to Legal & General bespoke population data to 2021. The resulting initial rates are then
adjusted to reflect socioeconomic class (2022: smoothing parameter (Sk) value of 7.5 applied to Legal & General bespoke population data to 2020).
For individual annuities distributed through retail channels, a further allowance is made for the effect of initial selection.
For the finalised improvements, an overlay is applied to the CMI 2021 output by zeroising improvers for 2020, 2021 and 2022 for male and female (2022: no zeroisation).
The basis above is applicable up to age 90. After age 90 the basis is blended towards a bespoke table from age 105 onwards.
7. Mortality rates are assumed to reduce according to an adjusted version of the mortality improvement model CMI 2021 (2022: MP2018 for females and MP2019 for males).
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
199
Balance sheet management
continued
18 Long-term insurance valuation assumptions continued
(ii) Valuation rates of interest and discount rates
The interest rates used to discount the cash flows for the purpose of valuing insurance contract liabilities should reflect the timing and liquidity
characteristics of the insurance liability cash flows and current market conditions. The valuation interest rate assumptions are derived as interest
rate curves with full term structure.
In deriving the liquidity premium assumptions for annuity business, an explicit allowance for risk is deducted from the yield on the assets backing
annuity liabilities. The allowance for risk comprises long-term assumptions about defaults and the market risk premiums for taking credit risk.
In the case of lifetime mortgage assets a best estimate expectation of losses arising from the No Negative Equity Guarantee, and the market risk
premiums for this risk are deducted from the yield. For the UK annuity business, the deduction for risk of default for corporate bonds and direct
investments equated to 40bps (2022: 42bps). For lifetime mortgages the deductions equated to £0.4bn (2022: £0.3bn).
For US and UK protection business, the yield is calculated based on notional asset portfolios of AA rated corporate bonds and cash, which reflect
the characteristics of the liability cash flows. An explicit allowance is deducted from the yield to reflect the default risk associated with the notional
portfolio assets.
The discount rate curves used for material product lines are shown below. The discount rate curves are used to discount the cash flows on the
underlying contracts and any associated reinsurance cash flows. The graph displays the underlying spot rates:
31 December 2023 Discount Rates
e
t
a
R
7%
6%
5%
4%
3%
2%
0
10
20
30
Years ahead
40
50
60
31 December 2022 Discount Rates
e
t
a
R
7%
6%
5%
4%
3%
2%
0
10
20
30
Years ahead
40
50
60
● GBP Risk-free ● Annuity GBP ● Protection GBP ● USD Risk-free ● Annuities USD ● Protection USD
200
Legal & General Group Plc Annual report and accounts 2023
Financial statements
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(iii) Persistency
The Group monitors its persistency experience and carries out detailed investigations annually. Persistency experience can be volatile and past
experience may not be an appropriate future indicator. The Group tries to balance past experience and potential future conditions in setting
assumptions about expected long-term average persistency levels.
Lapse Rates
UK Level term
UK Decreasing term
UK Accelerated critical illness cover
Whole of Life (conventional non profit)
US term – 10 year guarantee period
US term – 15 year guarantee period
US term – 20 year guarantee period
US term – 30 year guarantee period
US Universal Life
2023
Restated
2022
2.0% – 30.0%
2.0% – 29.1%
4.1% – 14.7%
4.4% – 15.0%
3.2% – 31.3%
3.2% – 31.5%
0.6% – 10.0%
0.6% – 8.5%
7.1% – 8.1%
7.1% – 8.1%
4.2% – 5.8%
4.2% – 5.8%
3.0% – 6.1%
3.0% – 6.1%
2.1% – 6.5%
2.1% – 6.5%
2.7%
2.7%
(iv) Expenses
The Group monitors its expense experience and carries out detailed investigations regularly to determine the expenses incurred in writing and
administering the different products and classes of business. Adjustments may be made for known future changes in the administration processes,
in line with the Group’s business plan, as well as for changes in allocations. An allowance for expense inflation in the future is also made in line with
RPI, taking account of both salary and price information.
(v) Risk Adjustment
The risk adjustment is the compensation that the Group requires for bearing the uncertainty about the amount and timing of the cash flows that
arises from non-financial risk. For the majority of risks, the Group’s view on the compensation required for non-financial risks is determined with
reference to an 85th percentile confidence level (2022: 85th percentile), calculated using a one-year Value-at-Risk (VaR) measure. This VaR measure
reflects the Group’s view on how non-financial risks behave (risk distributions), diversification of risks across the Group (risk correlations), and the
costs and benefits from reinsurance in place (risk mitigation). This is consistent with how risks are priced for and managed across the Group. Where
the Group has less appetite for a risk (and requires proportionally higher compensation) a higher confidence level is used. The calculation uses a
capital basis appropriate for the territory, the type of business, and how it is priced. A one percentile increase in the one-year confidence level would
increase the compensation targeted by c£50m.
We have estimated the equivalent confidence level for the entire Group on a multi-year basis, using a weighted average of the key risks. Overall the
Group risk adjustment as at 31 December 2023 is aligned to a c.75th percentile multi-year confidence level (2022: 75th percentile) over the full runoff
of the portfolio.
The Group calculates its Risk Adjustment at contract level using a Provision for Adverse Deviations (PADs) approach, where adjustments are applied
to best estimate non-financial risk assumptions to calculate the risk adjustment required over and above the best estimate liability for each contract.
These adjustments (that vary by risk) are calibrated such that the total Group Risk Adjustment calculated aligns to the Group’s view of compensation
for non-financial risks determined with reference to the 85th percentile (as described above) and the Risk Adjustment at contract level is
representative of the compensation required by the Group for that contract.
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
201
Balance sheet management
continued
19 IFRS sensitivity analysis
Economic sensitivity
Long-term insurance, other Group assets and obligations
100bps increase in interest rates
100bps decrease in interest rates
50bps increase in future inflation expectations
50bps decrease in future inflation expectations
Credit spreads widen by 100bps with no change in expected defaults
25% rise in equity markets
25% fall in equity markets
15% rise in property values
15% fall in property values
10bps increase in credit default assumptions
10bps decrease in credit default assumptions
Economic sensitivity (Restated)
Long-term insurance, other Group assets and obligations
100bps increase in interest rates
100bps decrease in interest rates
50bps increase in future inflation expectations
50bps decrease in future inflation expectations
Credit spreads widen by 100bps with no change in expected defaults
25% rise in equity markets
25% fall in equity markets
15% rise in property values
15% fall in property values
10bps increase in credit default assumptions
10bps decrease in credit default assumptions
Impact on
post-tax
Group profit
arising from
financial
assets
2023
£m
Impact on
Group equity
arising from
financial
assets
2023
£m
Impact on
post-tax
Group profit
arising from
insurance
contracts
2023
£m
Impact on
Group equity
arising from
insurance
contracts
2023
£m
Net impact on
post-tax
Group profit
2023
£m
Net impact on
Group equity
2023
£m
(5,909)
(6,151)
6,999
1,778
(1,620)
(4,193)
297
(297)
1,155
(1,276)
–
–
7,318
1,814
(1,652)
(4,216)
297
(297)
1,155
(1,276)
–
–
5,713
(6,919)
(1,831)
1,732
4,041
–
–
(25)
102
(494)
455
5,892
(7,147)
(1,801)
1,707
4,206
–
–
(25)
102
(514)
471
(196)
80
(53)
112
(152)
297
(297)
1,130
(1,174)
(494)
455
(259)
171
13
55
(10)
297
(297)
1,130
(1,174)
(514)
471
Impact on
post-tax
Group profit
arising from
financial
assets
2022
£m
Impact on
Group equity
arising from
financial
assets
2022
£m
Impact on
post-tax
Group profit
arising from
insurance
contracts
2022
£m
Impact on
Group equity
arising from
insurance
contracts
2022
£m
Net impact on
post-tax
Group profit
2022
£m
Net impact on
Group equity
2022
£m
(4,775)
(4,802)
5,706
1,345
(1,233)
(3,990)
317
(317)
1,032
(1,113)
(12)
12
5,737
1,346
(1,234)
(3,993)
317
(317)
1,032
(1,113)
(12)
12
4,715
(5,626)
(1,298)
1,232
3,735
–
–
53
(3)
(449)
423
4,876
(5,833)
(1,270)
1,207
3,885
–
–
53
(3)
(467)
438
(60)
80
47
(1)
(255)
317
(317)
1,085
(1,116)
(461)
435
74
(96)
76
(27)
(108)
317
(317)
1,085
(1,116)
(479)
450
202
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
Impact on
CSM
2023
£m
Impact on
post-tax
Group profit
2023
£m
Impact on
Group equity
2023
£m
352
181
(357)
(183)
(591)
(307)
(140)
(137)
(52)
(26)
52
27
(395)
(95)
(3)
(4)
(52)
(26)
52
27
(308)
(81)
1
1
Impact on
CSM
2022
£m
Impact on
post-tax
Group profit
2022
£m
Impact on
Group equity
2022
£m
323
168
(324)
(168)
(628)
(331)
(126)
(123)
(70)
(32)
70
32
(344)
(63)
–
–
(70)
(32)
70
32
(228)
(39)
6
6
Non-economic sensitivity
Long-term insurance
1% increase in annuitant mortality, gross of reinsurance
1% increase in annuitant mortality, net of reinsurance
1% decrease in annuitant mortality, gross of reinsurance
1% decrease in annuitant mortality, net of reinsurance
5% increase in assurance mortality, gross of reinsurance
5% increase in assurance mortality, net of reinsurance
10% increase in maintenance expenses, gross of reinsurance
10% increase in maintenance expenses, net of reinsurance
Non-economic sensitivity
Long-term insurance
1% increase in annuitant mortality, gross of reinsurance
1% increase in annuitant mortality, net of reinsurance
1% decrease in annuitant mortality, gross of reinsurance
1% decrease in annuitant mortality, net of reinsurance
5% increase in assurance mortality, gross of reinsurance
5% increase in assurance mortality, net of reinsurance
10% increase in maintenance expenses, gross of reinsurance
10% increase in maintenance expenses, net of reinsurance
The economic sensitivity tables above show the impacts on Group post tax profit and equity, net of reinsurance, under each sensitivity scenario.
The impacts on Group post tax profit and equity arising from financial assets and insurance contracts are also shown separately in the tables.
The economic sensitivity impacts cover long-term insurance business and other Group assets and obligations.
The non-economic sensitivity tables above show the impacts on CSM, Group post tax profit and equity, gross and net of reinsurance, under each
sensitivity scenario. The non-economic sensitivity impacts cover long-term insurance business only.
The Group impacts may arise from asset and/or liability movements under the sensitivities. The current disclosure reflects management’s view of
key risks in current economic conditions.
The stresses are assumed to occur on the balance sheet date. Both CSM and current year CSM release into profit are assumed to be affected when
non-financial assumptions are stressed.
In calculating the alternative values, all other assumptions are left unchanged. In practice, impacts of the Group’s experience may be correlated.
The sensitivity analyses do not take into account management actions that could be taken to reduce the impacts. The Group seeks to actively
manage its asset and liability position. A change in market conditions may lead to changes in the asset allocation or charging structure which may
have a more, or less, significant impact on the value of the liabilities. The analysis also ignores any second order effects of the assumption change,
including the potential impact on the Group asset and liability position and any second order tax effects.
The sensitivity of profit and equity to changes in assumptions may not be linear. They should not be extrapolated to changes of a much larger order.
The change in interest rate stresses assume a 100 basis point increase/decrease in the gross redemption yield on fixed interest securities together
with the same change in the real yields on variable securities. Interest rates used to discount liabilities are assumed to move in line with market
yields, adjusted to remove risks in the asset reference portfolios that are not present in the liabilities calculated in a manner consistent with the
base results.
The inflation stresses adopted are a 0.5% per annum (p.a.) increase/decrease in inflation, resulting in a 0.5% p.a. reduction/rise in real yield and no
change to the nominal yield. In addition, the expense inflation rate is increased/decreased by 0.5% p.a. The expense inflation assumptions are
non-financial and therefore recalibrate the CSM under the stresses. These recalibrations are reflected in the impacts shown.
In the sensitivity for credit spreads, corporate bond yields have increased by 100bps, government bond yields are unchanged, and there has been
no adjustment to the default assumptions. All lifetime mortgages are excluded, as their primary exposure is to property risk, and therefore captured
under the property stress.
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
203
Balance sheet management
continued
19 IFRS sensitivity analysis continued
The equity stresses are a 25% rise and 25% fall in listed equity market values.
The property stresses adopted are a 15% rise and 15% fall in property market values including lifetime mortgages. Where property is being used
to back liabilities, interest rates used to discount liabilities move with property yields, and so the value of the liabilities will also move.
The credit default assumption is set based on the credit rating of individual bonds and Moody’s historical transition matrices. The credit default
stress assumes a +/-10bps stress to the current credit default assumptions, which will have an impact on the interest rates used to discount
liabilities. Default allowances for assets deemed credit risk free are unchanged. All lifetime mortgages are excluded, as their primary exposure is
to property risk, and therefore captured under the property stress.
The annuitant mortality stresses are a 1% increase and 1% decrease in the mortality rates for immediate and deferred annuitants with no change
to the mortality improvement rates.
The assurance mortality stress is a 5% increase in the mortality and morbidity rates with no change to the mortality and morbidity improvement rates.
The maintenance expense stress is a 10% increase in all types of maintenance expenses in future years.
20 Insurance contract liabilities
(i) Insurance contract revenue and expenses
For the year ended 31 December 2023
Insurance revenue
Amounts relating to changes in liabilities for remaining coverage:
– CSM recognised for services provided
– Expected incurred claims and other insurance service expenses
– Change in the risk adjustment for non-financial risk for the risk expired
Recovery of insurance acquisition cash flows
Premium experience variance relating to past and current service
Total insurance revenue
Total insurance service expenses
Allocation of reinsurance premiums
Amounts recoverable from reinsurers for incurred claims
Net (expense)/income from reinsurance contracts held
Total insurance service result
For the year ended 31 December 2022
Insurance revenue
Amounts relating to changes in liabilities for remaining coverage:
– CSM recognised for services provided
– Expected incurred claims and other insurance service expenses
– Change in the risk adjustment for non-financial risk for the risk expired
Recovery of insurance acquisition cash flows
Premium experience variance relating to past and current service
Total insurance revenue
Total insurance service expenses
Allocation of reinsurance premiums
Amounts recoverable from reinsurers for incurred claims
Net (expense)/income from reinsurance contracts held
Total insurance service result
Annuities
£m
Protection
£m
Total
£m
943
5,278
371
19
1
6,612
(5,244)
(2,847)
2,415
(432)
936
225
2,597
16
132
42
3,012
(3,129)
(1,044)
1,339
295
178
1,168
7,875
387
151
43
9,624
(8,373)
(3,891)
3,754
(137)
1,114
Annuities
£m
Protection
£m
Total
£m
762
4,585
359
14
2
5,722
(4,576)
(2,323)
2,052
(271)
875
251
2,558
31
123
(2)
2,961
(2,921)
(803)
929
126
166
1,013
7,143
390
137
–
8,683
(7,497)
(3,126)
2,981
(145)
1,041
204
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
(ii) Insurance and reinsurance contracts
Insurance contracts issued
Annuities
Insurance contract balances
Assets for insurance contract acquisition cash flows1
Protection
Insurance contract balances
Assets for insurance contract acquisition cash flows1
Total insurance contracts issued2
Reinsurance contracts held
Annuities
Reinsurance contract balances
Assets for reinsurance contract acquisition cash flows1
Protection
Reinsurance contract balances
Assets for reinsurance contract acquisition cash flows1
Total reinsurance contracts held2
Assets
2023
£m
Liabilities
2023
£m
Assets
2022
£m
Liabilities
2022
£m
–
–
–
–
–
86,706
(18)
4,782
(24)
91,446
–
–
–
–
–
73,729
(20)
4,533
(28)
78,214
Assets
2023
£m
Liabilities
2023
£m
Assets
2022
£m
Liabilities
2022
£m
4,758
3
2,545
–
7,306
–
–
220
–
220
2,495
5
2,213
–
4,713
–
–
52
–
52
1. Assets for insurance and reinsurance acquisition cash flows are presented within the carrying amount of the related insurance and reinsurance contract liabilities.
2. £5,119m (2022: £5,122m) of the net insurance balance of £84,360m (2022: £73,553m) is expected to run off within 12 months.
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
205
Balance sheet management
continued
20 Insurance contract liabilities continued
(iii) Annuities – Insurance contracts issued
(a) Reconciliation of the liability for remaining coverage and the liability for incurred claims
Liability for
remaining coverage
Liability for
remaining coverage
Excluding loss
component
2023
£m
Loss
component
2023
£m
Liability for
incurred
claims
2023
£m
Excluding loss
component
2022
£m
Total
2023
£m
Loss
component
2022
£m
Opening insurance contract liabilities
Opening insurance contract assets
Net balance as at 1 January
Insurance revenue
Incurred claims and other insurance service
expenses
Amortisation of insurance acquisition
expenses
Changes that relate to past service
Losses and reversal of losses on onerous
contracts
Insurance service expenses
Insurance service result
Finance expenses/(income) from insurance
contracts
Effect of movements in exchange rates
Total amount recognised in comprehensive
income
Investment components
Cash flows
Premiums received
Claims and other directly attributable
expenses
Insurance acquisition cash flows
Total cash flows
Closing insurance contract liabilities
Closing insurance contract assets
Net balance as at 31 December
73,664
–
73,664
(6,612)
–
19
–
–
19
(6,593)
5,841
(328)
(1,080)
(399)
14,535
–
(90)
14,445
86,630
–
86,630
6
–
6
–
–
–
–
(2)
(2)
(2)
–
(1)
(3)
–
–
–
–
–
3
–
3
59
–
59
–
73,729
87,599
–
73,729
(6,612)
–
87,599
(5,722)
5,215
5,215
–
4
–
19
4
(2)
5,219
5,219
5,236
(1,376)
–
14
–
–
14
(5,708)
–
(1)
5,841
(330)
(18,944)
537
5,218
399
4,135
(24,115)
–
(471)
–
14,535
10,716
(5,603)
(5,603)
–
(5,603)
73
–
73
(90)
8,842
86,706
–
–
(65)
10,651
73,664
–
86,706
73,664
8
–
8
–
–
–
–
(2)
(2)
(2)
(1)
1
(2)
–
–
–
–
–
6
–
6
Liability for
incurred
claims
2022
£m
36
–
36
–
Total
2022
£m
87,643
–
87,643
(5,722)
4,562
4,562
–
2
–
4,564
4,564
–
2
4,566
471
14
2
(2)
4,576
(1,146)
(18,945)
540
(19,551)
–
–
10,716
(5,014)
–
(5,014)
59
–
59
(5,014)
(65)
5,637
73,729
–
73,729
206
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
(b) Reconciliation of the measurement components of insurance contract liabilities
Present value
of future cash
flows
2023
£m
Risk
adjustment
for
non-financial
risk
2023
£m
Present value
of future cash
flows
2022
£m
Total
2023
£m
Risk
adjustment
for
non-financial
risk
2022
£m
CSM
2023
£m
CSM
2022
£m
Total
2022
£m
Opening insurance contract liabilities
60,448
1,753
11,528
73,729
74,004
3,301
10,338
87,643
Opening insurance contract assets
–
–
–
–
–
–
–
–
Net balance as at 1 January
60,448
1,753
11,528
73,729
74,004
3,301
10,338
87,643
Changes that relate to current service
CSM recognised for services provided
Release of risk adjustment
Experience adjustments
Total changes that relate to current service
Changes that relate to future service
–
–
(83)
(83)
–
(371)
–
(371)
(943)
–
–
(943)
(371)
(83)
(943)
(1,397)
–
–
(6)
(6)
–
(359)
–
(359)
(762)
–
–
(762)
(359)
(6)
(762)
(1,127)
Changes in estimates which adjust the CSM
(1,657)
52
1,605
(931)
(202)
1,133
Changes in estimates that result in losses or
reversal of losses on onerous contracts
Contracts initially recognised in the year
Total changes that relate to future service
Changes that relate to past service
Claims variance
Insurance service result
Finance expenses/(income) from insurance
contracts
Effect of movements in exchange rates
Total amount recognised in comprehensive
income
Cash flows
Premiums received
Claims and other directly attributable
expenses
Insurance acquisition cash flows
Total cash flows
Closing insurance contract liabilities
Closing insurance contract assets
(2)
(1,305)
(2,964)
23
(3,024)
5,177
(310)
–
451
503
–
132
340
(4)
–
(2)
–
(2)
–
854
2,459
–
23
1,516
(1,376)
(1)
(861)
(1,793)
(17)
(1,816)
(1)
308
105
–
(254)
324
(16)
5,841
(330)
(17,888)
(1,303)
511
9
–
(2)
–
(2)
(17)
(1,146)
(18,945)
540
–
553
1,686
–
924
246
20
1,843
468
1,824
4,135
(19,193)
(1,548)
1,190
(19,551)
14,535
(5,603)
(90)
8,842
71,133
–
–
–
–
–
–
–
–
–
2,221
13,352
–
–
14,535
10,716
(5,603)
(90)
8,842
86,706
–
(5,014)
(65)
5,637
60,448
–
–
–
–
–
–
–
–
–
1,753
11,528
–
–
10,716
(5,014)
(65)
5,637
73,729
–
Net balance as at 31 December
71,133
2,221
13,352
86,706
60,448
1,753
11,528
73,729
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
207
Balance sheet management
continued
20 Insurance contract liabilities continued
(iii) Annuities – Insurance contracts issued continued
(c) Impact of contracts recognised in the year
Of which relates to:
Of which relates to:
Total impact
of contracts
recognised in
the year
2023
£m
Transfers or
business
acquisitions
2023
£m
Onerous
contracts
issued
2023
£m
Total impact
of contracts
recognised in
the year
2022
£m
Transfers or
business
acquisitions
2022
£m
Onerous
contracts
issued
2022
£m
Estimates of present value of cash outflows
Insurance acquisition cash flows
Claims and other insurance service expenses payable
Estimates of present value of cash outflows
Estimates of present value of cash inflows
Risk adjustment for non-financial risk
CSM
Increase in insurance contract liabilities from contracts recognised in the year
(d) Amounts determined on transition to IFRS 17
90
13,208
13,298
(14,603)
451
854
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
65
9,135
9,200
(10,061)
308
553
–
–
–
–
–
–
–
–
New
contracts and
contracts
measured
under the full
retrospective
approach
2023
£m
Contracts
measured
under the
modified
retrospective
approach
2023
£m
Contracts
measured
under the fair
value
approach
2023
£m
Insurance revenue
1,536
2,138
2,938
New
contracts and
contracts
measured
under the full
retrospective
approach
2022
£m
Contracts
measured
under the
modified
retrospective
approach
2022
£m
Contracts
measured
under the fair
value
approach
2022
£m
752
2,069
2,901
Total
2023
£m
6,612
–
–
–
–
–
–
–
Total
2022
£m
5,722
CSM as at 1 January
1,442
5,659
4,427
11,528
729
5,635
3,974
10,338
Changes that relate to current service
CSM recognised for services provided
(144)
(396)
(403)
(943)
(62)
(378)
(322)
(762)
Changes that relate to future service
Changes in estimates which adjust the CSM
Contracts initially recognised in the year
Finance expenses/(income) from insurance
contracts
Effect of movements in exchange rates
228
854
65
(4)
408
–
149
(9)
969
–
110
(3)
1,605
854
324
(16)
199
553
19
4
243
–
150
9
691
–
77
7
1,133
553
246
20
CSM as at 31 December
2,441
5,811
5,100
13,352
1,442
5,659
4,427
11,528
208
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
(iv) Annuities – Reinsurance contracts held
(a) Reconciliation of the remaining coverage and incurred claims
Asset for remaining coverage
Excluding
loss recovery
component
2023
£m
Loss recovery
component
2023
£m
Opening reinsurance contract liabilities
Opening reinsurance contract assets
Net balance as at 1 January
Allocation of reinsurance premium
Amount recoverable from reinsurers for
incurred claims
Amounts recoverable for claims and other
expenses incurred in the year
Changes that relate to past service
Changes in expected future recoveries which
relate to onerous underlying contracts
Recovery of reinsurance contract losses –
adjustments to loss recovery component for
changes in fulfilment cash flows
Change in non-performance risk of reinsurers
Amount recoverable from reinsurers for
incurred claims
Net (expenses)/income from reinsurance
contracts
Finance income from reinsurance contracts
Effect of movements in exchange rates
Total amount recognised in comprehensive
income
Investment components
Cash flows
Premiums net of commission and other
directly attributable expenses
Recoveries from reinsurance
Reinsurance pre-recognition cash flows
Total cash flows
Closing reinsurance contract liabilities
Closing reinsurance contract assets
Net balance as at 31 December
(1)
2,459
2,458
(2,847)
1
–
–
–
–
1
(2,846)
625
(25)
(2,246)
(4)
4,464
–
9
4,473
(1)
4,682
4,681
–
2
2
–
–
–
–
(1)
–
(1)
(1)
–
–
(1)
–
–
–
–
–
–
1
1
Asset for
incurred
claims
2023
£m
1
34
35
–
Asset for remaining coverage
Excluding
loss recovery
component
2022
£m
Loss recovery
component
2022
£m
Total
2023
£m
–
2,495
2,495
–
1,530
1,530
(2,847)
(2,323)
2,415
2,416
–
–
–
–
–
–
(1)
–
2,415
2,415
2,415
–
–
2,415
4
–
(2,378)
–
(432)
625
(25)
168
–
4,464
(2,378)
9
(2,378)
2,095
1
75
76
–
4,758
4,758
–
–
–
–
(4)
(4)
(2,327)
7
72
(2,248)
(6)
3,182
–
–
3,182
(1)
2,459
2,458
Asset for
incurred
claims
2022
£m
–
5
5
–
Total
2022
£m
–
1,539
1,539
(2,323)
2,058
2,057
–
–
–
–
–
–
(1)
(4)
2,058
2,052
2,058
(271)
–
–
2,058
6
–
(2,034)
–
(2,034)
1
34
35
7
72
(192)
–
3,182
(2,034)
–
1,148
–
2,495
2,495
–
4
4
–
(1)
–
–
(1)
–
(2)
(2)
–
–
(2)
–
–
–
–
–
–
2
2
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
209
Balance sheet management
continued
20 Insurance contract liabilities continued
(iv) Annuities – Reinsurance contracts held continued
(b) Reconciliation of the measurement components of reinsurance contract balances
Present value
of future cash
flows
2023
£m
Risk
adjustment
for
non-financial
risk
2023
£m
CSM
2023
£m
(12)
1,720
1,708
Present value
of future cash
flows
2022
£m
–
(1,309)
(1,309)
Total
2023
£m
–
2,495
2,495
7
818
825
–
(156)
(156)
(193)
–
(193)
–
–
(156)
(193)
(81)
(430)
–
–
(3)
(3)
Risk
adjustment
for
non-financial
risk
2022
£m
–
1,508
1,508
–
(164)
–
(164)
CSM
2022
£m
–
1,340
1,340
(99)
–
–
(99)
Opening reinsurance contract liabilities
Opening reinsurance contract assets
Net balance as at 1 January
Changes that relate to current service
CSM recognised for services received
Change in the risk adjustment for non-
financial risk for risk expired
Experience adjustments
Total changes that relate to current service
Changes that relate to future service
5
(43)
(38)
–
–
(81)
(81)
Changes in estimates which adjust the CSM
(902)
43
859
Changes in estimates that result in losses or
reversal of losses on underlying onerous
contracts
Contracts initially recognised in the year
Total changes that relate to future service
Changes that relate to past service
Claims variance
Change in non-performance risk of reinsurers
Net (expenses)/income from reinsurance
contracts
Finance income/(expenses) from reinsurance
contracts
Effect of movements in exchange rates
Total amount recognised in comprehensive
income
Cash flows
Premiums net of commission and other
directly attributable expenses
Recoveries from reinsurance
Reinsurance pre-recognition cash flows
Total cash flows
Closing reinsurance contract liabilities
Closing reinsurance contract assets
Net balance as at 31 December
(2)
(181)
(1,085)
–
–
(1,166)
417
(24)
(773)
4,464
(2,378)
9
2,095
1
1,283
1,284
–
271
314
–
–
121
168
(1)
288
–
–
–
–
10
1,103
1,113
–
(2)
–
(2)
–
–
(438)
(127)
565
(1)
(86)
(525)
–
(4)
–
213
86
–
–
–
(127)
438
–
–
–
(90)
769
–
–
613
(432)
(532)
(78)
339
(271)
40
–
653
–
–
–
–
(11)
2,372
2,361
625
(25)
168
4,464
(2,378)
9
2,095
–
4,758
4,758
585
70
123
3,182
(2,034)
–
1,148
5
(43)
(38)
(607)
2
29
–
7
72
(683)
368
(192)
–
–
–
–
7
818
825
–
–
–
–
(12)
1,720
1,708
3,182
(2,034)
–
1,148
–
2,495
2,495
Total
2022
£m
–
1,539
1,539
(99)
(164)
(3)
(266)
–
(1)
–
(1)
–
(4)
210
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
(c) Impact of contracts recognised in the year
Of which relates to:
Of which relates to:
Total impact
of contracts
recognised in
the year
2023
£m
Transfers or
business
acquisitions
2023
£m
Contracts
initiated with
loss recovery
component
2023
£m
Total impact
of contracts
recognised in
the year
2022
£m
Transfers or
business
acquisitions
2022
£m
Contracts
initiated with
loss recovery
component
2022
£m
Estimates of present value of cash outflows
Estimates of present value of cash inflows
Risk adjustment for non-financial risk
CSM
Net change in reinsurance contracts from contracts recognised in the year
(d) Amounts determined on transition to IFRS 17
(8,235)
8,054
271
(90)
–
–
–
–
–
–
–
–
–
–
–
(5,711)
5,625
213
(127)
–
–
–
–
–
–
New
contracts and
contracts
measured
under the full
retrospective
approach
2023
£m
Contracts
measured
under the
modified
retrospective
approach
2023
£m
Contracts
measured
under the
fair value
approach
2023
£m
CSM as at 1 January
97
1,417
194
Changes that relate to current service
New
contracts and
contracts
measured
under the full
retrospective
approach
2022
£m
Contracts
measured
under the
modified
retrospective
approach
2022
£m
Contracts
measured
under the
fair value
approach
2022
£m
110
1,214
16
Total
2023
£m
1,708
–
–
–
–
–
Total
2022
£m
1,340
CSM recognised for services received
(13)
(107)
(36)
(156)
(5)
(79)
(15)
(99)
Changes that relate to future service
Changes in estimates which adjust the CSM
Contracts initially recognised in the year
Finance (expenses)/income from reinsurance
contracts
CSM as at 31 December
237
(90)
(1)
230
333
–
37
1,680
289
–
4
451
859
(90)
40
2,361
120
(127)
(1)
97
252
–
30
1,417
193
–
–
194
565
(127)
29
1,708
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
211
Balance sheet management
continued
20 Insurance contract liabilities continued
(v) Protection – Insurance contracts issued
(a) Reconciliation of the liability for remaining coverage and the liability for incurred claims
Liability for remaining
coverage
Excluding
loss
component
2023
£m
Loss
component
2023
£m
Liability for
incurred
claims
2023
£m
Liability for remaining
coverage
Excluding
loss
component
2022
£m
Loss
component
2022
£m
Liability for
incurred
claims
2022
£m
Opening insurance contract liabilities
Opening insurance contract assets
Net balance as at 1 January
Insurance revenue
Incurred claims and other insurance service
expenses
Amortisation of insurance acquisition
expenses
Changes that relate to past service
Losses and reversal of losses on onerous
contracts
Insurance service expenses
Insurance service result
Finance (income)/expenses from insurance
contracts
Effect of movements in exchange rates
Total amount recognised in comprehensive
income
Investment components
Cash flows
Premiums received
Claims and other directly attributable
expenses
Insurance acquisition cash flows
Total cash flows
Closing insurance contract liabilities
Closing insurance contract assets
Net balance as at 31 December
2,643
–
2,643
(3,012)
–
132
–
–
132
(2,880)
(11)
(108)
(2,999)
(37)
3,217
–
(242)
2,975
2,582
–
2,582
561
–
561
–
1,329
–
1,329
–
Total
2023
£m
4,533
–
4,533
(3,012)
(62)
2,702
2,640
–
26
–
2,728
2,728
6
(11)
2,723
37
132
26
331
3,129
117
62
(120)
59
–
3,945
–
3,945
(2,961)
–
123
–
–
123
(2,838)
(1,596)
292
(4,142)
(39)
–
3,217
3,089
(2,785)
(2,785)
–
(2,785)
1,304
–
1,304
(242)
190
4,782
–
4,782
–
(210)
2,879
2,643
–
2,643
–
–
331
269
269
67
(1)
335
–
–
–
–
–
896
–
896
701
–
701
–
1,375
–
1,375
–
Total
2022
£m
6,021
–
6,021
(2,961)
(48)
2,704
2,656
–
–
118
70
70
(210)
–
(140)
–
–
–
–
–
561
–
561
–
24
–
2,728
2,728
(116)
24
2,636
39
123
24
118
2,921
(40)
(1,922)
316
(1,646)
–
–
3,089
(2,721)
(2,721)
–
(2,721)
1,329
–
1,329
(210)
158
4,533
–
4,533
212
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
(b) Reconciliation of the measurement components of insurance contract liabilities
Present value
of future
cash flows
2023
£m
2,069
–
2,069
–
–
5
5
308
261
(220)
349
22
376
(50)
(34)
292
3,217
(2,785)
(242)
190
2,551
–
2,551
Risk
adjustment
for
non-financial
risk
2023
£m
617
–
617
–
(16)
–
(16)
(32)
(1)
15
(18)
–
(34)
47
(30)
(17)
–
–
–
–
600
–
600
Opening insurance contract liabilities
Opening insurance contract assets
Net balance as at 1 January
Changes that relate to current service
CSM recognised for services provided
Release of risk adjustment
Experience adjustments
Total changes that relate to current service
Changes that relate to future service
Changes in estimates which adjust the CSM
Changes in estimates that result in losses or
reversal of losses on onerous contracts
Contracts initially recognised in the year
Total changes that relate to future service
Changes that relate to past service
Claims variance
Insurance service result
Finance (income)/expenses from insurance
contracts
Effect of movements in exchange rates
Total amount recognised in comprehensive
income
Cash flows
Premiums received
Claims and other directly attributable
expenses
Insurance acquisition cash flows
Total cash flows
Closing insurance contract liabilities
Closing insurance contract assets
Net balance as at 31 December
CSM
2023
£m
1,847
–
Total
2023
£m
4,533
–
1,847
4,533
Present value
of future
cash flows
2022
£m
3,536
–
3,536
(225)
–
–
(225)
(276)
–
276
–
–
(225)
65
(56)
(225)
(16)
5
(236)
–
260
71
331
22
117
62
(120)
Risk
adjustment
for
non-financial
risk
2022
£m
722
–
722
–
(31)
–
(31)
44
(1)
16
59
–
28
–
–
102
102
42
12
(159)
(105)
22
19
(1,762)
118
(212)
79
(216)
59
(1,625)
(105)
–
–
–
–
1,631
–
1,631
3,217
3,089
(2,785)
(2,721)
(242)
190
4,782
–
4,782
(210)
158
2,069
–
2,069
–
–
–
–
617
–
617
CSM
2022
£m
1,763
–
1,763
(251)
–
–
(251)
(86)
–
250
164
–
(87)
52
119
84
–
–
–
–
1,847
–
1,847
Total
2022
£m
6,021
–
6,021
(251)
(31)
102
(180)
–
11
107
118
22
(40)
(1,922)
316
(1,646)
3,089
(2,721)
(210)
158
4,533
–
4,533
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
213
Balance sheet management
continued
20 Insurance contract liabilities continued
(v) Protection – Insurance contracts issued continued
(c) Impact of contracts recognised in the year
Of which relates to:
Of which relates to:
Total impact
of contracts
recognised in
the year
2023
£m
Transfers or
business
acquisitions
2023
£m
Onerous
contracts
issued
2023
£m
Total impact
of contracts
recognised in
the year
2022
£m
Transfers or
business
acquisitions
2022
£m
Onerous
contracts
issued
2022
£m
Estimates of present value of cash outflows
Insurance acquisition cash flows
Claims and other insurance service expenses payable
Estimates of present value of cash outflows
Estimates of present value of cash inflows
Risk adjustment for non-financial risk
CSM
Increase in insurance contract liabilities from contracts recognised in the year
(d) Amounts determined on transition to IFRS 17
242
2,096
2,338
(2,558)
15
276
71
–
–
–
–
–
–
–
73
488
561
(491)
1
–
71
210
2,334
2,544
(2,703)
16
250
107
–
–
–
–
–
–
–
New
contracts and
contracts
measured
under the full
retrospective
approach
2023
£m
Contracts
measured
under the
modified
retrospective
approach
2023
£m
Contracts
measured
under the fair
value
approach
2023
£m
Insurance revenue
1,055
1,171
786
Total
2023
£m
3,012
CSM as at 1 January
427
1,106
314
1,847
Changes that relate to current service
New
contracts and
contracts
measured
under the full
retrospective
approach
2022
£m
Contracts
measured
under the
modified
retrospective
approach
2022
£m
Contracts
measured
under the fair
value
approach
2022
£m
835
214
1,241
1,151
885
398
73
752
825
(719)
1
–
107
Total
2022
£m
2,961
1,763
CSM recognised for services provided
(82)
(110)
(33)
(225)
(54)
(142)
(55)
(251)
Changes that relate to future service
Changes in estimates which adjust the CSM
Contracts initially recognised in the year
Finance expenses from insurance contracts
Effect of movements in exchange rates
CSM as at 31 December
(51)
276
21
(17)
574
(132)
–
37
(35)
866
(93)
–
7
(4)
191
(276)
276
65
(56)
1,631
(9)
250
6
20
427
(31)
–
40
88
1,106
(46)
–
6
11
314
(86)
250
52
119
1,847
214
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
(vi) Protection – Reinsurance contracts held
(a) Reconciliation of the remaining coverage and incurred claims
Asset for remaining coverage
Asset for remaining coverage
Excluding
loss recovery
component
2023
£m
Loss recovery
component
2023
£m
Asset for
incurred
claims
2023
£m
Opening reinsurance contract liabilities
Opening reinsurance contract assets
Net balance as at 1 January
Allocation of reinsurance premium
Amount recoverable from reinsurers for
incurred claims
Amounts recoverable for claims and other
expenses incurred in the year
Changes that relate to past service
Changes in expected future recoveries which
relate to onerous underlying contracts
Recovery of reinsurance contract losses
– loss recovery component established due
to recovery of losses on underlying contracts
Recovery of reinsurance contract losses –
adjustments to loss recovery component for
changes in fulfilment cash flows
Change in non-performance risk of reinsurers
Amount recoverable from reinsurers for
incurred claims
Net (expenses)/income from reinsurance
contracts
Finance income/(expenses) from reinsurance
contracts
Effect of movements in exchange rates
Total amount recognised in comprehensive
income
Investment components
Cash flows
Premiums net of commission and other
directly attributable expenses
Recoveries from reinsurance
Total cash flows
Closing reinsurance contract liabilities
Closing reinsurance contract assets
Net balance as at 31 December
(52)
866
814
(1,044)
–
–
3
–
–
(46)
(43)
(1,087)
7
(5)
(1,085)
(24)
958
–
958
(299)
962
663
–
473
473
–
(11)
–
–
315
(16)
–
288
288
–
(1)
287
–
–
–
–
–
760
760
Total
2023
£m
(52)
2,213
2,161
(1,044)
1,071
12
3
315
(16)
(46)
Excluding
loss recovery
component
2022
£m
Loss recovery
component
2022
£m
Asset for
incurred
claims
2022
£m
(8)
1,608
1,600
(803)
–
–
(1)
–
–
1
–
–
583
583
–
(220)
–
–
164
(54)
–
6
922
928
–
1,013
26
–
–
–
–
(110)
1,039
–
874
874
–
1,082
12
–
–
–
–
1,094
1,339
1,094
295
(803)
(110)
1,039
(5)
(5)
1,084
24
–
(1,080)
(1,080)
79
823
902
2
(11)
286
–
958
(1,080)
(122)
(220)
2,545
2,325
(1,001)
34
(1,770)
–
969
15
984
(52)
866
814
–
–
(110)
–
–
–
–
–
473
473
(30)
7
1,016
–
–
(1,070)
(1,070)
–
874
874
Total
2022
£m
(2)
3,113
3,111
(803)
793
26
(1)
164
(54)
1
929
126
(1,031)
41
(864)
–
969
(1,055)
(86)
(52)
2,213
2,161
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
215
Balance sheet management
continued
20 Insurance contract liabilities continued
(vi) Protection – Reinsurance contracts held continued
(b) Reconciliation of the measurement components of reinsurance contract balances
Present value
of future
cash flows
2023
£m
(48)
2,467
2,419
–
–
(15)
(15)
161
241
34
436
12
(46)
387
7
(4)
390
958
(1,080)
(122)
(254)
2,941
2,687
Risk
adjustment
for
non-financial
risk
2023
£m
2
11
13
–
(1)
–
(1)
(3)
–
2
(1)
–
–
(2)
–
(1)
(3)
–
–
–
4
6
10
Opening reinsurance contract liabilities
Opening reinsurance contract assets
Net balance as at 1 January
Changes that relate to current service
CSM recognised for services received
Change in the risk adjustment for non-
financial risk for risk expired
Experience adjustments
Total changes that relate to current service
Changes that relate to future service
Changes in estimates which adjust the CSM
Changes in estimates that result in losses or
reversal of losses on underlying onerous
contracts
Contracts initially recognised in the year
Total changes that relate to future service
Changes that relate to past service
Claims variance
Change in non-performance risk of reinsurers
Net income/(expenses) from reinsurance
contracts
Finance income/(expenses) from reinsurance
contracts
Effect of movements in exchange rates
Total amount recognised in comprehensive
income
Cash flows
Premiums net of commission and other
directly attributable expenses
Recoveries from reinsurance
Total cash flows
Closing reinsurance contract liabilities
Closing reinsurance contract assets
Net balance as at 31 December
Present value
of future
cash flows
2022
£m
(2)
3,454
3,452
Total
2023
£m
(52)
2,213
2,161
CSM
2023
£m
(6)
(265)
(271)
41
–
–
41
(158)
(8)
35
(131)
–
–
41
(1)
(15)
25
–
233
71
304
12
(46)
(90)
295
(5)
(6)
2
(11)
(1,022)
24
(101)
286
(947)
–
–
–
30
(402)
(372)
958
(1,080)
(122)
(220)
2,545
2,325
969
(1,055)
(86)
(48)
2,467
2,419
–
–
(18)
(18)
(21)
3
76
58
10
1
51
Risk
adjustment
for
non-financial
risk
2022
£m
–
14
14
–
(4)
–
(4)
–
–
3
3
–
–
(1)
(2)
2
(1)
–
–
–
2
11
13
CSM
2022
£m
–
(355)
(355)
25
–
–
25
21
–
30
51
–
–
76
(7)
15
84
–
–
–
(6)
(265)
(271)
Total
2022
£m
(2)
3,113
3,111
25
(4)
(18)
3
–
3
109
112
10
1
126
(1,031)
41
(864)
969
(1,055)
(86)
(52)
2,213
2,161
216
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
(c) Impact of contracts recognised in the year
Of which relates to:
Of which relates to:
Total impact
of contracts
recognised in
the year
2023
£m
Transfers or
business
acquisitions
2023
£m
Contracts
initiated with
loss recovery
component
2023
£m
Total impact
of contracts
recognised in
the year
2022
£m
Transfers or
business
acquisitions
2022
£m
Contracts
initiated with
loss recovery
component
2022
£m
Estimates of present value of cash outflows
Estimates of present value of cash inflows
Risk adjustment for non-financial risk
CSM
Net change in reinsurance contracts from contracts recognised in the year
(d) Amounts determined on transition to IFRS 17
(462)
496
2
35
71
–
–
–
–
–
(397)
443
–
25
71
(1,502)
1,578
3
30
109
–
–
–
–
–
New
contracts and
contracts
measured
under the full
retrospective
approach
2023
£m
Contracts
measured
under the
modified
retrospective
approach
2023
£m
Contracts
measured
under the fair
value
approach
2023
£m
CSM as at 1 January
(11)
(420)
160
Changes that relate to current service
CSM recognised for services received
Changes that relate to future service
Changes in estimates which adjust the CSM
Contracts initially recognised in the year
Finance income/(expenses) from reinsurance
contracts
Effect of movements in exchange rates
CSM as at 31 December
2
(8)
35
1
(3)
16
54
(87)
–
(9)
(3)
(465)
(15)
(71)
–
3
–
77
New
contracts and
contracts
measured
under the full
retrospective
approach
2022
£m
Contracts
measured
under the
modified
retrospective
approach
2022
£m
Contracts
measured
under the fair
value
approach
2022
£m
(105)
(489)
239
7
56
30
(1)
2
(11)
49
20
–
(9)
9
(31)
(55)
–
3
4
(420)
160
Total
2023
£m
(271)
41
(166)
35
(5)
(6)
(372)
(647)
731
–
25
109
Total
2022
£m
(355)
25
21
30
(7)
15
(271)
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
217
Balance sheet management
continued
20 Insurance contract liabilities continued
(vii) Maturity of contractual undiscounted cash flows
For the year ended 31 December 2023
Contractual undiscounted cash flows
1 year or less
1 – 2 years
2 – 3 years
3 – 4 years
4 – 5 years
5 – 10 years
10 – 20 years
Over 20 years
Total
For the year ended 31 December 2022
Contractual undiscounted cash flows
1 year or less
1 – 2 years
2 – 3 years
3 – 4 years
4 – 5 years
5 – 10 years
10 – 20 years
Over 20 years
Total
Insurance contracts issued
Reinsurance contracts held
Annuities
£m
Protection
£m
Total
£m
Annuities
£m
Protection
£m
4,575
5,862
5,763
5,675
5,582
26,063
39,623
33,802
126,945
471
(364)
(298)
(205)
(121)
407
3,096
3,873
6,859
5,046
5,498
5,465
5,470
5,461
26,470
42,719
37,675
133,804
(110)
(52)
(63)
(73)
(82)
(517)
(1,145)
(28)
(2,070)
(709)
(39)
(49)
(54)
(65)
(525)
(1,593)
(1,939)
(4,973)
Insurance contracts issued
Reinsurance contracts held
Annuities
£m
Protection
£m
Total
£m
Annuities
£m
Protection
£m
4,767
4,702
4,642
4,571
4,494
21,029
31,965
25,368
101,538
458
(456)
(352)
(239)
(139)
300
2,743
3,443
5,758
5,225
4,246
4,290
4,332
4,355
21,329
34,708
28,811
107,296
(31)
(62)
(52)
(42)
(32)
(32)
318
28
95
(755)
(67)
(57)
(51)
(61)
(421)
(1,216)
(1,620)
(4,248)
Total
£m
(819)
(91)
(112)
(127)
(147)
(1,042)
(2,738)
(1,967)
(7,043)
Total
£m
(786)
(129)
(109)
(93)
(93)
(453)
(898)
(1,592)
(4,153)
The undiscounted cash flows are calculated in line with the methodology and assumptions used to the determine the best estimate liabilities.
Where portfolios contain amounts which would be payable on demand the cashflows are determined in line with the best estimates of policyholder
behaviour. Products which have amounts considered payable on demand are deferred annuities in the UK and universal life in the US.
During the deferral period a policyholder often has the ability to elect to surrender the policy or retire early, at which time the deferred annuity policy
terminates. The cash value of the surrender is calculated in line with the terms of the agreement and in reference to the duration of deferral. The total
value considered payable on demand as at 31 December 2023 is £10,210m (2022: £5,921m).
Universal life contracts written in the US provide savings and death benefits over the medium to long-term. The savings element is considered to be
payable on demand by the policyholder. The total value considered payable on demand as at 31 December 2023 is £436m (2022: £481m).
218
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
Insurance contracts issued
Reinsurance contracts held
Annuities
£m
Protection
£m
Total
£m
Annuities
£m
Protection
£m
Total
£m
626
636
625
612
596
2,687
4,010
3,560
296
232
188
157
131
387
198
42
922
868
813
769
727
3,074
4,208
3,602
(90)
(94)
(94)
(94)
(94)
(462)
(789)
(644)
13,352
1,631
14,983
(2,361)
8
11
14
17
19
106
146
51
372
(82)
(83)
(80)
(77)
(75)
(356)
(643)
(593)
(1,989)
Insurance contracts issued
Reinsurance contracts held
Annuities
£m
Protection
£m
Total
£m
Annuities
£m
Protection
£m
Total
£m
484
490
492
489
483
2,260
3,594
3,236
182
153
137
127
118
477
501
152
666
643
629
616
601
2,737
4,095
3,388
(55)
(58)
(59)
(59)
(59)
(301)
(574)
(543)
11,528
1,847
13,375
(1,708)
11
13
11
10
10
59
112
45
271
(44)
(45)
(48)
(49)
(49)
(242)
(462)
(498)
(1,437)
(viii) CSM maturity profile
For the year ended 31 December 2023
Number of years until expected to be recognised
1 year or less
1 – 2 years
2 – 3 years
3 – 4 years
4 – 5 years
5 – 10 years
10 – 20 years
Over 20 years
Total
For the year ended 31 December 2022
Number of years until expected to be recognised
1 year or less
1 – 2 years
2 – 3 years
3 – 4 years
4 – 5 years
5 – 10 years
10 – 20 years
Over 20 years
Total
The amounts presented above reflect the net amount of CSM amortisation and interest accretion expected to be recognised in Insurance service
result in future periods. Actual CSM amortisation in future periods will differ from that presented due to the impacts of future new business,
recalibrations of the CSM, changes in the future coverage units as well as interest accretion, which will be presented in Finance income and expense.
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
219
Balance sheet management
continued
20 Insurance contract liabilities continued
(ix) Assets for insurance acquisition cash flows
(a) Insurance contracts
Opening balance
Amounts incurred during the year
Amounts derecognised and included in the measurement
of insurance contracts
Impairment losses and reversals
Effect of movements in exchange rates
Closing balance
Presented in insurance contract assets
Presented in insurance contract liabilities
Total1
(b) Reinsurance contracts
Opening balance
Amounts incurred during the year
Amounts derecognised and included in the measurement
of reinsurance contracts
Impairment losses and reversals
Effect of movements in exchange rates
Closing balance
Presented in reinsurance contract assets
Presented in reinsurance contract liabilities
Total1
Annuities
2023
£m
Protection
2023
£m
20
96
28
239
Total
2023
£m
48
335
Annuities
2022
£m
Protection
2022
£m
15
70
22
215
Total
2022
£m
37
285
(90)
(242)
(332)
(65)
(210)
(275)
(8)
–
18
–
18
18
–
(1)
24
–
24
24
(8)
(1)
42
–
42
42
–
–
20
–
20
20
–
1
28
–
28
28
–
1
48
–
48
48
Annuities
2023
£m
Protection
2023
£m
Total
2023
£m
Annuities
2022
£m
Protection
2022
£m
Total
2022
£m
5
7
(9)
–
–
3
3
–
3
–
–
–
–
–
–
–
–
–
5
7
(9)
–
–
3
3
–
3
–
5
–
–
–
5
5
–
5
–
–
–
–
–
–
–
–
–
–
5
–
–
–
5
5
–
5
1. All balances relating to Assets for insurance acquisition cash flows are expected to run off within a year.
21 Investment contract liabilities
(i) Analysis of investment contract liabilities
Investment contract liabilities
Expected to be settled within 12 months
Expected to be settled after 12 months
Gross
2023
£m
Gross
2022
£m
316,872
286,830
33,242
283,630
31,649
255,181
Amounts under unit linked contracts are generally repayable on demand and the Group is responsible for ensuring there is sufficient liquidity within
the asset portfolio to enable liabilities to unit linked policyholders to be met as they fall due. However, the terms of funds investing in less liquid
assets permit the deferral of redemptions for predefined periods in circumstances where there are not sufficient liquid assets within the fund to
meet the level of requested redemptions.
Investment contract liabilities include £87m (2022: £901m) of Assured Payment Policies (APP) products, which are classified as Level 2 in the fair
value hierarchy. The valuation of APP products is determined through a discounted cash flows model, where the discount rate is derived from a
risk-free rate, a credit benchmark spread and a zero-volatility spread (Z-spread). The credit benchmark rate used is the A-rated credit spread curve
which reflects the strategic portfolio mix. The Z-spread ensures that the fair value at inception is equal to the transaction price, therefore it is based
on the premium on origination and remains constant over the life of the policy.
The presented fair values of the remaining investment contract liabilities reflect quoted prices in active markets and they have been classified as
Level 1 in the fair value hierarchy.
During the year there have been no transfers of investment contract liabilities between levels of the fair value hierarchy (2022: no significant transfers
between levels of the fair value hierarchy).
220
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
(ii) Movement in investment contract liabilities
As at 1 January
Reserves in respect of new business
Amounts paid on surrenders and maturities during the year
Investment return1
Management charges1
Total as at 31 December
Gross
2023
£m
286,830
44,153
(40,959)
27,116
(268)
Restated
Gross
2022
£m
372,954
54,355
(60,338)
(79,889)
(252)
316,872
286,830
1. Management charges in 2022 includes £154m in relation to fund management expenses previously included within Investment return.
22 Borrowings
Borrowings comprise core borrowings such as subordinated Tier 2 bond issues, long-term unsecured senior debt and operational borrowings such
as commercial paper issuance and bank borrowings under both committed and uncommitted debt facilities, including bank overdrafts. Borrowings
secured on specific assets/cash flows are included as non-recourse borrowings.
(i) Analysis by type
Core borrowings
Operational borrowings
Total borrowings
Borrowings
excluding
unit
linked
borrowings
2023
£m
4,280
1,457
5,737
Unit
linked
borrowings
2023
£m
–
383
383
Borrowings
excluding
unit
linked
borrowings
2022
£m
4,338
963
5,301
Unit
linked
borrowings
2022
£m
–
256
256
Total
2023
£m
4,280
1,840
6,120
Total
2022
£m
4,338
1,219
5,557
£212m of interest expense was incurred during the year (2022: £214m) on borrowings excluding non-recourse and unit linked borrowings. The total
finance costs incurred in the year were £347m (2022: £290m), which also includes £7m of finance costs on lease liabilities (2022: £8m).
(ii) Analysis by nature
(a) Core borrowing
Subordinated borrowings
5.5% Sterling subordinated notes 2064 (Tier 2)
5.375% Sterling subordinated notes 2045 (Tier 2)
5.25% US Dollar subordinated notes 2047 (Tier 2)
5.55% US Dollar subordinated notes 2052 (Tier 2)
5.125% Sterling subordinated notes 2048 (Tier 2)
3.75% Sterling subordinated notes 2049 (Tier 2)
4.5% Sterling subordinated notes 2050 (Tier 2)
Client fund holdings of Group debt (Tier 2)1
Total subordinated borrowings
Senior borrowings
Sterling medium term notes 2031-2041
Client fund holdings of Group debt1
Total senior borrowings
Total core borrowings
Carrying
amount
2023
£m
Coupon
rate
2023
%
Fair value
2023
£m
Carrying
amount
2022
£m
Coupon
rate
2022
%
Fair value
2022
£m
590
605
676
396
401
599
501
(80)
3,688
609
(17)
592
4,280
5.50
5.38
5.25
5.55
5.13
3.75
4.50
–
–
5.87
–
–
–
600
603
656
382
395
545
467
(77)
3,571
666
(17)
649
590
605
712
417
400
599
500
(74)
3,749
609
(20)
589
4,220
4,338
5.50
5.38
5.25
5.55
5.13
3.75
4.50
–
–
5.87
–
–
–
541
593
665
389
377
507
439
(67)
3,444
649
(19)
630
4,074
1. £97m (31 December 2022: £94m) of the Group’s subordinated and senior borrowings are held by Legal & General customers through unit linked products. These borrowings are shown
as a deduction from total core borrowings in the table above.
The presented fair values of the Group’s core borrowings reflect quoted prices in active markets and they have been classified as Level 1 in the fair
value hierarchy.
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
221
Balance sheet management
continued
22 Borrowings continued
(ii) Analysis by nature continued
(a) Core borrowing continued
Subordinated borrowings
5.5% Sterling subordinated notes 2064
On 27 June 2014, Legal & General Group Plc issued £600m of 5.5% dated subordinated notes. The notes are callable at par on 27 June 2044 and
every five years thereafter. If not called, the coupon from 27 June 2044 will be reset to the prevailing five year benchmark gilt yield plus 3.17% p.a.
These notes mature on 27 June 2064.
5.375% Sterling subordinated notes 2045
On 27 October 2015, Legal & General Group Plc issued £600m of 5.375% dated subordinated notes. The notes are callable at par on 27 October 2025
and every five years thereafter. If not called, the coupon from 27 October 2025 will be reset to the prevailing five year benchmark gilt yield plus 4.58%
p.a. These notes mature on 27 October 2045.
5.25% US Dollar subordinated notes 2047
On 21 March 2017, Legal & General Group Plc issued $850m of 5.25% dated subordinated notes. The notes are callable at par on 21 March 2027 and
every five years thereafter. If not called, the coupon from 21 March 2027 will be reset to the prevailing US Dollar mid-swap rate plus 3.687% p.a.
These notes mature on 21 March 2047.
5.55% US Dollar subordinated notes 2052
On 24 April 2017, Legal & General Group Plc issued $500m of 5.55% dated subordinated notes. The notes are callable at par on 24 April 2032 and
every five years thereafter. If not called, the coupon from 24 April 2032 will be reset to the prevailing US Dollar mid-swap rate plus 4.19% p.a. These
notes mature on 24 April 2052.
5.125% Sterling subordinated notes 2048
On 14 November 2018, Legal & General Group Plc issued £400m of 5.125% dated subordinated notes. The notes are callable at par on 14 November
2028 and every five years thereafter. If not called, the coupon from 14 November 2028 will be reset to the prevailing five year benchmark gilt yield
plus 4.65% p.a. These notes mature on 14 November 2048.
3.75% Sterling subordinated notes 2049
On 26 November 2019, Legal & General Group Plc issued £600m of 3.75% dated subordinated notes. The notes are callable at par on 26 November
2029 and every five years thereafter. If not called, the coupon from 26 November 2029 will be reset to the prevailing five year benchmark gilt yield
plus 4.05% p.a. These notes mature on 26 November 2049.
4.5% Sterling subordinated notes 2050
On 1 May 2020, Legal & General Group Plc issued £500m of 4.5% dated subordinated notes. The notes are callable at par on 1 November 2030 and
every five years thereafter. If not called, the coupon from 1 November 2030 will be reset to the prevailing five year benchmark gilt yield plus 5.25% p.a.
These notes mature on 1 November 2050.
All of the above subordinated notes are treated as Tier 2 own funds for Solvency II purposes unless stated otherwise.
Senior borrowings
Between 2000 and 2002 Legal & General Finance Plc issued £600m of senior unsecured Sterling medium term notes 2031-2041 at coupons
between 5.75% and 5.875%. These notes have various maturity dates between 2031 and 2041.
(b) Operational borrowings
Short-term operational borrowings
Euro Commercial Paper
Bank loans and overdrafts
Non-recourse borrowings
Cardiff Interchange Limited credit facility
CALA revolving credit facility
Class B Surplus Notes
Affordable Homes revolving credit facility
Homes Modular revolving credit facility
Suburban Build to Rent revolving credit facility
Total operational borrowings1
Carrying
amount
2023
£m
Interest
rate
2023
%
Fair value
2023
£m
Carrying
amount
2022
£m
Interest
rate
2022
%
Fair value
2022
£m
49
12
–
149
1,176
41
11
19
1,457
4.73
–
–
7.15
8.27
7.15
8.30
6.00
–
49
12
–
149
1,176
41
11
19
1,457
50
3
64
24
788
19
15
–
963
1.60
–
5.63
5.50
6.62
4.38
6.62
–
–
50
3
64
24
788
19
15
–
963
1. Unit linked borrowings with a carrying value of £383m (31 December 2022: £256m) are excluded from the analysis above as the risk is retained by policyholders. Operational
borrowings including unit linked borrowings are £1,840m (31 December 2022: £1,219m).
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Other information
Non-recourse borrowings
• Cardiff Interchange Limited’s credit facility was secured on the assets of Cardiff Interchange Limited and Legal & General Capital Investments
Limited’s (LGCIL) shares in, and intercompany debt owed by, Cardiff Interchange Limited.
• CALA Group (Holdings) Limited’s revolving credit facility is secured by way of a bond and floating charge, and guarantees and fixed charges
granted by CALA Group Limited and its main subsidiaries (CALA 1999 Limited, CALA Limited, and CALA Management Limited). A number of other
bonds and floating charges, fixed securities, debentures and share pledges over land and assets have been granted by certain subsidiaries of
CALA Group Limited in favour of the lenders.
• The Class B Surplus Notes have been issued by a US subsidiary of the Group as part of a coinsurance structure for the purpose of US statutory
regulations. The notes were issued in exchange for bonds of the same value from an unrelated party, included within financial investments on the
Group’s Consolidated Balance Sheet.
• The revolving credit facilities to Affordable Homes is subject to agreed covenants, the breach of which could result in a charge on the land and
work in progress of Legal & General Affordable Homes (Development 2) Limited and Legal & General Affordable Homes (Development 3) Limited.
• Legal & General Homes Modular Limited’s revolving credit facility is secured by way of fixed charges over development properties owned by the
Company and a fixed charge over the shares in the Company.
• Suburban Build to Rent revolving credit facility is secured by way of fixed charges over development properties owned by the Company and a fixed
charge over the shares in the Company.
The carrying value of operational borrowings approximates their fair value. The presented fair values reflect observable market information and have
been classified as Level 2 in the fair value hierarchy with the exception of the Affordable Homes revolving credit facility which has been classified as
Level 3.
(iii) Analysis by maturity
As at 31 December 2023
Subordinated borrowings
5.5% Sterling subordinated notes 2064 (Tier 2)
5.375% Sterling subordinated notes 2045 (Tier 2)
5.25% US Dollar subordinated notes 2047 (Tier 2)
5.55% US Dollar subordinated notes 2052 (Tier 2)
5.125% Sterling subordinated notes 2048 (Tier 2)
3.75% Sterling subordinated notes 2049 (Tier 2)
4.5% Sterling subordinated notes 2050 (Tier 2)
Client fund holdings of Group debt (Tier 2)
Senior borrowings
Sterling medium term notes 2031-2041
Client fund holdings of Group debt
Total core borrowings
Short-term operational borrowings
Euro Commercial Paper
Bank loans and overdrafts
Non-recourse borrowings
Cardiff Interchange Limited
CALA revolving credit facility
Class B Surplus Notes
Affordable Homes revolving credit facility
Homes Modular revolving credit facility
Suburban Build to Rent revolving credit facility
Total operational borrowings
Total borrowings excluding unit linked borrowings1
Contractual undiscounted interest payments
Total contractual undiscounted cash flows
Maturity profile of undiscounted cash flows
Carrying
amount
£m
Within
1 year
£m
1-5
years
£m
5-15
years
£m
15-25
years
£m
Over
25 years
£m
590
605
676
396
401
599
501
(80)
609
(17)
4,280
49
12
–
149
1,176
41
11
19
1,457
5,737
–
(6)
(10)
(4)
(3)
(2)
(4)
–
(11)
–
(40)
(49)
(12)
–
–
(4)
(41)
–
–
(106)
(146)
(316)
(462)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(149)
–
–
(11)
(19)
(179)
(179)
(1,276)
(1,455)
–
–
–
–
–
–
–
–
(590)
–
(590)
–
–
–
–
–
(600)
(668)
–
(400)
–
–
–
(10)
–
(600)
–
–
(393)
–
(600)
(500)
–
–
–
Total
£m
(600)
(606)
(678)
(397)
(403)
(602)
(504)
–
(611)
–
(1,678)
(2,093)
(4,401)
–
–
–
–
(543)
(631)
–
–
–
(543)
(1,133)
(2,786)
(3,919)
–
–
–
(631)
(2,309)
(1,913)
(4,222)
–
–
–
–
–
–
–
–
–
(2,093)
(655)
(49)
(12)
–
(149)
(1,178)
(41)
(11)
(19)
(1,459)
(5,860)
(6,946)
(2,748)
(12,806)
1. Unit linked borrowings are excluded from the analysis above as the risk is retained by policyholders.
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
223
Balance sheet management
continued
22 Borrowings continued
(iii) Analysis by maturity continued
As at 31 December 2022
Subordinated borrowings
5.5% Sterling subordinated notes 2064 (Tier 2)
5.375% Sterling subordinated notes 2045 (Tier 2)
5.25% US Subordinated notes 2047 (Tier 2)
5.55% US Subordinated notes 2052 (Tier 2)
5.125% Sterling subordinated notes 2048 (Tier 2)
3.75%Sterling subordinated notes 2049 (Tier 2)
4.5% Sterling subordinated notes 2050 (Tier 2)
Client fund holdings of Group debt (Tier 2)
Senior borrowings
Sterling medium term notes 2031-2041
Client fund holdings of Group debt
Total core borrowings
Short-term operational borrowings
Euro Commercial Paper
Bank loans and overdrafts
Non-recourse borrowings
Cardiff Interchange Limited
CALA revolving credit facility
Class B Surplus Notes
Affordable Homes revolving credit facility
Homes Modular revolving credit facility
Total operational borrowings
Total borrowings excluding unit linked borrowings1
Contractual undiscounted interest payments
Total contractual undiscounted cash flows
Maturity profile of undiscounted cash flows
Carrying
amount
£m
Within
1 year
£m
1-5
years
£m
5-15
years
£m
–
–
–
–
–
–
–
–
(590)
–
(590)
–
–
–
–
590
605
712
417
400
599
500
(74)
609
(20)
4,338
50
3
64
24
788
19
15
963
5,301
–
(6)
(10)
(4)
(3)
(2)
(4)
–
(11)
–
(40)
(50)
(3)
(64)
–
–
(19)
(1)
(137)
(177)
(291)
(468)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(24)
(47)
–
(14)
(85)
(85)
(1,150)
(1,235)
15-25
years
£m
–
(600)
(704)
–
–
–
–
–
(10)
–
Over
25 years
£m
(600)
–
–
(414)
(400)
(600)
(500)
–
–
–
Total
£m
(600)
(606)
(714)
(418)
(403)
(602)
(504)
–
(611)
–
(1,314)
(2,514)
(4,458)
–
–
–
–
–
–
–
–
–
–
–
–
(2,514)
(781)
(3,295)
(50)
(3)
(64)
(24)
(788)
(19)
(15)
(963)
(5,421)
(6,687)
(12,108)
(422)
(319)
–
–
(422)
(1,012)
(2,569)
(3,581)
–
–
(319)
(1,633)
(1,896)
(3,529)
1. Unit linked borrowings are excluded from the analysis above as the risk is retained by policyholders.
The maturity profile above is calculated on the basis that a facility to refinance a maturing loan is not recognised unless the facility and loan are
related. If refinancing under the Group’s credit facilities was recognised, then all amounts shown as repayable within one year would be reclassified
as repayable between one and five years.
Undiscounted interest payments are estimated based on the year end applicable interest rate and spot exchange rates.
Syndicated credit facility
As at 31 December 2023, the Group had in place a £1.5bn syndicated committed revolving credit facility provided by a number of its key relationship
banks, maturing in August 2028. No amounts were outstanding at 31 December 2023.
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Strategic report
Governance
Financial statements
Other information
(iv) Movement in borrowings
As at 1 January
Cash movements:
– Proceeds from borrowings
– Repayment of borrowings
– Increase in bank loans and overdrafts
Non-cash movements:
– Amortisation
– Foreign exchange rate movements
– Other
2023
£m
5,557
1,078
(544)
148
3
(108)
(14)
2022
£m
5,188
691
(737)
254
2
201
(42)
Total core and operational borrowings as at 31 December
6,120
5,557
23 Provisions
(i) Analysis of provisions
Other provisions
Retirement benefit obligations
Total provisions
Notes
23(ii)
23(iii)
2023
£m
244
14
258
2022
£m
273
617
890
(ii) Other provisions
Other provisions include costs that Legal & General Investment Management (LGIM) is committed to incur on the extension of its existing
partnership with State Street announced in 2021, to increase the use of Charles River technology across the front office and to deliver middle office
services going forward. Costs include the transfer of data and operations to State Street, as well as the implementation of the new operating model.
The amounts included in the provision have been determined on a best estimate basis by reference to a range of plausible scenarios, taking into
account the multi-year implementation period for the project. As at 31 December 2023, the outstanding provision was £108m (31 December 2022:
£111m).
(iii) Retirement benefit obligations
Defined contribution schemes
The Group operates the following principal defined contribution pension schemes in the UK and overseas:
• Legal & General Group Personal Pension Plan (UK);
• Legal & General Staff Stakeholder Pension Scheme (UK);
• Legal & General America Inc. Savings Plan (US); and
• CALA defined contribution pension scheme.
Contributions of £102m (2022: £93m) were made during the year in respect of defined contribution schemes.
Defined benefit schemes
The Group operates the following defined benefit pension schemes in the UK and overseas:
• Legal & General America Inc. Cash Balance Plan (US). The last full actuarial valuation was as at 31 December 2023; and
• CALA Retirement and Death Benefits Scheme (UK). This scheme closed to new members from 31 December 2007 and closed to future accrual
on 31 December 2018; the last triennial actuarial valuation was as at 6 April 2021.
The Group also previously operated the following defined benefit pension schemes in the UK:
• Legal & General Group UK Pension and Assurance Fund (the Fund). The Fund was closed to new members from January 1995; and
• Legal & General Group UK Senior Pension Scheme (the Scheme). The Scheme was, with a few exceptions (principally transfers from the Fund),
closed to new members from August 2000 and finally closed to new members from April 2007.
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
225
Balance sheet management
continued
23 Provisions continued
(iii) Retirement benefit obligations continued
Certain parts of the liabilities of the Fund and Scheme had previously been secured by way of annuities purchased from the Group, which were
not recognised as an asset for IAS 19 purposes. In April 2023, Assured Payment Policies (APPs), previously transacted between the Group’s UK
defined benefit pension schemes and Legal and General Assurance Society Limited (LGAS), were surrendered at their carrying value of £839m
(31 December 2022: £718m) and converted into annuity contracts. An additional top-up consideration of £183m, priced on an arm’s length basis,
was paid to LGAS by the defined benefit pension schemes as part of the transaction, making a total contribution for new annuities of £1,022m
(31 December 2022: £61m). This resulted in both pension schemes being fully covered by annuity contracts.
The Trustees completed a buy-out of the Fund and the Scheme in November 2023, and the existing annuity policies were exchanged for individual
policies between LGAS and members. As a result, all the Group’s obligations under the pension schemes have now been fully extinguished, and the
defined benefit obligation as at the settlement date of £1,470m was therefore derecognised. On the same date, the Group recognised the direct
liability to the pensioners within insurance contract liabilities. The difference between the defined benefit obligation at this date and the fair value of
the insurance contract liabilities recognised under IFRS 17 resulted in £167m being recognised in the Consolidated Income Statement as settlement
costs. This reflects measurement differences between IFRS 17 and IAS 19, principally comprising of the associated CSM and risk adjustment.
The Fund and the Scheme still hold minimal residual assets which are expected to meet the cost of wind-up expenses. Both the Fund and the
Scheme expect to complete their wind-up in 2024.
Movement in present value of defined benefit obligations
As at 1 January
Current service cost
Interest expense
Actuarial remeasurement (recognised in the Consolidated Statement of Comprehensive Income)
– Change in financial assumptions
– Change in demographic assumptions
– Experience
Benefits paid
Exchange differences
Settlement
As at 31 December
Movement in fair value of plan assets
As at 1 January
Expected return on plan assets at liability discount rate
Actuarial remeasurement (recognised in the Consolidated Statement of Comprehensive Income)
Employer contributions
Benefits paid
Purchase of non-plan asset annuities
Exchange differences
As at 31 December
Gross pension obligations included in provisions
Annuity obligations insured by LGAS
Gross defined benefit pension (deficit)/surplus
Deferred tax on defined benefit pension (deficit)/surplus
Net defined benefit pension (deficit)/surplus
Fund and
Scheme
2023
£m
CALA Homes
and Overseas
2023
£m
Fund and
Scheme
2022
£m
CALA Homes
and Overseas
2022
£m
(1,480)
(105)
(2,348)
(145)
(3)
(64)
70
(20)
(37)
64
–
1,470
–
868
38
53
127
(64)
(1,022)
–
–
–
–
–
–
–
(4)
(5)
(5)
2
(5)
5
2
–
(3)
(42)
816
23
(28)
102
–
–
(4)
(3)
46
–
(1)
7
(5)
–
(115)
(1,480)
(105)
100
1,328
5
(4)
7
(5)
–
(2)
101
(14)
–
(14)
3
(11)
24
(421)
100
(102)
(61)
–
868
(612)
718
106
(27)
79
140
3
(46)
5
(7)
–
5
100
(5)
–
(5)
1
(4)
226
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
The fair value of the plan assets at the end of the year is made up as follows:
As at 31 December 2023
Equities
Bonds
Investment funds
Assured Payment Policy
Cash and cash equivalents
Fair value of plan assets
As at 31 December 2022
Equities
Bonds
Investment funds
Assured Payment Policy
Cash and cash equivalents
Fair value of plan assets
The following amounts have been charged to the income statement:
Current service costs
Net interest expense
Total amounts included in other expenses
24 Payables and other financial liabilities
Derivative liabilities
Repurchase agreements1
Other financial liabilities2
Total payables and other financial liabilities
Due within 12 months
Due after 12 months
Valuation based on
quoted market price
Valuation based on
other than
quoted market price
Fund and
Scheme
£m
CALA Homes
and Overseas
£m
Fund and
Scheme
£m
CALA Homes
and Overseas
£m
–
–
–
–
–
–
27
6
42
–
22
97
–
–
–
–
–
–
–
–
4
–
–
4
Valuation based on
quoted market price
Valuation based on
other than
quoted market price
Fund and
Scheme
£m
CALA Homes
and Overseas
£m
Fund and
Scheme
£m
CALA Homes
and Overseas
£m
–
–
–
–
48
48
30
13
39
–
12
94
–
–
–
820
–
820
–
–
6
–
–
6
Fund and
Scheme
2023
£m
CALA Homes
and Overseas
2023
£m
Fund and
Scheme
2022
£m
CALA Homes
and Overseas
2022
£m
3
26
29
4
–
4
3
18
21
4
–
4
2023
£m
43,821
25,452
9,166
78,439
38,175
40,264
2022
£m
51,190
31,533
11,182
93,905
39,917
53,988
1. Repurchase agreements are presented gross, however they and their related assets (included within debt securities) are subject to master netting arrangements. The significant
majority of repurchase agreements are unit linked.
2. Other financial liabilities include trail commission, lease liabilities, FX spots and the value of short positions taken out to cover reverse repurchase agreements. The value of short
positions as at 31 December 2023 was £2,647m (2022: £4,960m). Other financial liabilities have been restated for 31 December 2022.
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
227
Balance sheet management
continued
24 Payables and other financial liabilities continued
Fair value hierarchy
As at 31 December 2023
Derivative liabilities
Repurchase agreements
Other financial liabilities
Total payables and other financial liabilities
As at 31 December 2022
Derivative liabilities
Repurchase agreements
Other financial liabilities2
Total payables and other financial liabilities
Total
£m
43,821
25,452
9,166
78,439
Total
£m
51,190
31,533
11,182
93,905
Level 1
£m
627
–
3,103
3,730
Level 1
£m
448
–
4,319
4,767
Level 2
£m
43,147
25,452
59
68,658
Level 2
£m
50,717
31,533
253
82,503
Level 3
£m
Amortised
cost1
£m
47
–
–
47
–
–
6,004
6,004
Level 3
£m
Amortised
cost1
£m
25
–
–
25
–
–
6,610
6,610
1. The carrying value of payables and other financial liabilities at amortised cost approximates its fair value.
2. Other financial liabilities have been restated for 31 December 2022.
Derivative liabilities and repurchase agreements are measured at fair value, with changes in fair value recognised in profit or loss.
The fair value of derivative liabilities is derived using broker quotes or models such as option pricing models, simulation models or a combination of
models. The inputs for these models include a range of factors which are deemed to be observable, including current market and contractual prices
for underlying instruments, period to maturity, correlations, yield curves and volatility of the underlying instruments.
Repurchase agreements are valued based on the discounted cash flows expected to be paid, using an observable market interest rate, in line with
the value of the underlying security.
Within other financial liabilities, trail commission is measured at fair value through profit or loss. The balance represents a liability for the present
value of future commission costs on distribution agreements with intermediaries, recognised in the balance sheet on inception of the contract and
remeasured at subsequent reporting dates.
Collateral repayable on short position reverse repurchase agreements and other financial liabilities balances, including FX spots, broker and other
payables, are measured at amortised cost. The carrying value of these liabilities approximates their fair value.
Significant transfers between levels
There have been no significant transfers of liabilities between Levels 1, 2 and 3 for the year ended 31 December 2023 (2022: no significant transfers).
25 Leases
Note 10 Property, plant and equipment shows movements in right-of-use assets recognised on the Consolidated Balance Sheet within Property,
plant and equipment, broken down by class of underlying asset.
The maturity profile of lease liabilities is presented in the table below1. Lease liabilities are included within Payables and other financial liabilities
(see Note 24).
As at 31 December
Within 1 year
1-2 years
2-3 years
3-4 years
4-5 years
After 5 years
Total lease liabilities
1.
Includes investment property lease liability.
Undiscounted
lease
payments
2023
£m
38
36
32
23
11
173
313
Unpaid
finance
charge
2023
£m
(8)
(7)
(5)
(4)
(3)
(112)
(139)
Present value
2023
£m
Undiscounted
lease
payments
2022
£m
30
29
27
19
8
61
174
37
32
26
25
18
171
309
Unpaid
finance
charge
2022
£m
(8)
(6)
(5)
(4)
(4)
(105)
(132)
Present value
2022
£m
29
26
21
21
14
66
177
228
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
Interest expense of £7m (2022: £8m) on lease liabilities is included in finance costs.
The remaining terms on the Group’s leases range from 1 to 234 years (2022: 1 to 235 years), with approximately 24% of the leases (2022: 30%)
having extension options and 69% of these leases (2022: 60%) having termination options. Extension and termination options are included in various
leases across the Group and are used to maximise operational flexibility in terms of managing the assets used in the Group’s operations. The
majority of extension and termination options held are exercisable only by the Group and not by the respective lessor.
At 31 December 2023 the Group had committed to no additional leases which had not yet commenced (2022: committed to no additional leases).
Income from sub-leasing right-of-use assets is reflected in Rental income within Investment return (see Note 27).
Where the Group is a lessor, the future undiscounted minimum lease receivables under operating lease arrangements are disclosed in Note 38(ii).
The future minimum lease payments under finance lease arrangement, together with the present value, are disclosed in Note 13(i).
26 Management of capital resources
Solvency II
The Solvency II financial information in this note is estimated and unaudited.
The Group calculates its Solvency II capital requirements using a Partial Internal Model. The majority of the risk to which the Group is exposed is
assessed on the Partial Internal Model basis approved by the Prudential Regulation Authority (PRA). Capital requirements for a few smaller entities
are assessed using the Standard Formula basis on materiality grounds. The Group’s US insurance businesses and Legal & General Reinsurance
Company No. 2 are valued on a local statutory basis, following the PRA’s approval to use the Deduction and Aggregation method of including these
businesses in the Group solvency calculation.
The table below shows the Group Own Funds, Solvency Capital Requirement (SCR) and Surplus Own Funds, based on the Partial Internal Model,
Matching Adjustment and Transitional Measures on Technical Provisions (TMTP) as at 31 December 2023.
The Group is required to measure and monitor its capital resources on a regulatory basis and to comply with the minimum capital requirements
of regulators in each territory in which it operates. The Group complies with the requirements established by the Solvency II Framework Directive,
as adopted by the Prudential Regulation Authority (PRA) in the UK and measures and monitors its capital resources on this basis. The Solvency II
regulations were amended in the UK in December 2023 to introduce a change to the calculation of Risk Margin. All other Solvency II regulations
remain unchanged.
As at 31 December 2023, and on the above basis, the Group had a surplus of £9,167m (31 December 2022: £9,915m) over its Solvency Capital
Requirement, corresponding to a Solvency II Capital Coverage Ratio of 224% (31 December 2022: 236%). The Solvency II capital position is as
follows:
Unrestricted Tier 1 Own Funds
Restricted Tier 1 Own Funds1
Tier 2 subordinated liabilities
Eligibility restrictions
Solvency II Own Funds2,3
Solvency Capital Requirement
Solvency II surplus
Solvency II capital coverage ratio
1. Restricted Tier 1 Own Funds represent Perpetual restricted Tier 1 contingent convertible notes.
2. Solvency II Own Funds do not include an accrual for the final dividend of £871m (31 December 2022: £829m) declared after the balance sheet date.
3. Solvency II Own Funds allow for a Risk Margin of £1,191m (31 December 2022: £2,753m) and TMTP of £970m (31 December 2022: £2,136m).
2023
£m
12,845
495
3,460
(244)
16,556
(7,389)
9,167
224%
2022
£m
13,393
495
3,448
(110)
17,226
(7,311)
9,915
236%
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
229
Balance sheet management
continued
26 Management of capital resources continued
Solvency II continued
A reconciliation of the Group’s IFRS shareholders’ equity to Solvency II Own Funds is given below:
IFRS equity1
CSM net of tax
IFRS equity plus CSM net of tax
Remove DAC, goodwill and other intangible assets and associated liabilities
Add IFRS carrying value of subordinated borrowings2
Insurance contract valuation differences3
Financial investments valuation differences
Difference in value of net deferred tax liabilities
Other
Eligibility restrictions
Solvency II Own Funds4
2023
£m
4,826
10,462
15,288
(525)
3,768
(622)
(845)
(211)
(53)
(244)
Restated
2022
£m
5,562
9,593
15,155
(502)
3,823
141
(1,111)
(145)
(25)
(110)
16,556
17,226
IFRS equity represents equity attributable to owners of the parent and restricted Tier 1 convertible notes as per the Consolidated Balance Sheet.
1.
2. Treated as available capital on the Solvency II balance sheet as the liabilities are subordinate to policyholder claims.
3. Differences in the measurement of technical provisions between IFRS and Solvency II.
4. Solvency II Own Funds do not include an accrual for the final dividend of £871m (31 December 2022: £829m) declared after the balance sheet date.
Sensitivity analysis
The following sensitivities are provided to give an indication of how the Group’s Solvency II surplus as at 31 December 2023 would have changed in a
variety of adverse events. These are all independent stresses to a single risk. In practice, the balance sheet is impacted by combinations of stresses
and the combined impact can be larger than adding together the impacts of the same stresses in isolation. It is expected that, particularly for market
risks, adverse stresses will happen together.
100bps increase in risk-free rates1
100bps decrease in risk-free rates1,2
Credit spreads widen by 100bps assuming an escalating addition to ratings3,4
Credit spreads narrow by 100bps assuming an escalating deduction from ratings3,4
Credit spreads widen by 100bps assuming a flat addition to ratings3
Credit spreads of sub investment grade assets widen by 100bps assuming a level addition to ratings3,5
Credit migration6
25% fall in equity markets7
15% fall in property markets8
50bps increase in future inflation expectations1
10% increase in maintenance expenses9
Impact on
net of tax
Solvency II
capital
surplus
2023
£bn
Impact on
net of tax
Solvency II
coverage
ratio
2023
%
Impact on
net of tax
Solvency II
capital
surplus
2022
£bn
Impact on
net of tax
Solvency II
coverage
ratio
2022
%
0.1
(0.2)
0.4
(0.6)
0.5
(0.2)
(0.7)
(0.4)
(0.9)
(0.1)
(0.3)
10
(11)
14
(18)
15
(7)
(10)
(3)
(10)
(3)
(4)
0.5
(0.6)
0.3
(0.4)
0.3
(0.3)
(0.8)
(0.4)
(0.9)
(0.1)
(0.3)
18
(19)
13
(16)
14
(7)
(10)
(3)
(11)
(3)
(4)
1. Assuming a recalculation of the Transitional Measure on Technical Provisions that partially offsets the impact on Risk Margin.
2.
3. The spread sensitivity applies to the Group’s corporate bond (and similar) holdings, with no change in long-term default expectations. Restructured lifetime mortgages are excluded
In the interest rate down stress negative rates are allowed, i.e. there is no floor at zero rates.
as the underlying exposure is mostly to property.
4. The stress for AA bonds is twice that for AAA bonds, for A bonds it is three times, for BBB four times and so on, such that the weighted average spread stress for the portfolio is
100 basis points. To give a 100bps increase on the total portfolio, the spread stress increases in steps of 32bps, i.e. 32bps for AAA, 64bps for AA etc.
5. No stress for bonds rated BBB and above. For bonds rated BB and below the stress is 100bps. The spread widening on the total portfolio is smaller than 1bps as the Group holds less
than 1% in bonds rated BB and below. The impact is primarily an increase in SCR arising from the modelled cost of trading downgraded bonds back to a higher rating in the stress
scenarios in the SCR calculation.
6. Credit migration stress covers the cost of an immediate big letter downgrade on 20% of all assets where the capital treatment depends on a credit rating (including corporate bonds,
and sale and leaseback rental strips; lifetime mortgage senior notes are excluded). Downgraded assets in our annuities portfolio are assumed to be traded to their original credit rating,
so the impact is primarily a reduction in Own Funds from the loss of value on downgrade. The impact of the sensitivity will depend upon the market levels of spreads at the balance
sheet date.
7. This relates primarily to equity exposure in LGC but will also include equity-based mutual funds and other investments that receive an equity stress (for example, certain investments
in subsidiaries). Some assets have factors that increase or decrease the stress relative to general equity levels via a beta factor.
8. Assets stressed include residual values from sale and leaseback, the full amount of lifetime mortgages and direct investments treated as property.
9. A 10% increase in the assumed unit costs and future costs of investment management across all long-term insurance business lines.
The above sensitivity analysis does not reflect all management actions which could be taken to reduce the impacts. In practice, the Group actively
manages its asset and liability positions to respond to market movements. Other than in the interest rate and inflation stresses, we have not allowed
for the recalculation of TMTP.
230
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
The impacts of these stresses are not linear therefore these results should not be used to interpolate or extrapolate the impact of a smaller or larger
stress. The results of these tests are indicative of the market conditions prevailing at the balance sheet date. The results would be different if
performed at an alternative reporting date.
Capital management policies and objectives
The Group aims to manage its capital resources to maintain financial strength, policyholder security and relative external ratings advantage. The
Group also seeks to maximise its financial flexibility by maintaining strong liquidity and by utilising a range of alternative sources of capital including
equity, senior debt, subordinated debt and reinsurance.
Capital measures
The Group measures its capital on a number of different bases, including those which comply with the regulatory frameworks within which the Group
operates and those which the directors consider most appropriate for managing the business. The measures used by the Group include:
Accounting and Economic bases
Management use financial information prepared on both an IFRS and risk-based capital basis to manage capital and cash flow usage and to
determine dividend paying capacity.
The Group maintains a risk-based capital model that is used to support the management of risk within the Group. This modelling framework, suitably
adjusted for regulatory constraints, also meets the needs of the Solvency II regime.
Regulatory bases
The financial strength of the Group’s insurance subsidiaries is measured under various local regulatory requirements (see below).
Basis of regulatory capital and corresponding regulatory capital requirements
In each country in which the Group operates, the local insurance regulator specifies rules and guidance for the minimum amount and type of capital
which must be held by insurance subsidiaries in excess of their insurance liabilities. The minimum capital requirements have been maintained at all
times throughout the year. This helps to ensure that payments to policyholders can be made as they fall due.
The required capital is calculated by either assessing the additional assets which would be required to meet the insurance company’s liabilities in
specified, stressed financial conditions, or by applying fixed percentages to the insurance company’s liabilities and risk exposures. The requirements
in the different jurisdictions in which the Group operates are detailed below:
Group regulatory basis
The Group is required to comply with the Solvency II capital requirements calculated using the Group’s Partial Internal Model. The vast majority of
the risk to which the Group is exposed is assessed on the Internal Model basis approved by the PRA. The Group capital requirements for a handful
of smaller entities are assessed using the Standard Formula basis on materiality grounds. The Group’s capital requirements in respect of its US
insurance businesses and Legal & General Reinsurance Company No. 2 (L&G Re 2) are valued on a local statutory basis, following PRA approval of
the Group’s application to use the Deduction and Aggregation method of including these businesses in the Group solvency calculation.
UK regulatory basis
At the balance sheet date, required capital for the life business was based on the Solvency II Framework Directive, as adopted by the PRA. All
material EEA insurance firms, including Legal and General Assurance Society Limited and Legal and General Assurance (Pensions Management)
Limited (LGIM’s insurance subsidiary) are required to hold Eligible Own Funds in excess of their Solvency Capital Requirement, calculated on a Partial
Internal Model basis. These firms, as well as the non-EEA insurance firm (Legal & General Reinsurance Company Limited based in Bermuda)
contribute over 90% of the Group’s SCR.
US regulatory basis
Required capital is determined to be the Company Action Level Risk Based Capital (RBC) based on the National Association of Insurance
Commissioners RBC model. RBC is a method of measuring the minimum amount of capital appropriate for an insurance company to support its
overall business operations, taking into account its size and risk profile. The calculation is based on applying factors to various asset, premium,
claims, expense and reserve items, with higher factors used for those items with greater underlying risk and lower factors for less risky items.
Bermudan regulatory basis
Bermudan regulated insurers are required to hold sufficient capital to meet the Bermudan Solvency Capital Requirement (BSCR). The BSCR model
follows a standard formula framework, capital attributed to each risk is calculated by applying specified stresses to the assets and liabilities.
The individual risk elements (excluding operational risk) are combined using a covariance matrix and then added to an operational risk charge.
Balance sheet management
Legal & General Group Plc Annual report and accounts 2023
231
Additional financial information
27 Investment return
The Group earns an investment return from holdings in financial instruments and property investments, held to either back insurance and investment
contracts on behalf of policyholders or to deliver returns on Group capital.
Annuities
£m
Protection
£m
Other assets
£m
For the year ended 31 December 2023
Dividend income
Interest income on financial investments at fair value through profit or loss
Interest income on financial investments at fair value through other comprehensive income
Interest income on financial investments at amortised cost
Other investment (expense)/income1
Gains on financial investments at fair value through profit or loss2
Gains on derivative instruments at fair value through profit or loss2
Realised (losses)/gains on financial assets measured at fair value through other
comprehensive income
Financial investment return
Rental income
Net fair value losses on properties
Property investment return
Total investment return recognised in profit or loss
Net movement in financial investments designated at fair value through other
comprehensive income
Total investment return
Finance expense from insurance contracts issued3
Of which are recognised in:
Profit or loss
Other comprehensive income
Finance income from reinsurance contracts issued3
Of which are recognised in:
Profit or loss
Other comprehensive income
11
2,411
22
196
(408)
1,194
2,100
–
5,526
237
(579)
(342)
5,184
62
5,246
(5,841)
(5,841)
–
625
625
–
–
49
16
80
6
16
–
(2)
165
–
–
–
Total
£m
4,160
6,594
38
276
(132)
20,143
2,339
4,149
4,134
–
–
270
18,933
239
12
10
27,737
33,428
233
(346)
(113)
470
(925)
(455)
165
27,624
32,973
13
178
(62)
11
(73)
2
(41)
43
–
27,624
–
–
–
–
–
–
75
33,048
(5,903)
(5,830)
(73)
627
584
43
1. Other investment (expense)/income primarily comprises interest, gains and losses from derivative and other financial instruments.
2. Mandatorily measured at fair value through profit or loss.
3. The analysis of investment return and finance income/expense has been split between insurance contract portfolios. For annuity insurance liabilities, changes in the discount rate are
reflected in profit or loss. The backing portfolio of assets is selected to match the liabilities and is predominantly accounted for as FVTPL. A sub-portfolio of assets backing annuity
liabilities are accounted for at amortised cost as they are in surplus to the IFRS 17 best estimate liability and risk adjustment. Protection insurance liabilities have applied the IFRS 17
OCI option. Changes in discount rate are therefore reported in OCI, whilst backing assets are classified as either FVOCI or amortised cost.
232
Legal & General Group Plc Annual report and accounts 2023
Financial statements
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Governance
Financial statements
Other information
For the year ended 31 December 2022 (Restated)
Dividend income
Interest income on financial investments at fair value through profit or loss
Interest income on financial investments at fair value through other comprehensive
income
Interest income on financial investments at amortised cost
Other investment (expense)/income1
Losses on financial investments at fair value through profit or loss2
Losses on derivative instruments at fair value through profit or loss2
Realised (losses)/gains on financial assets measured at fair value through other
comprehensive income
Financial investment return
Rental income
Net fair value losses on properties
Property investment return
Total investment return recognised in profit or loss
Net movement in financial investments designated at fair value through other
comprehensive income
Total investment return
Finance income from insurance contracts issued3
Of which are recognised in:
Profit or loss
Other comprehensive income
Finance income/(expense) from reinsurance contracts issued3
Of which are recognised in:
Profit or loss
Other comprehensive income
Annuities
£m
Protection
£m
Other assets
£m
Total
£m
4,521
5,388
3
281
4,512
3,281
–
2
693
(1,498)
(84,333)
(100,397)
(2,399)
(5,357)
–
–
1
41
3
47
(4)
(118)
–
–
(30)
(78,244)
(97,059)
–
–
–
225
(652)
(427)
422
(1,715)
(1,293)
(30)
(78,671)
(98,352)
(132)
(162)
1,922
169
1,753
(1,031)
(1)
(1,030)
–
(132)
(78,671)
(98,484)
–
–
–
–
–
–
20,867
19,114
1,753
(1,024)
6
(1,030)
8
2,066
–
232
(2,187)
(15,946)
(2,958)
–
(18,785)
197
(1,063)
(866)
(19,651)
–
(19,651)
18,945
18,945
–
7
7
–
1. Other investment (expense)/income primarily comprises interest, gains and losses from derivative and other financial instruments.
2. Mandatorily measured at fair value through profit or loss.
3. The analysis of investment return and finance income/expense has been split between insurance contract portfolios. For annuity insurance liabilities, changes in the discount rate are
reflected in profit or loss. The backing portfolio of assets is selected to match the liabilities and is predominantly accounted for as FVTPL. A sub-portfolio of assets backing annuity
liabilities are accounted for at amortised cost as they are in surplus to the IFRS 17 best estimate liability and risk adjustment. Protection insurance liabilities have applied the IFRS 17
OCI option. Changes in discount rate are therefore reported in OCI, whilst backing assets are classified as either FVOCI or amortised cost.
28 Tax
The table below provides a summary of the standard corporate income tax rates of the main territories we operate in.
UK
USA
Bermuda
Ireland
2023
23.5%
21.0%
0.0%
12.5%
2022
19.0%
21.0%
0.0%
12.5%
The tax shown in the Consolidated Income Statement and Consolidated Statement of Comprehensive Income comprises current and deferred tax.
(i) Implementation of the global minimum tax regime
During the year the UK Government enacted legislation to apply a global minimum tax rate of 15% to multinational businesses headquartered in the
UK, as well as a new domestic UK minimum tax rate of 15%, in line with the Model Rules agreed by the Organisation for Economic Co-operation and
Development (OECD). These rules apply from 1 January 2024, and will apply to all of the Group’s businesses globally.
The Group has applied the temporary mandatory exception from deferred tax accounting for the impacts of the UK top-up tax and will account for it
as a current tax when it is incurred.
The Group is expected to be liable to UK top-up tax in 2024 in respect of profits arising in our global reinsurance hub in Bermuda. Our Bermudan
businesses act as an internal hub for the Group and also support the growth of our international pension risk transfer business.
Additional financial information
Legal & General Group Plc Annual report and accounts 2023
233
Additional financial information
continued
28 Tax continued
(i) Implementation of the global minimum tax regime continued
If the global minimum tax rules had applied in 2023, then additional tax of 15% would apply to profits arising in territories at lower tax rates. The
reconciliation of the tax expense attributable to equity holders in Note 28 (iii) discloses the impact of overseas profits which are subject to a lower
or higher rate of tax than the standard UK rate in 2023, which primarily relates to the Group’s Bermudan businesses.
From 2025, we anticipate that the Group will be liable for local Bermudan corporate income tax at 15%, instead of top-up tax under the global
minimum tax rules, on Bermudan profits.
We do not anticipate any other significant liabilities under the global minimum tax rules based on the Group’s current profile. Further guidance on
the implementation of these new rules is expected in due course and will be kept under review.
(ii) Implementation of the Bermuda corporate income tax regime
During 2023 the Bermudan Government consulted on introducing a local corporate income tax with effect from 1 January 2025, which would apply
to our Bermudan reinsurance businesses. This has been substantively enacted as at 31 December 2023 and deferred tax on temporary differences
and unused tax losses relating to our Bermudan businesses have been re-valued from 0% to 15%.
This has resulted in a deferred tax asset of £340m as at 31 December 2023. The deferred tax asset is recognised in respect of tax reliefs permitted
under the Bermuda corporate income tax regime which give rise to deductible temporary differences. The majority of these reliefs are expected to
unwind from 2025 over 10 years on a straight line basis. The Group expects to have sufficient future taxable profits to offset the unwind of these
deductible temporary differences.
The deferred tax asset of £340m is included within the deferred tax disclosure in Note 28 (iv) and is within the line item for the difference between
tax and accounting value of insurance contracts.
Further guidance on the implementation of these new rules is expected in due course. This and the interaction with the UK rules will be kept under
review as guidance emerges for any impact.
(iii) Tax (credit)/expense in the Consolidated Income Statement
Current tax
Deferred tax
– Origination or reversal of temporary differences in the year
– Impact of revaluation of deferred tax balances
Total deferred tax
Adjustment to equity holders’ tax in respect of prior years
Total tax (credit)/expense
Less: tax attributable to policyholder returns
Total tax (credit)/expense attributable to equity holders
2023
£m
120
(356)
(1)
(357)
(11)
(248)
(119)
(367)
Restated
2022
£m
446
(209)
(59)
(268)
(21)
157
(71)
86
234
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
The tax expense attributable to equity holders differs from the tax calculated on profit before tax at the standard UK corporation tax rate as follows:
Profit before tax attributable to equity holders
Tax calculated at 23.5%1
Adjusted for the effects of:
Recurring reconciling items:
Different rate of tax on profits and losses taxed overseas2
Income not subject to tax
Non-deductible expenses
Differences between taxable and accounting investment gains
Other taxes on property and foreign income
Unrecognised tax losses
Double tax relief3
Non-recurring reconciling items:
Adjustments in respect of prior years4
Impact of the revaluation of deferred tax balances
Impact of law changes on deferred tax balances5
Tax (credit)/expense attributable to equity holders6
Equity holders’ effective tax rate7
2023
£m
76
18
(68)
(4)
27
(9)
4
19
(2)
(11)
(1)
(340)
(367)
Restated
2022
£m
868
165
12
(3)
(2)
(9)
6
17
(20)
(21)
(59)
–
86
(483)%
10%
1. The Finance Act 2021 increased the rate of corporation tax from 19% to 25% from 1 April 2023. The prevailing rate of UK corporation tax for the year has increased to 23.5% (2022:
19.0%). The enacted tax rate of 25% has been used in the calculation of UK deferred tax assets and liabilities, as the rate of corporation tax that is expected to apply when the majority
of those deferred tax balances reverse.
2. The lower rate of tax on overseas profits and losses is principally driven by the 0% rate of taxation arising in our Bermudan reinsurance company, which provides the Group with
regulatory capital flexibility for both our PRT business and our US term insurance business. This also includes the impact of our US operations which are taxed at 21%.
3. Double tax relief represents a UK tax credit available for overseas withholding tax suffered on dividend income.
4. Adjustments in respect of prior years relate to revisions of prior estimates.
5. The tax credit relates to the introduction of a new corporate income tax regime in Bermuda, which was enacted in December 2023.
6. The tax credit for the year includes a material one-off tax credit arising from the recognition of a deferred tax asset relating to the introduction of a new Bermuda corporate income tax
regime. The net tax credit for the year excluding this one-off credit is £27m and reflects the varying rates of tax that we pay on our businesses in different territories and the mixture of
profits and losses across those territories.
7. The equity holders’ effective tax rate excluding the impact of expenses arising from rate differences on longevity assumption changes, the one-off settlement cost associated with the
buy-out of the Group’s UK defined benefit pension schemes and the one-off Bermuda tax credit is 11.9%.
Additional financial information
Legal & General Group Plc Annual report and accounts 2023
235
Additional financial information
continued
28 Tax continued
(iv) Deferred tax – Consolidated Balance Sheet
Deferred tax assets and liabilities have been recognised/(provided) for temporary differences and unused tax losses. The recognition of deferred tax
assets in respect of temporary differences and tax losses is supported by management’s best estimate of future taxable profits to absorb the losses
in future years. Deferred tax assets and liabilities presented on the Consolidated Balance Sheet have been offset to the extent it is permissible under
the relevant accounting standards. The net movement in deferred tax assets and liabilities during the year is as follows:
Deferred tax assets/(liabilities)
Overseas deferred acquisition expenses1
Difference between the tax and accounting value of insurance contracts
– UK2
– US
– Bermuda3
Realised and unrealised gains on investments
Excess of depreciation over capital allowances
Accounting provisions and other
Trading losses
– UK
– US4
Pension fund deficit
Acquired intangibles
Net deferred tax assets/(liabilities)
– Deferred tax assets
– Deferred tax liabilities5
Net deferred tax assets/(liabilities)
Deferred tax assets/(liabilities)
Overseas deferred acquisition expenses1
Difference between the tax and accounting value of insurance contracts
– UK2
– Overseas
Realised and unrealised gains on investments
Excess of depreciation over capital allowances
Accounting provisions and other
Trading losses4
Pension fund deficit
Acquired intangibles
Net deferred tax assets/(liabilities)
Presented on the Consolidated Balance Sheet as:
– Deferred tax assets
– Deferred tax liabilities5
Net deferred tax assets/(liabilities)
Net tax
asset as at
1 January
2023
£m
Tax
(charged)/
credited to
the income
statement
£m
Tax
(charged)/
credited
to OCI
or equity
£m
Acquisitions/
disposals/
transfers
£m
Net tax
asset as at
31 December
2023
£m
116
458
1,237
(779)
–
145
21
59
463
–
463
(26)
(2)
1,234
1,440
(206)
1,234
11
248
(71)
(21)
340
(49)
(4)
8
172
76
96
(15)
(1)
370
265
105
370
(6)
6
(41)
47
–
(24)
–
9
(26)
–
(26)
44
–
3
9
(6)
3
–
24
24
–
–
–
–
(24)
–
–
–
–
–
–
–
–
–
121
736
1,149
(753)
340
72
17
52
609
76
533
3
(3)
1,607
1,714
(107)
1,607
Restated
Net tax
asset as at
1 January
2022
£m
Restated
Tax
(charged)/
credited to the
income
statement
£m
Restated
Tax
(charged)/
credited
to OCI
or equity
£m
Restated
Acquisitions/
disposals/
transfers
£m
Restated
Net tax
asset
as at 31
December
2022
£m
95
669
1,032
(363)
(77)
22
41
348
9
–
1,107
1,167
(60)
1,107
9
(44)
288
(332)
237
(1)
15
72
(15)
1
274
39
235
274
12
(208)
(87)
(121)
26
–
(1)
43
(19)
–
(147)
(173)
26
(147)
–
41
4
37
(41)
–
4
–
(1)
(3)
–
407
(407)
–
116
458
1,237
(779)
145
21
59
463
(26)
(2)
1,234
1,440
(206)
1,234
1. Deferred tax assets arising on deferred acquisition expenses relate solely to US balances.
2. The UK deferred tax asset reflects the impact of transition to IFRS 17 (see Note 1 for further details).
3. The Bermuda deferred tax asset relates to the introduction of a new corporate income tax regime in Bermuda, which was enacted in December 2023 (see Note 28 (ii)).
4. This deferred tax asset relates to US operating losses. The losses are not time restricted, and we expect to recover them over a period of 15 to 20 years, commensurate with the
lifecycle of the underlying insurance contracts. In reaching this conclusion, we have considered past results, the different basis under which US companies are taxed, temporary
differences that are expected to generate future profits against which the deferred tax can be offset, management actions, and future profit forecasts. The recoverability of deferred
tax assets is routinely reviewed by management.
5. The deferred tax liability is comprised of balances of £107m relating to the US (2022: £206m) that are not capable of being offset against other deferred tax assets.
236
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
Unrecognised deferred tax assets
The Group has the following unrelieved tax losses and deductible temporary differences carried forward as at 31 December 2023. No deferred tax
asset has been recognised in respect of these as at 31 December 2023 (or 31 December 2022), as it is not probable that there will be suitable taxable
profits emerging in future periods against which to relieve them. These tax assets will only be recognised if it becomes probable that suitable taxable
profits will arise in future periods.
Trading losses1
Capital losses
Excess management expense
Unrelieved interest payments on debt instruments
Other unrecognised deferred tax
Unrecognised deferred tax assets
Gross
2023
£m
330
157
9
14
3
513
Tax
2023
£m
67
34
2
4
1
108
1. Trading losses includes £68m (2022: £57m) related to the US business which are expected to expire between 2026 and 2032.
(v) Current tax – Consolidated Balance Sheet
Tax recoverable within 12 months
Tax recoverable after 12 months
Current tax assets1
1. Of the total current tax asset, £805m (2022: £745m) relates to amounts recoverable in respect of withholding tax reclaims attributable to unit linked funds.
Tax due within 12 months
Tax due after 12 months
Current tax liabilities
(vi) Tax charged directly in equity
Current tax
Deferred tax
Tax (credit)/charge recognised directly in equity
29 Auditors’ remuneration
Remuneration receivable by the Company’s auditors for the audit of the consolidated and Company financial statements
Remuneration receivable by the Company’s auditors and its associates for the supply of other services to the Company and its
associates, including remuneration for the audit of the financial statements of the Company’s subsidiaries:
The audit of the Company’s subsidiaries
Audit related assurance services – required by national or EU legislation
Audit related assurance services – other
Other assurance services
Total remuneration
Restated
Gross
2022
£m
272
67
9
14
–
362
2023
£m
75
810
885
2023
£m
2
75
77
2023
£m
(7)
(1)
(8)
2023
£m
3.5
16.1
1.6
1.0
0.9
23.1
Restated
Tax
2022
£m
61
14
2
4
–
81
2022
£m
52
750
802
2022
£m
1
68
69
Restated
2022
£m
(6)
1
(5)
2022
£m
3.0
11.2
1.6
0.9
0.8
17.5
Additional financial information
Legal & General Group Plc Annual report and accounts 2023
237
Additional financial information
continued
30 Employee information
Monthly average number of staff employed during the year:
UK
USA
Europe
Other
Worldwide employees
Wages and salaries
Social security costs
Share-based incentive awards
Defined benefit pension costs
Defined contribution pension costs
Total employee related expenses
2023
2022
10,670
1,132
66
88
10,333
1,032
59
74
11,956
11,498
Notes
31
23
23
2023
£m
1,004
111
59
33
102
2022
£m
917
105
54
25
93
1,309
1,194
31 Share-based payments
(i) Description of plans
The Group provides a number of equity settled share-based long-term incentive plans for directors and eligible employees.
The Savings Related Share Option Plan (ShareSave) allows employees to enter into a regular savings contract over three and/or five years, coupled
with a corresponding option over shares of the Group. The grant price is equal to 80% of the quoted market price of the Group shares on the invitation
date.
Nil-cost options can be granted to senior managers under the Performance Share Plan (PSP), based upon individual and Company performance.
Performance conditions attached to awards before 2018 result in the number of options that vest being equally dependent on the Group’s relative
total shareholder return (TSR) and Earnings per Share (EPS)/Dividend per Share (DPS) growth. In addition, the awards vest after the end of the three
year performance period and become exercisable in thirds over three, four and five years. Starting from awards granted in 2018, the number of
options that vest is equally dependent on the Group’s relative TSR and EPS growth (subject to Solvency II objectives). The majority of awards vest
after the end of the three year performance period and become exercisable in thirds in year three, four and five. Awards granted to Executive
Directors and Persons Delivering Managerial Responsibilities vest after three years but any options that vest will not become exercisable until year
five.
The Share Bonus Plan (SBP) awards conditional shares, restricted shares, combined awards of CSOP options and restricted shares and combined
awards of CSOP options and nil-cost options. Recipients of restricted shares are entitled to both vote and receive dividends. Fair value is calculated
as the market value on the grant date, adjusted to reflect the eligibility for dividend payments. Conditional Share awards, which include awards to
Executive Directors, do not have voting or dividend rights.
Under the HMRC tax-advantaged Employee share plan (ESP), UK employees may elect to purchase Group shares from the market at the prevailing
market price on a monthly basis. The Group supplements the number of shares purchased by giving employees one free matching share for every
one share purchased up to the first £20 of the employees’ contributions and one free matching share for every two shares purchased with
contributions between £20 and £125. There is currently no match on contributions between £125 and £150. From time to time, the Group may make
an award of free shares. Both the free and matching shares must be held in trust for three years. The fair value of awarded shares is equal to the
market value on award date.
The weighted average fair value of ShareSave options calculated by using the Black-Scholes model were 44.9p and PSP awards estimated by using
Monte Carlo simulations were 162.8p.
The fair values of the share awards made during the year have been calculated using the following assumptions:
Award date
Weighted average share price (pence)
Weighted average exercise price (pence)
Expected volatility
Expected life
Risk free investment rate
Dividend yield
ShareSave
6 April 2023
242.0
211.0
33%
3 – 5 years
3.29% – 3.44%
7.5%
PSP
6 April 2023
238.1
N/A
31%
3 – 5 years
3.49%
N/A
238
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
(ii) Total recognised expense
The total recognised expense relating to share-based payments in 2023 was £59m (2022: £54m) before tax, all of which related to equity settled
share schemes. This is broken down between the Group’s plans as detailed below:
Share bonus plan (SBP)
Performance share plan (PSP)
Employee share plan (ESP)
Savings related share option plan (ShareSave)
Total share-based payment expense
(iii) Outstanding share options
Outstanding at 1 January
Granted during the year
Forfeited during the year
Exercised during the year
Expired during the year
Outstanding at 31 December
Exercisable at 31 December
Weighted average remaining contractual life (years)
Outstanding at 1 January
Granted during the year
Forfeited during the year
Exercised during the year
Expired during the year
Outstanding at 31 December
Exercisable at 31 December
Weighted average remaining contractual life (years)1
2023
£m
2022
£m
42
13
2
2
59
38
12
2
2
54
ShareSave
options
2023
23,983,860
7,740,104
(2,613,099)
(6,324,780)
(982,127)
21,803,958
75,957
2
ShareSave
options
2022
19,206,594
11,768,715
(3,494,833)
(2,837,683)
(658,933)
23,983,860
3,151
3
Weighted
average
exercise
price
2023
p
CSOP
options
2023
Weighted
average
exercise
price
2023
p
Nil-cost
options
2023
Weighted
average
exercise
price
2023
p
207
211
211
200
210
210
199
Weighted
average
exercise
price
2022
p
212
205
219
214
211
207
217
5,513,503
258
35,717,751
–
–
6,685,541
(262,301)
(1,296,635)
(305,272)
3,649,295
–
1
CSOP
options
2022
3,963,756
2,719,728
–
–
(1,169,981)
5,513,503
–
2
263
204
227
280
(30,066)
(3,819,125)
(6,148,070)
32,406,031
–
1,088,693
4
Weighted
average
exercise
price
2022
p
256
272
–
–
281
258
–
Restated
Nil-cost
options
2022
34,790,116
6,356,257
–
(3,210,499)
(2,218,123)
35,717,751
847,559
5
–
–
–
–
–
–
–
Weighted
average
exercise
price
2022
p
–
–
–
–
–
–
–
1. Weighted average remaining contractual life for CSOP options have been restated for 31 December 2022.
(iv) Total options
Options over 57,859,284 shares are outstanding under ShareSave, CSOP and PSP as at 31 December 2023 (2022: 65,215,114 shares). These options
have a range of exercise prices between 0p and 295p (2022: 0p and 295p) and maximum remaining contractual life up to 2032 (2022: 2032).
Additional financial information
Legal & General Group Plc Annual report and accounts 2023
239
Additional financial information
continued
32 Share capital, share premium and employee scheme treasury shares
(i) Share capital and share premium
Authorised share capital
At 31 December: ordinary shares of 2.5p each
Issued share capital, fully paid
As at 1 January 2023
Options exercised under share option schemes
As at 31 December 2023
Issued share capital, fully paid
As at 1 January 2022
Options exercised under share option schemes
As at 31 December 2022
2023
Number of
shares
9,200,000,000
2023
£m
230
2022
Number of
shares
9,200,000,000
Number of
shares
5,973,253,500
6,324,780
5,979,578,280
Number of
shares
5,970,415,817
2,837,683
5,973,253,500
Share
capital
£m
149
–
149
Share
capital
£m
149
–
149
2022
£m
230
Share
premium
£m
1,018
12
1,030
Share
premium
£m
1,012
6
1,018
There is one class of ordinary shares of 2.5p each. All shares issued carry equal voting rights.
The holders of the Company’s ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at shareholder
meetings of the Company.
(ii) Employee share plans
The Group uses the Employees’ Share Ownership Trust (ESOT) and the Legal & General Group Employee Share Plan (ESP) to purchase and hold
shares of the Group for delivery to employees under various employee share plans. Shares owned by these vehicles are included at cost in the
Consolidated Balance Sheet and are shown as a deduction from shareholders’ equity. They are disclosed as employee plan shares until they vest
to employees. Share-based liabilities to employees may also be settled via purchases directly from the market or by the issue of new shares.
The ESOT has waived its voting rights and its rights to some of the dividends payable on the shares it holds. Employees are entitled to dividends
on the shares held on their behalf within the ESP.
As at 1 January
Shares purchased
Shares vested
As at 31 December
2023
Number of
shares
60,807,213
8,093,113
(6,721,535)
62,178,791
2023
£m
144
18
(15)
147
2022
Number of
shares
42,700,058
23,424,103
(5,316,948)
60,807,213
2022
£m
99
59
(14)
144
33 Restricted Tier 1 convertible notes
On 24 June 2020, Legal & General Group Plc issued £500m of 5.625% perpetual restricted Tier 1 contingent convertible notes. The notes are callable
at par between 24 March 2031 and 24 September 2031 (the First Reset Date) inclusive and every 5 years after the First Reset Date. If not called, the
coupon from 24 September 2031 will be reset to the prevailing five year benchmark gilt yield plus 5.378%.
The notes have no fixed maturity date. Optional cancellation of coupon payments is at the discretion of the issuer and mandatory cancellation is
upon the occurrence of certain conditions. The Tier 1 notes are therefore treated as equity and coupon payments are recognised directly in equity
when paid. During the year coupon payments of £28m were made (2022: £28m). The notes rank junior to all other liabilities and senior to equity
attributable to owners of the parent. On the occurrence of certain conversion trigger events the notes are convertible into ordinary shares of the
issuer at the prevailing conversion price.
The notes are treated as restricted Tier 1 own funds for Solvency II purposes.
34 Non-controlling interests
Non-controlling interests represent third party interests in direct equity investments, including private equity, which are consolidated in the Group’s results.
As at 31 December 2023, non-controlling interests primarily represent third party ownership in Thorpe Park Holdings, a mixed residential/
commercial retail space in which the Group holds 50%.
240
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
35 Other liabilities
Accruals
Deferred income
Other
Total other liabilities
Due within 12 months
Due after 12 months
2023
£m
508
29
143
680
673
7
Restated
2022
£m
517
14
232
763
708
55
36 Related party transactions
(i) Key management personnel transactions and compensation
There were no material transactions between key management and the Legal & General group of companies during the period. All transactions
between the Group and its key management are on commercial terms which are no more favourable than those available to employees in general.
Contributions to the post-employment defined benefit plans were £134m (31 December 2022: £105m) for all employees.
At 31 December 2023 and 31 December 2022 there were no loans outstanding to officers of the Company.
The aggregate compensation for key management personnel, including executive and non-executive directors, is as follows:
Salaries
Share-based incentive awards
Key management personnel compensation
2023
£m
12
8
20
2022
£m
11
6
17
(ii) Services provided to and by related parties
All transactions between the Group and associates, joint ventures and other related parties during the year are on commercial terms which are no
more favourable than those available to companies in general.
The Group has the following material related party transactions:
• A number of transactions between the Group’s UK defined benefit pension schemes and Legal and General Assurance Society Limited (LGAS)
occurred during the year. These include the surrender of Assured Payment Policies (APPs) and their conversion into annuities, as well as a
buy-out of the schemes completed by the Trustees, where existing annuity policies were exchanged for individual policies between LGAS and
members. Further details are provided in Note 23; and
• Total payments by LGAS to the pension schemes for insured pension benefits were £55m (2022: £56m).
Loans and commitments to related parties are made in the normal course of business. As at 31 December 2023, the Group had:
• Loans outstanding from related parties of £49m (2022: £58m), with a further commitment of £7m (2022: £6m); and
• Total other commitments of £1,347m to related parties (2022: £1,265m), of which £1,108m has been drawn (2022: £1,010m).
Additional financial information
Legal & General Group Plc Annual report and accounts 2023
241
Additional financial information
continued
37 Contingent liabilities, guarantees and indemnities
Provision for the liabilities arising under contracts with policyholders is based on certain assumptions. The variance between actual experience
from that assumed may result in those liabilities differing from the provisions made for them. Liabilities may also arise in respect of claims relating
to the interpretation of policyholder contracts, or the circumstances in which policyholders have entered into them. The extent of these liabilities is
influenced by a number of factors including the actions and requirements of the PRA, FCA, ombudsman rulings, industry compensation schemes
and court judgments.
Various Group companies receive claims and become involved in actual or threatened litigation and regulatory issues from time to time. The relevant
members of the Group ensure that they make prudent provision as and when circumstances calling for such provision become clear, and that each
has adequate capital and reserves to meet reasonably foreseeable eventualities. The provisions made are regularly reviewed. It is not possible to
predict, with certainty, the extent and the timing of the financial impact of these claims, litigation or issues.
Group companies have given warranties, indemnities and guarantees as a normal part of their business and operating activities or in relation to
capital market transactions or corporate disposals. Legal & General Group Plc has provided indemnities and guarantees in respect of the liabilities
of Group companies in support of their business activities. Legal and General Assurance Society Limited has provided indemnities, a liquidity and
expense risk agreement, a deed of support and a cash and securities liquidity facility in respect of the liabilities of Group companies to facilitate the
Group’s matching adjustment reorganisation pursuant to Solvency II.
38 Commitments
(i) Capital commitments
Authorised and contracted commitments not provided for in respect of investment property development, payable after 31 December:
– Long-term business
2023
£m
2022
£m
720
640
(ii) Lease commitment receivable – payments to be received under operating leases
Where the Group is a lessor, the future undiscounted minimum lease payments under operating lease arrangements are disclosed below:
Within 1 year
1-2 years
2-3 years
3-4 years
4-5 years
After 5 years
Total lease commitment receivable
Total
future
payments
2023
£m
Total
future
payments
2022
£m
418
401
381
366
354
4,459
6,379
392
374
360
347
334
4,110
5,917
Lease commitments payable are disclosed as part of the leases disclosure in Note 25.
39 Associates and joint ventures
Summarised financial information for associates and joint ventures accounted for under the equity method is shown below:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
(Loss)/profit from continuing operations – total
(Loss)/profit from continuing operations – Group’s share
Total comprehensive income – total
Total comprehensive income – Group’s share
Associates
2023
£m
106
1,638
216
867
(76)
(28)
(76)
(28)
Joint
ventures
2023
£m
Associates
2022
£m
486
403
133
24
(88)
(34)
(88)
(34)
32
112
6
113
(20)
(2)
(20)
(2)
Joint
ventures
2022
£m
486
1,212
171
597
99
49
99
49
The associates and joint ventures have no significant contingent liabilities to which the Group is exposed. The Group has no commitments to provide
funding to associates and joint ventures other than the ones included in Note 38.
242
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
During the year, the total value of Investment in associates and joint ventures accounted for using the equity method on the Group’s Consolidated
Balance Sheet increased to £616m (2022: £554m), reflecting a number of additions and disposals, as well as the Group’s share of the profits and
losses of the respective associates and joint ventures.
40 Related undertakings
The Companies Act 2006 requires disclosure of information about the Group’s subsidiaries, associates, joint ventures and other significant holdings.
Significant holdings are entities in which the Group either has a shareholding greater than or equal to 20% of the nominal value of any share class, or
a book value greater than 20% of the Group’s assets.
(i) Subsidiaries
The particulars of the Company’s subsidiaries, mutual funds and partnerships that have been consolidated as at 31 December 2023 are listed below.
The main territory of operation of subsidiaries incorporated in England and Wales is the UK. For overseas subsidiaries the principal country of
operation is the same as the country of incorporation. All subsidiaries have a 31 December year end reporting date and are 100% owned, unless
stated otherwise. The registered office of all subsidiaries in England and Wales is One Coleman Street, London EC2R 5AA, United Kingdom, and in
Ireland is Dillon Eustace, 33 Sir John Rogerson’s Quay, Dublin 2, Ireland, unless otherwise noted. All subsidiaries are held through intermediate
holding companies unless noted that they are held direct by the Company. Subsidiaries that are consolidated where the Group owns less than 50%
of the ordinary share capital, are consolidated based on an assessment of control normally arising from special rights attaching to the class of share
owned, other contractual arrangements and factors such as the purpose of the investee, the nature of its relevant activities, voting rights (including
potential voting rights) and substantive and protective rights.
The Group reassesses the appropriateness of the consolidation of an investee whenever facts and circumstances indicate that there has been a
change in the relationship between the Group and the investee which affects control.
Company name
Country of incorporation: Bermuda
Nature of business
Share class
Legal & General America Reinsurance Limited1
Legal & General Reinsurance Company Limited1
Legal & General Reinsurance Company No.2 Limited1
Reinsurance
Reinsurance
Reinsurance
Legal & General Resources Bermuda Limited1
Provision of services
Country of incorporation: China
Legal & General Business Consulting (Shanghai) Limited2
Business information consultancy
Country of incorporation: England and Wales
Alfreton Solar Limited3
Antham 1 Limited
Atelier Management Company Limited
Banner (Spare) Limited5
Banner Construction Limited5
Banner Developments Limited5
Banner Freehold Limited5
Banner Homes Bentley Priory Limited5
Banner Homes Central Limited5
Banner Homes Group Limited5
Banner Homes Limited5
Banner Homes Midlands Limited5
Banner Homes Southern Limited5
Banner Homes Ventures Limited5
Banner Management Limited5
Beavor Grange Solar Farm Limited3
Begbroke Oxford Limited
Production of electricity
Investment vehicle
ECF Manco4
Domestic building construction
Domestic building construction
Domestic building construction
Letting and operating of leased real estate
Domestic building construction
Domestic building construction
Domestic building construction
Dormant company
Domestic building construction
Domestic building construction
Domestic building construction
Domestic building construction
Production of electricity
Construction of commercial buildings
Bonnington Residents Management Company Limited
Residential property management
BQN Limited
Development of building projects
Bucklers Park Estate Management Company Limited
Management of real estate
C1 Plot Management Company Limited
Residential property management
CALA (ESOP) Trustees Limited5
CALA 1 Limited5
Financial intermediation
Domestic building construction
Ordinary
Ordinary
Ordinary
Ordinary
Ownership
dictated by
subscribed capital
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Limited by
guarantee
Limited by
guarantee
Ordinary
Ordinary
Year end
reporting
date
% of equity
shares held
by the Group
31–Dec
31–Dec
31–Dec
31–Dec
100.0
100.0
100.0
100.0
31–Dec
100.0
31–Dec
31–Dec
31–May
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Mar
31–Dec
31–May
31–Dec
31–Dec
31–Dec
100.0
100.0
–
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
33.3
100.0
100.0
1. Registered office: 19 Par-La-Ville Road, Hamilton, HM11, Bermuda
2. Registered office: Southwest ROOM, Floor 3, No. 2123 Pudong Avenue, China (Shanghai) Pilot Free Trade Zone (Bonded Area), Pudong District, Shanghai
3. Registered office: 5 New Street Square, London, England, EC4A 3TW
4. English Cities Fund Management Company
5. Registered office: Cala House, 54 The Causeway, Surrey, TW18 3AX
Additional financial information
Legal & General Group Plc Annual report and accounts 2023
243
Additional financial information
continued
40 Related undertakings continued
(i) Subsidiaries continued
Company name
CALA Group (Holdings) Limited5
CALA Homes (Chiltern) Limited5
CALA Homes (Cotswolds) Limited5
Nature of business
Domestic building construction
Domestic building construction
Domestic building construction
CALA Homes (North Home Counties) Limited5
Domestic building construction
CALA Homes (South Home Counties) Limited5
Domestic building construction
CALA Homes (Southern) Limited5
CALA Homes (Thames) Limited5
CALA Homes (Yorkshire) Limited5
Cardiff Interchange Limited
Cardiff Interchange ManCo Limited
Cardiff Interchange NomineeCo Limited
Care Secured Limited5
City & Urban Developments Limited
Court Place Gardens Holdings LLP
Court Place Gardens Oxford Limited
Non-trading company
Non-trading company
Domestic building construction
Development of building projects
Management company
Fund management activities
Dormant company
Holding company
Holding company
Domestic building construction
Cross Trees Park (Shrivenham) Management Company Limited
Residential property management
Euro Liquidity Fund
OEIC6
Finchwood Park Management Company Limited7
Residential property management
Finovation UK Limited
Haut Investments 2 Limited
Haut Investments Limited
Inspired Villages Group Limited
Dormant company
Holding company
Holding company
Activities of other holding companies not elsewhere
classified
Interchange Central Square (General Partner) Limited
General partner
Interchange Central Square Limited Partnership
Limited liability partnership
Investment Discounts On Line Limited
Insurance agents and brokers
IPIF Trade General Partner Limited
IPIF Trade Nominee Limited
IXDS Limited
Jimcourt Limited5
Low Farm Solar Limited3
L&G Cash Trust
L&G Future World ESG Japan Index Fund
L&G Future World ESG Multi-Index 7 Fund
L&G Future World ESG UK Index Fund
L&G Future World Sustainable Global Equity Focus
L&G Multi-Asset Target Return Fund
L&G UK Smaller Companies Trust
Fund general partner
Nominee
Other information technology services
Domestic building construction
Production of electricity
Unit trust
Unit trust
Unit trust
Unit trust
Unit trust
Unit trust
Unit trust
Legal & General (Portfolio Management Services) Limited
Institutional fund management
Legal & General (Portfolio Management Services) Nominees
Limited
Legal & General (Residential) Holdco Limited
Legal & General (Strategic Land Harpenden) Limited
Dormant company
Holding company
Holding company
Legal & General (Strategic Land North Horsham) Limited
Holding company
Legal & General (Strategic Land) Limited
Holding company
Legal & General (Unit Trust Managers) Limited
Unit trust management
Legal & General (Unit Trust Managers) Nominees Limited
Non-trading company
Share class
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Partnership
Ordinary
Limited by
guarantee
Ordinary
Limited by
guarantee
Ordinary
Ordinary
Ordinary
Ordinary
Partnership
Partnership
Ordinary
Partnership
Ordinary
Ordinary
Ordinary
Ordinary
Unit
Unit
Unit
Unit
Unit
Unit
Unit
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Legal & General Affordable Homes (AR) LLP
Limited liability partnership
Partnership
Legal & General Affordable Homes (Development 2) Limited
Domestic building construction
Legal & General Affordable Homes (Development 4) Limited
Construction of domestic buildings
Legal & General Affordable Homes (Development) Limited
Domestic building construction
Legal & General Affordable Homes (Investment 1) Limited
Other letting and operating of own or leased real estate
Legal & General Affordable Homes (Investment 2) Limited
Other letting and operating of own or leased real estate
Legal & General Affordable Homes (Investment 3) Limited
Other letting and operating of own or leased real estate
Legal & General Affordable Homes (Operations) Limited
Development of building projects
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Legal & General Affordable Homes (SO) LLP
Limited liability partnership
Partnership
244
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Year end
reporting
date
% of equity
shares held
by the Group
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Jan
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
30–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
05–Feb
30–Sep
15–Feb
30–Sep
15–May
14–Apr
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
33.0
99.0
100.0
100.0
100.0
100.0
100.0
46.2
100.0
100.0
100.0
100.0
46.5
100.0
100.0
100.0
100.0
100.0
70.0
100.0
100.0
43.0
59.2
39.2
31.6
99.8
44.1
30.5
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Strategic report
Governance
Financial statements
Other information
Company name
Nature of business
Share class
Year end
reporting
date
% of equity
shares held
by the Group
Legal & General Affordable Homes Limited
Development of building projects
Legal & General Bristol Temple Island Estate Management
Company Limited
Development of building projects
Legal & General Capital Investments Limited
Legal & General Co Sec Limited
Holding company
Dormant company
Legal & General Development Assets Holdings Limited
Holding company
Legal & General Digital Solutions Limited
Technology services
Legal & General Employee Benefits Administration Limited
Non-trading company
Legal & General Estate Agencies Limited
Management of dilapidation liabilities
Legal & General Euro Mortgage No.1 SPV Limited
Special purpose vehicle
Legal & General Finance PLC
Legal & General Financial Advice Limited
Treasury operations
Provision of services
Legal & General FX Structuring (SPV) Limited
Special purpose vehicle
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Legal & General GP LLP
Legal & General Heat Pumps Limited
Dormant company
Activities of other holding companies not elsewhere
classified
Partnership
Ordinary
Legal & General Home Finance Holding Company Limited
Holding company
Legal & General Home Finance Limited
Mortgage finance companies
Legal & General Homes (Services Co) Limited
Human resource management
Legal & General Homes Communities (Arborfield) Limited
Development of building projects
Legal & General Homes Communities (Crowthorne) Limited
Development of building projects
Legal & General Homes Communities (Didcot) Limited
Other specialised construction activities not elsewhere
classified
Legal & General Homes Communities (Shrivenham) Limited
Development of building projects
Legal & General Homes Communities Limited
Development of building projects
Legal & General Homes Holdings Limited
Holding company
Legal & General Homes Modular JV Holdco Limited
Development of modular housing
Legal & General Homes Modular JV Limited
Development of modular housing
Legal & General Homes Modular Limited
Development of modular housing
Legal & General Insurance Holdings Limited
Legal & General Insurance Holdings No. 2 Limited
Holding company
Holding company
Legal & General Investment Management (Holdings) Limited
Holding company
Legal & General Investment Management Funds ICVC
OEIC6
Legal & General Investment Management Limited
Institutional fund management
Legal & General Later Living Limited
Holding company
Legal & General Leisure Fund Trustee Limited
Trustee
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Legal & General Life Fund Limited Partnership
Limited Partnership
Partnership
Legal & General LTM Structuring (SPV) Limited
Special purpose vehicle
Legal & General Middle East Limited
Legal & General Overseas Operations Limited
Legal & General Partnership Holdings Limited
Holding company
Holding company
Holding company
Legal & General Partnership Services Limited
Provision of services
Legal & General Pension Fund Trustee Limited
Legal & General Pension Scheme Trustee Limited
Legal & General Pensions Limited
Legal & General Property Limited
Dormant company
Dormant company
Limited company
Development of building projects
Legal & General Property Partners (Industrial Fund) Limited
Limited company
Legal & General Property Partners (Industrial) Nominees Limited
Limited company
Legal & General Property Partners (IPIF GP) LLP
General partner
Legal & General Property Partners (Leisure GP) LLP
Limited liability partnership
Legal & General Property Partners (Leisure) Limited
General Partner
Legal & General Property Partners (Life Fund) Limited
Limited company
Legal & General Property Partners (Life Fund) Nominee Limited
Limited company
Legal & General Property Partners (UK PIF Geared) Limited
General Partner
Legal & General Property Partners (UK PIF) Limited
General Partner
Legal & General Property Partners (UKPIF Geared Two) Limited
Limited company
3. Registered office: 5 New Street Square, London, England, EC4A 3TW
5. Registered office: Cala House, 54 The Causeway, Surrey, TW18 3AX
6. Open Ended Investment Company
7. Registered office: Discovery House, Crossley Road, Stockport, Greater Manchester, England, SK4 5BH
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Partnership
Partnership
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Oct
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Additional financial information
Legal & General Group Plc Annual report and accounts 2023
245
Additional financial information
continued
40 Related undertakings continued
(i) Subsidiaries continued
Company name
Nature of business
Legal & General Property Partners (UKPIF Two) Limited
Investment in UK real estate
Legal & General Re Holdings Limited
Legal & General Residential (BTR) 1 LLP
Legal & General Residential (BTR) 2 LLP
Legal & General Resources Limited
Holding company
Investment management
Investment management
Provision of services
Legal & General Retail Investments (Holdings) Limited
Holding company
Legal & General SBTR (Crowthorne 1) Limited
Construction of domestic buildings
Legal & General SBTR (Crowthorne 2) Limited
Development of building projects
Legal & General SBTR (Sandy Lane 1) Limited
Development of building projects
Legal & General SBTR (Sandy Lane 2) Limited
Development of building projects
Legal & General SBTR (St Neots) Limited
Development of building projects
Legal & General SBTR (Stanton Cross 1) Limited
Construction of domestic buildings
Legal & General SBTR (Stanton Cross 2) Limited
Construction of domestic buildings
Legal & General SBTR (Stanton Cross 3) Limited
Construction of domestic buildings
Legal & General SBTR (Stanton Cross 4) Limited
Construction of domestic buildings
Legal & General Science and Tech (Holdings) Limited
Legal & General Senior Living Limited
Holding company
Holding company
Legal & General Suburban BTR (Development 2) Limited
Development of building projects
Legal & General Suburban BTR (Development) Limited
Domestic building construction
Legal & General Suburban BTR (Operations) Limited
Development of building projects
Legal & General Suburban BTR (Property) LLP
Limited liability partnership
Legal & General Surveying Services Limited
Legal & General Trustees Limited
Legal & General UK BTR GP Four LLP
Legal & General UK BTR GP LLP
Legal & General UK BTR GP Six LLP
Legal & General UK BTR GP Three LLP
Legal & General UK BTR Investment GP LLP
Legal & General UK BTR Investment LP
Provision of services
Fund trustee
Limited liability partnership
Limited liability partnership
Limited liability partnership
Limited liability partnership
Limited liability partnership
Limited partnership
Legal & General UK BTR Investment Nominee Limited
Fund management activities
Legal & General UK Solar Investments (Holdings) Limited
Holding company
Legal & General UKPIF Two GP LLP
Limited liability partnership
Legal and General Affordable Homes (Capital) Limited
Dormant company
Legal and General Affordable Homes (Development 3) Limited
Domestic building construction
Legal and General Assurance (Pensions Management) Limited
Limited company
Legal and General Assurance Society Limited
Long-term and general insurance
Legal and General Bristol Temple Island Limited
Construction of commercial buildings
Legal and General Capital IM Company Limited
Fund management activities
LGC 150 Richmond UK Holdco Limited
Activities of construction holding companies
LGC 265 S. Orange UK Holdco Limited
Activities of construction holding companies
LGC Overseas Holdco Limited
LGC TEP UK Holdco Limited
LGGP ECF (GP) LLP
LGGP ECF 1 L.P.
LGGP Holdings Limited
LGGP Investments 1 Limited
LGGP Management Limited
LGGP Nominee 1 Limited
LGGP Nominee 2 Limited
Holding company
Activities of construction holding companies
Limited liability partnership
Limited partnership
Activities of venture and development capital companies
Activities of venture and development capital companies
Fund management activities
Activities of venture and development capital companies
Activities of venture and development capital companies
LGIM Commercial Lending Limited
Commercial lending
LGIM International Limited
LGIM LGAS Property Fund
LGIM Real Assets (Operator) Limited
LGIM Real Assets Limited
LGP Newco Limited
LGPL No 2 Limited
Institutional fund management
Management of unlisted and segregated pension funds via
investment in property
Development of building projects
Development of building projects
Dormant company
Limited company
246
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Share class
Ordinary
Ordinary
Partnership
Partnership
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Partnership
Ordinary
Ordinary
Partnership
Partnership
Partnership
Partnership
Partnership
Partnership
Ordinary
Ordinary
Partnership
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Partnership
Partnership
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Year end
reporting
date
% of equity
shares held
by the Group
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
30–Sep
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Strategic report
Governance
Financial statements
Other information
Company name
Nature of business
Life and Mind Building Oxford Limited
Construction of commercial buildings
Life Fund Limited Partnership
Hold investment property
London Distribution Park Management Company Limited8
Management of real estate
LPI Fund
Maltby Street Properties Limited
Managed Property Fund
Management of unlisted and segregated pension funds via
investment in property
Limited company
Management of unlisted and segregated pension funds via
investment in property
Millbay Estate Management Company Limited9
Non-trading company
Novella Building Management Company Limited
NSC Building A Limited
NSC Building B Limited
ECF Manco4
Limited company
Limited company
Portholme Residents Management Company Limited
Residential property management
Rowley Lane Borehamwood Limited
Senior Living Medici Holdco Limited10
Senior Living Medici Limited10
Senior Living Urban (Bath) Limited
Senior Living Urban (Epsom) Limited
Senior Living Urban (Uxbridge) Limited
Senior Living Urban (Walton) Limited
Siddington Solar Farm Limited3
Construction of commercial buildings
Dormant company
Dormant company
Buying and selling of own real estate
Buying and selling of own real estate
Buying and selling of own real estate
Buying and selling of own real estate
Production of electricity
Stratford City Offices (No. 2) General Partner Limited
Limited company
Stratford City Offices (No. 2) Limited Partnership
Limited partnership
Stratford City Offices Jersey Unit Trust (No. 2)
Unit Trust
Stratford City Offices LP11
Sunderland Vaux 1 Limited
Limited partnership
Construction of commercial buildings
Swindon (The Hub) Management Company Limited12
Management of real estate
Share class
Ordinary
Limited
partnership
Ordinary
Ordinary
Ordinary
Ordinary
Limited by
guarantee
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Partnership
Partnership
Ordinary
Partnership
Ordinary
Ordinary
Taylor Lane (Wales) Limited5
Taylor Lane Timber Frame Limited5
The Advantage Collection Limited5
Thorpe Park 3175 Limited13
Thorpe Park A2 Limited13
Other specialised construction activities not elsewhere
classified
Other specialised construction activities not elsewhere
classified
Called up Ordinary
share capital
Called up Ordinary
share capital
Domestic building construction
Buying and selling of own real estate
Other letting and operating of own or leased real estate
Thorpe Park Developments Limited13
Property development company
Thorpe Park Holdings Limited13
TP Property Services Limited13
Holding company
Property services
Valette Square Management Company Limited
Other service activities not elsewhere classified
West Bar Square Limited
Construction of commercial buildings
Willington Down Estate Management Company Limited14
Residential property management
Country of incorporation: Hong Kong
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Year end
reporting
date
% of equity
shares held
by the Group
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
03–Mar
31–Dec
31–Dec
30–Nov
31–Dec
31–Dec
31–Dec
31–Oct
31–Dec
31–Oct
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Mar
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
30–Nov
31–Dec
31–Dec
100.0
100.0
68.0
100.0
100.0
100.0
–
–
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
99.8
100.0
100.0
82.8
100.0
100.0
100.0
50.0
50.0
50.0
50.0
50.0
33.0
100.0
100.0
Legal & General Investment Management Asia Limited15
Investment management
Ordinary
31–Dec
100.0
Country of incorporation: Ireland
Finovation Limited16
L&G ESG China CNY Bond UCITS ETF17
L&G ESG GBP Corporate Bond 0-5 Year UCITS ETF17
L&G ESG GBP Corporate Bond UCITS ETF17
L&G ESG Global High Yield Bond Index Fund
L&G ESG Paris Aligned World Equity Index Fund16
Pension tracing and transfer service
Ordinary and convertible
ETF
ETF
ETF
ICAV18
CCF
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
100.0
51.4
47.5
31.5
41.9
93.3
3. Registered office: 5 New Street Square, London, England, EC4A 3TW
4. English Cities Fund Management Company
5. Registered office: Cala House, 54 The Causeway, Surrey, TW18 3AX
8. Registered office: The Old Post Office Station Road, Congresbury, Bristol, England, BS49 5DY
9. Registered office: Whittington Hall, Whittington Road, Worcester, Worcestershire, United Kingdom, WR5 2ZX
10. Registered office: The Stanley Building, 7 St Pancras Square, London, N1C 4AG
11. Registered office: 4th Floor 1 Ariel Way, London, W12 7SL
12. Registered office: 6th Floor Lansdowne House, Berkeley Square, London, United Kingdom, W1J 6ER
13. Registered office: Europa House, 20 Esplanade, Scarborough, North Yorkshire, YO11 2AQ
14. Registered office: Vantage Point, 23 Mark Road, Hemel Hempstead, Hertfordshire, United Kingdom, HP2 7DN
15. Registered office: Room 902, 9th Floor, Chinachem Tower, 34-37 Connaught Road Central, Hong Kong
16. Registered office: 70 Sir John Rogerson Quay, Dublin 2, D02 XK09, Ireland
17. Registered office: 2 Grand Canal Square, Dublin 2, D02 A342, Ireland
18. Irish Collective Asset-management Vehicle
Additional financial information
Legal & General Group Plc Annual report and accounts 2023
247
Additional financial information
continued
40 Related undertakings continued
(i) Subsidiaries continued
Company name
Nature of business
Share class
Year end
reporting
date
% of equity
shares held
by the Group
L&G ESG USD Corporate Bond UCITS ETF17
L&G Frontier Markets Equity Fund
L&G Future World Global Credit Fund – UK
L&G Future World Net Zero Maturing Buy & Maintain Fund 23-32
L&G Future World Net Zero Maturing Buy & Maintain Fund 33-42
L&G Net Zero Sterling Corporate Bond Fund
L&G Rafi Multi-Factor Climate Transition Index Fund
ETF
ICAV18
QIAIF19
QIAIF19
QIAIF19
QIAIF19
CCF
Legal & General Fund Managers (Ireland) Limited20
Institutional fund management
Legal & General QIAIF ICAV
QIAIF19
Legal & General UCITS Managers (Ireland) Limited
Institutional fund management
LGIM (Ireland) Risk Management Solutions Plc
Management company
LGIM 2024 Leveraged Index Linked Gilt Fund
LGIM 2025 Fixed Fund
LGIM 2025 Inflation Fund
LGIM 2025 Real Fund
LGIM 2030 Fixed Fund
LGIM 2030 Inflation Fund
LGIM 2030 Leveraged Index Linked Gilt Fund
LGIM 2030 Real Fund
LGIM 2034 Leveraged Index Linked Gilt Fund
LGIM 2035 Fixed Fund
LGIM 2035 Inflation Fund
LGIM 2035 Real Fund
LGIM 2037 Leveraged Index Linked Gilt Fund
LGIM 2038 Leveraged Gilt Fund
LGIM 2040 Fixed Fund
LGIM 2040 Inflation Fund
LGIM 2040 Leveraged Index Linked Gilt Fund
LGIM 2040 Real Fund
LGIM 2042 Leveraged Gilt Fund
LGIM 2042 Leveraged Index Linked Gilt Fund
LGIM 2045 Fixed Fund
LGIM 2045 Inflation Fund
LGIM 2045 Leveraged Gilt Fund
LGIM 2045 Real Fund
LGIM 2047 Leveraged Index Linked Gilt Fund
LGIM 2049 Leveraged Gilt Fund
LGIM 2050 Fixed Fund
LGIM 2050 Inflation Fund
LGIM 2050 Leveraged Index Linked Gilt Fund
LGIM 2050 Real Fund
LGIM 2055 Fixed Fund
LGIM 2055 Leveraged Gilt Fund
LGIM 2055 Leveraged Index Linked Gilt Fund
LGIM 2055 Real Fund
LGIM 2060 Fixed Fund
LGIM 2060 Inflation Fund
LGIM 2060 Leveraged Gilt Fund
LGIM 2060 Real Fund
LGIM 2062 Leveraged Index Linked Gilt Fund
LGIM 2068 Leveraged Gilt Fund
LGIM 2068 Leveraged Index Linked Gilt Fund
LGIM Credit and Liquidity – Fund BM
LGIM Credit and Liquidity – Fund BN
LGIM Euro 2030 Real Fund
LGIM Fixed Long Duration Fund
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
248
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
63.9
45.9
100.0
75.0
25.0
100.0
99.4
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
50.0
50.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Strategic report
Governance
Financial statements
Other information
Nature of business
Share class
Year end
reporting
date
% of equity
shares held
by the Group
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Company name
LGIM Fixed Short Duration Fund
LGIM Hedging Fund A
LGIM Hedging Fund AC
LGIM Hedging Fund AE
LGIM Hedging Fund AI
LGIM Hedging Fund AO
LGIM Hedging Fund AR
LGIM Hedging Fund AS
LGIM Hedging Fund AT
LGIM Hedging Fund AW
LGIM Hedging Fund AY
LGIM Hedging Fund AZ
LGIM Hedging Fund B
LGIM Hedging Fund BG
LGIM Hedging Fund BH
LGIM Hedging Fund BJ
LGIM Hedging Fund BL
LGIM Hedging Fund BT
LGIM Hedging Fund BU
LGIM Hedging Fund BV
LGIM Hedging Fund C
LGIM Hedging Fund CJ
LGIM Hedging Fund CK
LGIM Hedging Fund CL
LGIM Hedging Fund DC
LGIM Hedging Fund DJ
LGIM Hedging Fund DK
LGIM Hedging Fund DO
LGIM Hedging Fund L
LGIM Hedging Fund O
LGIM Hedging Fund Q
LGIM Hedging Fund V
LGIM Hedging Fund WH
LGIM Hedging Fund WS
LGIM Hedging Fund WT
LGIM Hedging Fund ZZ
LGIM Leveraged Gilt Plus Fund
LGIM Leveraged Index Linked Gilt Plus Fund
LGIM Leveraged Synthetic Equity Fund
LGIM Leveraged Synthetic Equity Fund – GBP Currency
Hedged Fund
LGIM Maturing Buy & Maintain Credit Fund 2020-2024
LGIM Maturing Buy & Maintain Credit Fund 2025-2029
LGIM Maturing Buy & Maintain Credit Fund 2030-2034
LGIM Maturing Buy & Maintain Credit Fund 2035-2039
LGIM Maturing Buy & Maintain Credit Fund 2040-2054
LGIM Real Long Duration Fund
LGIM Real Short Duration Fund
LGIM Solutions Fund AO
LGIM Solutions Fund BB
LGIM Solutions Fund BF
LGIM Solutions Fund BK
LGIM Solutions Fund BW
LGIM Solutions Fund BX
LGIM Solutions Fund CA
17. Registered office: 2 Grand Canal Square, Dublin 2, D02 A342, Ireland
18. Irish Collective Asset-management Vehicle
19. Qualifying Investor Alternative Investment Fund
20. Registered office: Grand Canal House, 1 Upper Grand Canal Street, Dublin 4, Ireland
Additional financial information
Legal & General Group Plc Annual report and accounts 2023
249
Additional financial information
continued
40 Related undertakings continued
(i) Subsidiaries continued
Company name
LGIM Solutions Fund CB
LGIM Solutions Fund CC
LGIM Solutions Fund CF
LGIM Solutions Fund CG
LGIM Solutions Fund CH
LGIM Solutions Fund CP
LGIM Solutions Fund CQ
LGIM Solutions Fund CS
LGIM Solutions Fund CT
LGIM Solutions Fund CW
LGIM Solutions Fund DB
LGIM Solutions Fund DE
LGIM Solutions Fund DF
LGIM Solutions Fund DH
LGIM Solutions Fund DI
LGIM Solutions Fund DM
LGIM Solutions Fund DN
LGIM Solutions Fund DQ
LGIM Solutions Fund DR
LGIM Solutions Fund DU
LGIM Solutions Fund DV
LGIM Solutions Fund DW
LGIM Solutions Fund DY
LGIM Solutions Fund DZ
LGIM Solutions Fund EA
LGIM Solutions Fund EG
LGIM Solutions Fund EH
LGIM Solutions Fund EI
LGIM Solutions Fund M
LGIM Synthetic Leveraged Credit Fund
LGIM Unleveraged Defensive Synthetic Equity Fund
Sterling Liquidity Fund
US Dollar Liquidity Fund
Country of incorporation: Japan
Nature of business
Share class
Year end
reporting
date
% of equity
shares held
by the Group
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
QIAIF19
OEIC6
OEIC6
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
25.0
100.0
25.0
50.0
100.0
100.0
100.0
51.2
43.5
Legal & General Investment Management Japan KK21
Investment management
Ordinary
31–Dec
100.0
Country of incorporation: Jersey
Access Development General Partner Limited22
Fund general partner
Bishopsgate Long Term Property Fund General Partner Limited23
Fund general partner
Bishopsgate Long-term Property Fund Limited Partnership23
Limited partnership
Bishopsgate Long-term Property Fund Nominees No 1 Limited23
Real estate operator
Bishopsgate Long-term Property Fund Nominees No 2 Limited23
Real estate operator
Borehamwood Property Unit Trust23
SCBD S6 Trust24
Stratford City Offices Jersey Unit Trust24
Vantage General Partner Limited22
Vantage London Limited Partnership22
Country of incorporation: Luxembourg
L&G Absolute Return Bond Fund25
L&G Absolute Return Bond Plus Fund25
L&G Alternative Risk Premia Fund25
L&G Buy & Maintain Credit Fund25
L&G Commodity Index Fund25
L&G Emerging Markets High Yield Bond Fund25
L&G Emerging Markets Investment Grade Hard Currency
Corporate Bond Fund25
L&G Euro High Yield Bond Fund25
L&G Future World Global Equity Focus Fund25
Unit trust
Unit trust
Unit trust
Fund general partner
Limited partnership
SICAV26
SICAV26
SICAV26
SICAV26
SICAV26
SICAV26
SICAV26
SICAV26
SICAV26
250
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Partnership
Partnership
Partnership
Ordinary
Ordinary
Unit
Unit
Unit
Partnership
Partnership
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
100.0
100.0
25.0
25.0
25.0
100.0
100.0
100.0
100.0
11.1
87.6
35.1
100.0
97.9
71.1
100.0
100.0
100.0
100.0
Strategic report
Governance
Financial statements
Other information
Company name
Nature of business
Share class
Year end
reporting
date
% of equity
shares held
by the Group
L&G Global Diversified Credit Fund25
L&G Net Zero Global Corporate Bond Fund25
L&G Net Zero Short Dated Corporate Bond Fund25
L&G UK Core Plus Bond Fund25
L&G US High Yield Bond Fund25
Country of incorporation: Scotland
CALA 1999 Limited27
CALA Group Limited27
CALA Homes (East) Limited28
CALA Homes (North) Limited28
CALA Homes (Scotland) Limited28
CALA Homes (West) Limited28
CALA Homes Limited28
SICAV26
SICAV26
SICAV26
SICAV26
SICAV26
Holding company
Domestic building construction
Domestic building construction
Domestic building construction
Non-trading company
Domestic building construction
Domestic building construction
CALA Land Investments (Bearsden) Limited27
Domestic building construction
CALA Land Investments Limited27
Development of building projects
CALA Limited27
CALA Management Limited27
CALA Ventures Limited27
Head office
Domestic building construction
Domestic building construction
L&G UK Universities Ventures (Carry) GP LLP29
Limited liability partnership
L&G UK Universities Ventures (Carry) LP29
Limited partnership
L&G UK Universities Ventures GP LLP29
Limited liability partnership
L&G UK Universities Ventures LP29
UK PIF FGP LLP29
UK PIF Two Founder LP
UK PIF Two Founder GP Limited29
Country of incorporation: USA
Limited partnership
Fund general partner
Fund general partner
Fund general partner
Ancora 150 Richmond Holdings, LLC30
Holding company
Ancora 150 Richmond JV, LLC30
Ancora 265 S. Orange Holdings, LLC30
Ancora 265 S. Orange JV, LLC30
Holding company
Holding company
Holding company
Ancora Community Impact CDE LLC31
Dormant company
Ancora Investments LLC31
Ancora L&G, LLC30
Ancora Partners, LLC31
Ancora TEP Holdings LLC30
Ancora TEP JV LLC30
Banner Life Insurance Company32
Chesapeake Ventures, LLC31
FBV Financing-1, LLC31
FBV Financing-2, LLC31
FBV Financing-3, LLC31
FBV Financing-4, LLC31
FBV Financing-5, LLC31
Management of real estate investments
Holding company
Provision of management services
Holding company
Holding company
Long-term business
Limited company
Limited company
Limited company
Limited company
Funding vehicle
Funding vehicle
6. Open Ended Investment Company
19. Qualifying Investor Alternative Investment Fund
21. Registered office: 22F Toranomon Kotohira Tower, 1-2-8 Toranomon, Minato-ku, Tokyo, 105-0001, Japan
22. Registered office: 11-15 Seaton Place St Helier, Jersey, JE4 0QH
23. Registered office: 12 Castle Street St Helier Jersey, JE2 3RT
24. Registered office: Lime Grove House, Green Street, St Helier, Jersey, JE1 2ST
25. Registered office: 2-4, Rue Eugene Ruppert, Luxembourg, L-2453 Luxembourg
26. Société d’investissement à capital variable
27. Registered office: Adam House, 5 Mid New Cultins, Edinburgh, EH11 4DU
28. Registered office: Johnstone House, 52-54 Rose Street, Aberdeen, AB10 1HA
29. Registered office: 50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ
30. Registered office: 108 Lakeland Avenue, Dover, Kent County, DE 19901, USA
31. Registered office: 850 New Burton Road, Suite 201, Dover, Delaware, 19904, USA
32. Registered office: 1701 Research Boulevard, Rockville, Maryland, 20850, USA
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Partnership
Partnership
Partnership
Partnership
Partnership
Partnership
Partnership
Membership
interests
Class A and B
Membership
interests
Class A and B
Membership
Interests
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary share
capital
Class A and Class
B shares
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Membership
interests
Membership
interests
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
71.5
61.2
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
98.5
98.5
99.0
99.0
50.0
50.0
50.0
50.0
99.8
99.8
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Additional financial information
Legal & General Group Plc Annual report and accounts 2023
251
Additional financial information
continued
40 Related undertakings continued
(i) Subsidiaries continued
Company name
Nature of business
Share class
Year end
reporting
date
% of equity
shares held
by the Group
First British Vermont Reinsurance Company II, Limited33
First British Vermont Reinsurance Company III, Limited31
First British Vermont Reinsurance Company IV Limited34
Global Index Advisors Inc.35
Legal & General America Inc.36
Reinsurance
Reinsurance
Reinsurance
Investment advisory
Holding company
Legal & General Investment Management America Inc.36
Institutional fund management
Legal & General Investment Management United States
(Holdings), Inc.36
LGC 150 Richmond US Holdco, LLC30
LGC 265 S. Orange US Holdco, LLC30
LGC US Holdco 1 Inc.36
LGC US Holdco 2 LLC30
Potomac Ventures Number 1 Inc.37
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
William Penn Life Insurance Company of New York Inc38
Long-term business
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Membership interests
Membership interests
Ordinary
Ordinary
Ordinary
Ordinary
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
30. Registered office: 108 Lakeland Avenue, Dover, Kent County, DE 19901, USA
31. Registered office: 850 New Burton Road, Suite 201, Dover, Delaware, 19904, USA
33. Registered office: Marsh Management Services, 100 Bank Street, Suite 610, Burlington, VT, 05402, USA
34. Registered office: Marsh Management Services Inc., 463 Mountain View Drive, Suite 301, 3rd Floor, Colchester, Vermont 05446
35. Registered office: 29 North Park Square, Ste.201, Marietta, GA, 30060, USA
36. Registered office: Corporation Trust Centre, 1209 Orange Street, Wilmington, New Castle, DE, 19801, USA
37. Registered office: 3500 South Dupont Highway, City of Dover, County of Kent, Delaware 19901
38. Registered office: 100 Quentin Roosevelt Blvd, PO Box 519, Garden City New York, 11530, USA
(ii) Associates and Joint Ventures
The Group has the following significant holdings classified as associates and joint ventures which have been included as financial investments,
and investments in associates and joint ventures accounted for using the equity method. The gross assets of these companies are in part funded
by borrowings which are non-recourse to the Group.
Company name
245 Hammersmith Road (General Partner) Limited1
245 Hammersmith Road Limited Partnership1
245 Hammersmith Road Nominee 1 Limited1
245 Hammersmith Road Nominee 2 Limited1
245 HR GP LLP1
Country of
incorporation
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Accounting
treatment
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
Investment
type
Joint Venture
Joint Venture
Joint Venture
Joint Venture
Joint Venture
Access Development Limited Partnership2
Jersey
Equity Method
Joint Venture
Ampfield Meadows Management Limited3
England and Wales
Equity Method
Joint Venture
Austin Heath Management Limited3
England and Wales
Equity Method
Joint Venture
Blendworth Hills Management Limited3
England and Wales
Equity Method
Joint Venture
Bracknell Property Unit Trust4,5
Jersey
Bruntwood Science Management Services Limited6
England and Wales
FVTPL
FVTPL
Joint Venture
Joint Venture
Bruntwood SciTech Limited6
CALA Evans Restoration Limited7
Congenica Limited8
ECV Partnerships Tattenhall Limited3
ECV Partnerships Warwick Limited3
Elderswell Management Limited3
English Cities Fund1
England and Wales
Equity Method
Associate
Scotland
Equity Method
Joint Venture
England and Wales
Equity Method
Associate
England and Wales
Equity Method
Joint Venture
England and Wales
Equity Method
Joint Venture
England and Wales
Equity Method
Joint Venture
England and Wales
FVTPL
Associate
31–Dec
Partnership
Gifford Lea Management Limited3
England and Wales
Equity Method
Joint Venture
Great Alne Park Management Limited3
England and Wales
Equity Method
Joint Venture
Household Capital Pty Limited9
IDLG GP10
ImpactA GP11
Imagine Mortgages Limited (Generation Home)12
Kao Data Limited13
Kensa Group Limited14
Australia
Singapore
England and Wales
England and Wales
England and Wales
England and Wales
Equity Method
Associate
FVTPL
FVTPL
FVTPL
FVTPL
FVTPL
Associate
Associate
Associate
Associate
Associate
Ledian Gardens Management Limited3
England and Wales
Equity Method
Joint Venture
LGHM-VIVID JV LLP1
England and Wales
Equity Method
Joint Venture
Millfield Green Management Limited3
England and Wales
Equity Method
Joint Venture
31–Dec
31–Dec
30–Jun
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Mar
31–Dec
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
252
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Year end
reporting
date
Share
class
% of equity
shares held
by the Group
31–Dec
Partnership
31–Dec
Partnership
31–Dec
31–Dec
Ordinary
Ordinary
31–Dec
Partnership
31–Dec
31–Aug
31–Dec
01–Sep
31–Dec
30–Sep
30–Sep
30–Jun
31–Dec
31–Dec
31–Dec
31–Dec
Ordinary
Ordinary
Ordinary
Ordinary
Units
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.9
50.0
42.0
50.0
7.5
50.0
50.0
50.0
35.4
50.0
50.0
38.1
35.0
40.0
18.9
30.0
37.6
50.0
50.0
50.0
Strategic report
Governance
Financial statements
Other information
Year end
reporting
date
28–Feb
31–Dec
31–Mar
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Dec
31–Mar
31–Dec
31–Dec
31–Dec
31–Dec
Share
class
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
–
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
% of equity
shares held
by the Group
12.6
33.3
25.0
10.0
50.0
40.0
53.5
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
50.0
–
48.7
50.0
50.0
50.0
50.0
Company name
MoneyHub Financial Technology Limited15
Newcastle Science Central Developments LLP16
NTR Wind Management Limited17
Onto Holdings Limited18
Country of
incorporation
England and Wales
England and Wales
Ireland
England and Wales
Accounting
treatment
FVTPL
FVTPL
FVTPL
FVTPL
Investment
type
Associate
Associate
Associate
Associate
Oxford University Property Development Limited19
England and Wales
Equity Method
Joint Venture
Pemberton Asset Management Holdings Limited20
Salary Direct Holdings Limited21
Senior Living (Albourne) Limited3
Senior Living (Boston Spa) Limited3
Jersey
Jersey
FVTPL
FVTPL
Associate
Associate
England and Wales
Equity Method
Joint Venture
England and Wales
Equity Method
Joint Venture
Senior Living (Broadbridge Heath) Limited3
England and Wales
Equity Method
Joint Venture
Senior Living (Caddington) Limited3
England and Wales
Equity Method
Joint Venture
Senior Living (Chandlers Ford) Limited3
England and Wales
Equity Method
Joint Venture
Senior Living (Comberton) Limited3
Senior Living (Dore) Limited3
Senior Living (Edenbridge) Limited3
Senior Living (Elstree) Limited3
Senior Living (Farnhams) Limited3
Senior Living (Freelands) Limited3
Senior Living (Great Leighs) Limited3
Senior Living (Halstead) Limited3
England and Wales
Equity Method
Joint Venture
England and Wales
Equity Method
Joint Venture
England and Wales
Equity Method
Joint Venture
England and Wales
Equity Method
Joint Venture
England and Wales
Equity Method
Joint Venture
England and Wales
Equity Method
Joint Venture
England and Wales
Equity Method
Joint Venture
England and Wales
Equity Method
Joint Venture
Senior Living (Hemel Hempstead) Limited3
England and Wales
Equity Method
Joint Venture
Senior Living (Horndean) Limited3
Senior Living (Knowle) Limited3
Senior Living (Ledian Farm) Limited3
Senior Living (Liphook) Limited22
Senior Living (Matchams) Limited3
England and Wales
Equity Method
Joint Venture
England and Wales
Equity Method
Joint Venture
England and Wales
Equity Method
Joint Venture
Jersey
Equity Method
Joint Venture
England and Wales
Equity Method
Joint Venture
Senior Living (Sonning Common) Limited3
England and Wales
Equity Method
Joint Venture
Senior Living (Stamford) Limited3
England and Wales
Equity Method
Joint Venture
Senior Living (Sunbury-on-Thames) Limited3
England and Wales
Equity Method
Joint Venture
Senior Living (Tattenhall) Limited3
England and Wales
Equity Method
Joint Venture
Senior Living (Tunbridge Wells) Limited3
England and Wales
Equity Method
Joint Venture
Senior Living (Turvey) Limited3
Senior Living (Walkern) Limited3
England and Wales
Equity Method
Joint Venture
England and Wales
Equity Method
Joint Venture
Senior Living (Warwick Gates) Limited3
England and Wales
Equity Method
Joint Venture
Senior Living Finance 1 Limited3
England and Wales
Equity Method
Joint Venture
Sennen Finance Designated Activity Company23
Ireland
Equity Method
Joint Venture
Smartr365 Finance Limited24
SOJV LLP1
Tattenhall Care Village LLP3
Warwick Gates LLP3
England and Wales
FVTPL
Associate
England and Wales
Equity Method
Joint Venture
England and Wales
Equity Method
Joint Venture
England and Wales
Equity Method
Joint Venture
Winchburgh Developments (Holdings) Limited25
Scotland
Equity Method
Joint Venture
1. Registered office: One Coleman Street, London, EC2R 5AA
2. Registered office: 11-15 Seaton Place, St Helier, Jersey, JE4 0QH
3. Registered office: Unit 3 Edwalton Business Park, Landmere Lane, Edwalton, Nottingham, United Kingdom, NG12 4JL
4. Registered office: 47 Esplanade, St. Helier, Jersey, JE1 0BD
5. Bracknell Property Unit Trust is classified as a Joint Venture because the Group does not control the entity
6. Registered office: Union, Albert Square, Manchester, England, M2 6LW
7. Registered office: Johnstone House, 52-54 Rose Street, Aberdeen, AB10 1HA
8. Registered office: Biodata Innovation Centre, Wellcome Genome Campus, Hinxton, Cambridge, CB10 1DR
9. Registered office: Level 12/1 Nicholson St, East Melbourne VIC 3000
10. Registered office: 8 Marina View, Asia Square Tower 1 Singapore
11. Registered office: 3 Orchard Place London, SW1H 0BF
12. Registered office: Unit 80, Exmouth House, Pine Street, London, England, EC1R 0JH
13. Registered office: Kao Data Campus, London Road, Harlow, United Kingdom, CM17 9NA
14. Registered office: Mount Wellington, Fernsplatt, Chacewater, Truro, Cornwall, TR4 8RJ
15. Registered office: C/O Roxburgh Milkins Limited Merchants House North, Wapping Road, Bristol, United Kingdom, BS1 4RW
16. Registered office: Finance And Planning Newcastle University, King’s Gate, Newcastle Upon Tyne, United Kingdom, NE1 7RU
17. Registered office: Burton Court, Burton Hall Drive, Sandyford, Dublin, D18 Y2T8
18. Registered office: Ailsa House, Wedgnock Lane, Warwick, United Kingdom, CV34 5YA
19. Registered office: University Offices, Wellington Square, Oxford, United Kingdom, OX1 2JD
20. Registered office: 44 Esplanade, St Helier, Jersey, JE4 9WG
21. Registered office: 35-37 New Street, St Helier, Jersey, JE2 3RA
22. Registered office: 3rd Floor, One The Esplanade, St Helier, Jersey, JE2 3QA
23. Registered office: 1-2 Victoria Buildings, Haddington Road, Dublin, Ireland, 4 D04 XN32
24. Registered office: 1 Queen Caroline Street, Hammersmith, London, United Kingdom, W6 9YN
25. Registered office: 1a Canal View, Winchburgh, Broxburn, West Lothian, EH52 6FE
Additional financial information
Legal & General Group Plc Annual report and accounts 2023
253
Additional financial information
continued
41 Interests in structured entities
A structured entity is an entity that has been designed so that voting or similar rights are not the dominating factor in deciding who controls the
entity, such as when voting rights might relate to administrative tasks only and the relevant activities are directed by means of contractual
arrangement. The Group has interests in investment vehicles which, depending upon their status, are classified as either consolidated or
unconsolidated structured entities as described below:
• Debt securities, consisting of traditional asset backed securities, together with securitisation and debentures and Collateralised Debt Obligations
(CDOs);
Investment funds, largely being unit trusts; and
•
• Specialised investment vehicles, analysed between Irish Collective Asset-management Vehicles (ICAVs), Open Ended Investment Companies
(OEICs), Sociétés d’Investissement à Capital Variables (SICAVs), Specialised Investment Funds (SIFs), Authorised Contractual Schemes (ACSs),
Qualifying Investor Alternative Investment Fund (QIAIF), Liquidity funds, Common Contractual Fund (CCF) and Property unit trusts.
All of the Group’s holdings in the above vehicles are subject to the terms and conditions of the respective investment vehicle’s offering
documentation and are susceptible to market price risk arising from uncertainties about future values of those investment vehicles. The investment
manager makes investment decisions after extensive due diligence of the underlying investment vehicle, including consideration of its strategy and
the overall quality of the underlying investment vehicle’s manager.
All of the investment vehicles in the investment portfolio are managed by portfolio managers who are compensated by the respective investment
vehicles for their services. Such compensation generally consists of an asset-based fee and a performance related incentive fee, and is reflected in
the valuation of the investment vehicles.
(a) Interests in consolidated structured entities
The Group has determined that where it has control over an investment vehicle, that investment is a consolidated structured entity. The Group has
not provided, and has no intention to provide, financial or other support to any other structured entities which it does not consolidate.
(b) Interests in unconsolidated structured entities
As part of its investment activities, the Group also invests in unconsolidated structured entities. As at 31 December 2023, the Group’s interest in
such entities reflected on the Group’s Consolidated Balance Sheet and classified as financial investments held at fair value through profit or loss
was £23,454m (2022: £19,867m). A summary of the Group’s interests in unconsolidated structured entities is provided below:
Debt securities
Analysed as:
Asset backed securities
Securitisations and debentures
CDOs
Investment funds and Specialised investment vehicles
Analysed as:
Unit trusts
Property limited partnerships
Exchange traded funds
Liquidity funds
ICAVs
OEICs
SICAVs
QIAIF ICAVs
SIFs
Property unit trusts
Total
Financial
investments
2023
£m
Financial
investments
2022
£m
3,575
150
69
3,075
203
66
12,382
12,160
881
385
750
189
481
386
–
899
185
744
83
245
260
1
4,100
106
23,454
1,818
128
19,867
Management fees received for investments that the Group manages also represent interests in unconsolidated structured entities, and the Group
always maintains an interest in those funds which it manages. Where the Group does not manage the investments, its maximum exposure to loss
is the carrying amount in the Group Consolidated Balance Sheet. Where the Group does manage these investments, the maximum exposure is the
underlying balance sheet value, together with future management fees.
254
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
The table below shows the assets under management of those structured entities which the Group manages, together with investment management
fees received from external parties.
Investment funds
Specialised investment vehicles
Analysed as:
ACSs
OEICs
SICAVs
Property limited partnerships
Exchange traded funds
ICAVs
QIAIF
Liquidity funds
CCF
Total
AUM
2023
£m
91,256
30,624
2,530
276
1,960
3,380
11,127
7,434
852
303
2,762
121,880
Investment
management
fees
2023
£m
AUM
2022
£m
124
86,037
Investment
management
fees
2022
£m
138
61
1
2
2
16
29
8
1
1
1
23,325
–
174
891
4,305
7,639
7,750
715
270
1,581
60
–
–
2
21
25
8
1
1
2
185
109,362
198
No significant sponsorship has been provided to any of the above entities. The Group has not, and has no intention, to provide any significant
financial or other support to any other structured entities which it does not consolidate.
In addition to the above, the Group has an exposure of £239m (2022: £188m) related to special purpose vehicles classified as joint ventures and
accounted for using the equity method, with a carrying value on the Group Consolidated Balance Sheet as at 31 December 2023 of £nil (2022: £nil).
Additional financial information
Legal & General Group Plc Annual report and accounts 2023
255
Company financial statements
Company Balance Sheet
As at 31 December 2023
Non-current assets
Investments in subsidiaries
Receivables: amounts due after more than one year
Current assets
Receivables: amounts due within one year
Derivative assets
Other financial investments
Cash and cash equivalents
Total assets
Non-current liabilities
Payables: amounts falling due after more than one year
Current liabilities
Payables: amounts falling due within one year
Derivative liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Revaluation reserve
Capital redemption and other reserves
Retained earnings
Attributable to ordinary shareholders
Restricted Tier 1 convertible notes
Total equity
Notes
2023
£m
2022
£m
6
6
7
10
8
9
10
12
12
13
10,982
337
10,740
244
847
120
26
4
1,265
297
29
4
12,316
12,579
4,650
4,704
483
114
5,247
7,069
149
1,030
2,459
152
2,784
6,574
495
7,069
532
204
5,440
7,139
149
1,018
2,459
194
2,824
6,644
495
7,139
The notes on pages 258 to 262 form an integral part of these financial statements.
The financial statements on pages 256 to 262 were approved by the directors on 5 March 2024 and were signed on their behalf by:
Sir John Kingman
Chairman
António Simões
Stuart Jeffrey Davies
Group Chief Executive Officer
Group Chief Financial Officer
256
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
Company Statement of Changes in Equity
Called up
share
capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Hedging
reserve
£m
Share-
based
payment
reserve
£m
Revaluation
reserve
£m
99
2,459
Total equity
attributable
to ordinary
shareholders
£m
Restricted
Tier 1
convertible
notes
£m
For the year ended 31 December 2023
As at 1 January 2023
Profit for the financial year
Net movement in cross-currency
hedge
Options exercised under share
option schemes
Shares vested and transferred from
share-based payment reserve
Employee scheme treasury shares:
– Value of employee services
Dividends
Coupon payable in respect of
restricted Tier 1 convertible notes net
of tax relief
149
1,018
–
–
–
–
–
–
–
–
–
12
–
–
–
–
17
–
–
–
–
–
–
–
17
78
–
(32)
–
–
–
–
–
46
–
–
–
(69)
59
–
–
89
As at 31 December 2023
149
1,030
For the year ended 31 December 2022
As at 1 January 2022
Profit for the financial year
Net movement in cross-currency
hedge
Options exercised under share
option schemes
Shares vested and transferred from
share-based payment reserve
Employee scheme treasury shares:
– Value of employee services
Dividends
Coupon payable in respect of
restricted Tier 1 convertible notes net
of tax relief
As at 31 December 2022
Called up
share
capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Hedging
reserve
£m
Share-
based
payment
reserve
£m
149
1,012
–
–
–
–
–
–
–
149
–
–
6
–
–
–
–
1,018
17
–
–
–
–
–
–
–
17
48
–
30
–
–
–
–
–
78
86
–
–
–
(41)
54
–
–
99
Revaluation
reserve
£m
2,459
–
–
–
–
–
–
–
–
–
10
–
(1,116)
(23)
2,459
2,824
Retained
earnings
£m
2,824
1,130
–
–
24
–
–
–
–
–
–
–
–
(1,172)
(1,172)
2,459
2,784
(22)
(22)
6,574
Total equity
attributable
to ordinary
shareholders
£m
6,760
964
Retained
earnings
£m
2,989
964
Total
equity
£m
7,139
1,130
(32)
12
(45)
59
(1,172)
(22)
495
–
–
–
–
–
–
–
495
7,069
Restricted
Tier 1
convertible
notes
£m
495
–
–
–
–
–
–
–
Total
equity
£m
7,255
964
30
6
(31)
54
(1,116)
(23)
495
7,139
6,644
1,130
(32)
12
(45)
59
30
6
(31)
54
(1,116)
(23)
6,644
Company financial statements
Legal & General Group Plc Annual report and accounts 2023
257
Company financial statements
continued
1 Accounting policies
Basis of preparation
These financial statements have been prepared in accordance with the Companies Act 2006 as applicable to companies using Financial Reporting
Standard 101, ‘Reduced Disclosure Framework’ (FRS 101). The financial statements have been prepared under the historical cost convention, as
modified by the revaluation of investment property, financial assets at fair value through other comprehensive income, and certain assets and
financial liabilities (including derivative instruments) at fair value through profit or loss.
There were no material critical accounting estimates used or judgements made by management in the preparation of these financial statements.
The following exemptions from the requirements of IFRS have been applied in the preparation of these financial statements, in accordance with
FRS 101:
• Paragraphs 45(b) and 46 to 52 of IFRS 2, ‘Share-based payment’ (details of the number and weighted-average exercise price of share options,
and how the fair value of goods or services received was determined);
• The requirement of paragraphs 91 to 99 of IFRS 13 ‘Fair value measurement’, where equivalent disclosures are included in the consolidated
financial statements of the Group;
• The following paragraphs of IAS 1, ‘Presentation of financial statements’:
– 10(d), (statement of cash flows);
– 10 (f) and 40A (presentation of a 3rd balance sheet);
– 16 (a statement of compliance with all IFRS);
– 38 in respect of paragraph 79(a)(iv) (outstanding shares comparative);
– 38A (requirement for minimum of two primary statements, including cash flow statements);
– 38B-D (additional comparative information);
– 111 (cash flow statement information); and
– 134-136 (capital management disclosures).
IAS 7, ‘Statement of cash flows’;
IFRS 7, ‘Financial Instrument Disclosures’;
•
•
• Paragraphs 30 and 31 of IAS 8, ‘Accounting policies, changes in accounting estimates and errors’ (requirement for the disclosure of information
when an entity has not applied a new IFRS that has been issued but is not yet effective); and
• The requirements in IAS 24, ‘Related party disclosures’ to disclose related party transactions entered into between two or more members of a
Group and key management compensation.
The Company’s financial statements have been prepared in compliance with Section 394 and 396 of the Companies Act 2006 adopting the
exemption of omitting the income statement conferred by Section 408 of that Act.
The Company’s financial statements have been prepared on a going concern basis. See Note 1 of the Group consolidated financial statements for
further information on the Directors’ assessment of the going concern basis.
Financial assets
On initial recognition, financial assets are measured at fair value. Subsequently, they can be measured at amortised cost, fair value through other
comprehensive income (FVOCI) or fair value through profit or loss (FVTPL). The classification depends on two criteria:
(i) the business model within which financial assets are managed; and
(ii) their contractual cash flow characteristics (whether the cash flows represent ‘solely payments of principal and interest’ (SPPI)).
A debt instrument is measured at amortised cost, using the effective interest method, if it meets the following conditions:
it is held within a business model that has an objective to hold financial assets to collect contractual cash flows; and
(i)
(ii) the contractual terms of the financial asset result in cash flows that are solely payments of principal and interest on the principal amount
outstanding (SPPI).
A debt security is measured at FVOCI if it meets the following conditions:
it is held for collection of contractual cash flows and for selling the financial assets; and
(i)
(ii) the asset’s cash flows represent solely payments of principal and interest.
Interest income on these debt securities is calculated using the effective interest method, foreign exchange gains and losses and impairment are
recognised in profit or loss. Other net gains and losses are recognised in other comprehensive income. On derecognition, gains and losses
accumulated in OCI are reclassified to profit or loss.
All other assets, including derivative assets which are held for trading are measured at FVTPL. Net gains and losses, including any interest or
dividend income and foreign exchange gains and losses, are recognised in profit or loss, unless they arise from derivatives designated as hedging
instruments in cash flow hedges.
258
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
The Company has no equity instruments other than investments in subsidiaries.
Receivables are initially recognised at fair value and subsequently accounted for at amortised cost.
Impairment of financial assets
For financial assets held at amortised cost or FVOCI the Company reviews the carrying value of its assets at each balance sheet date. For such
assets, the Company determines forward looking expected credit losses (ECL), based on the difference between the contractual cash flows due in
accordance with the contract and all the cash flows that the Company expects to receive. The shortfall is then discounted at an approximation to
the asset’s original effective interest rate.
The Company measures loss allowance at an amount equal to lifetime ECLs, except for debt securities that are determined to have low credit risk
at the reporting date and other debt securities for which credit risk has not increased significantly since initial recognition. In these cases, ECLs are
based on the 12-month ECL, which is the ECL that results from a possible default up to 12 months after the reporting date. The Company uses relevant
quantitative and qualitative information and analysis based on historical experience, and informed credit assessment including forward-looking
information in order to evaluate the credit-worthiness of each security at each reporting date, to determine whether a significant increase in credit
risk since origination occurred. Should this be the case, the allowance will be based on the lifetime ECL.
ECLs are calculated by considering the probability of default (PD), the loss given default (LGD) and the exposure at default (EAD). The PD is
determined by reference to third party information on available companies, or using qualitative information available to the Company, and depends
on whether a financial asset requires determination of a 12-month ECL or lifetime ECL. The LGD is determined with reference to any exposure
reducing instruments such as collateral or liquid assets that the counterparty may have. The EAD is determined as the amount of the loan balance
outstanding at the reporting date. The Company has adopted a simplified approach for receivables, which allows measurement of lifetime ECLs only,
thereby removing the need to identify significant increase in credit risk (SICR). For these balances, the Company makes use of provision matrices in
order to calculate such lifetime ECLs.
Investment income
Investment income includes unrealised fair value gains and losses on financial investments at fair value through profit or loss, realised gains and
losses, dividends, rent and interest. Dividends are accrued on an ex-dividend basis. Interest income is recognised as it accrues, taking into account
the effective yield on the investment. Interest income for financial assets which are not classified as FVTPL is recognised using the effective interest
method.
Distributions
Dividend distribution to the Company’s shareholders is recognised as a liability in the period in which the dividends are authorised and are no longer
at the discretion of the Company.
Interest expense
Interest expense reflects the underlying cost of borrowing, based on the effective interest method and includes payments and receipts made under
derivative instruments which are amortised over the interest period to which they relate.
Investment in subsidiary undertakings
Investments in subsidiaries are held at cost less accumulated impairment losses. Where the carrying amount of an investment in subsidiary is
greater than recoverable amount, an impairment loss is recognised in profit and loss.
Derivatives and hedge accounting
The Company’s activities expose it to the financial risks of changes in foreign exchange rates and interest rates. The Company uses derivatives such
as foreign exchange forward contracts and interest rate swap contracts to hedge these exposures.
Changes in the fair value of derivative instruments, other than those designated as hedging instruments in cash flow or net investment hedges, are
recognised immediately in the income statement. Currently, the Company hedges foreign exchange translation and interest rate risks on its fixed
rate USD denominated borrowings (the hedged items), using cross currency interest rate swaps (the hedging items). It recognises the effective
portion of the gain or loss on the hedging items in a separate reserve within equity. The gain or loss relating to the ineffective portion is recognised
immediately in the income statement. Amounts accumulated in equity are reclassified in the periods when the hedged item affects profit or loss.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs. Borrowings classified as liabilities are subsequently stated at amortised
cost. The difference between the net proceeds and the redemption value is recognised in the income statement over the borrowing period using the
effective interest method.
Deferred tax
Deferred tax is recognised in respect of all temporary differences that have originated but not reversed at the balance sheet date, where transactions
or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date.
A net deferred tax asset is recognised as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded
as more likely than not that there will be suitable taxable profits against which to recover carried forward tax losses and from which the future
reversal of underlying temporary differences can be deducted.
Company financial statements
Legal & General Group Plc Annual report and accounts 2023
259
Company financial statements
continued
1 Accounting policies continued
Deferred tax continued
Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the temporary differences are expected to
reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on an
undiscounted basis.
Deferred tax is recognised in respect of the retained earnings of overseas subsidiaries only to the extent that, at the balance sheet date, dividends
have been accrued as receivable or a binding agreement to distribute past earnings in future periods has been entered into by the subsidiary.
Foreign currencies
Transactions denominated in foreign currencies are translated into sterling at the rates of exchange prevailing at the time of the transactions.
Monetary assets and liabilities expressed in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date.
Non-monetary items are maintained at historic rates. Exchange gains or losses are recognised in the income statement.
Pension costs
The Company contributes to defined contribution schemes. The Company charges the costs of its pension schemes against profit as incurred.
Any difference between the cumulative amounts charged against profits and contribution amounts paid is included as a provision or prepayment
in the balance sheet.
The assets of the defined contribution schemes are held in separate trustee administered funds, which have been subject to regular valuation every
three years and updated by formal reviews at reporting dates by qualified actuaries.
Share-based payments
The Company operates a number of share-based payment plans on behalf of its subsidiaries. Full disclosure of these plans is given in Note 31 of the
Group consolidated financial statements. The costs associated with these plans are borne by all the participating Group businesses where they
relate to their employees and, where relevant, the Company bears an appropriate charge. As the majority of the charge to the Company relates to
awards and options issued to the directors, for which full disclosure is made in the Directors’ report on remuneration, no further disclosure is
provided here.
2 Dividends
Ordinary dividends paid and charged to equity in the year:
– Final 2021 dividend paid in June 2022
– Interim 2022 dividend paid in September 2022
– Final 2022 dividend paid in June 20232
– Interim 2023 dividend paid in September 2023
Total dividends
Dividend
2023
£m
Per share1
2023
p
Dividend
2022
£m
Per share1
2022
p
–
–
831
341
1,172
–
–
13.93
5.71
19.64
792
324
–
–
13.27
5.44
–
–
1,116
18.71
1. The dividend per share calculation is based on the number of equity shares registered on the ex-dividend date.
2. The dividend proposed at 31 December 2022 was £829m based on the current number of eligible equity shares at that date.
Subsequent to 31 December 2023, the directors declared an interim dividend of 14.63 pence per ordinary share. This dividend will be paid on 6 June
2024. It will be accounted for as an appropriation of retained earnings in the year ended 31 December 2024 and is not included as a liability in the
Consolidated Balance Sheet as at 31 December 2023.
3 Directors’ emoluments and other employee information
Full disclosures of Legal & General Group Plc directors’ emoluments are contained within those parts of the Directors’ Report on Remuneration
which are described as having been audited. At 31 December 2023 there were no remuneration payments outstanding with directors of the
Company (2022: £nil). The Company has no other employees (2022: £nil).
For purposes of the disclosure required by Schedule 5 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations
2008, the total aggregate emoluments of the directors in respect of 2023 was £3.3m (2022: £4.2m). The aggregate net value of share awards
granted to the directors in the period was £5.5m (2022: £5.3m). During the year, the aggregate gains made by directors on the exercise of share
options was £0.9m (2022: £1.3m).
4 Pensions
The Company participates in the following pension schemes in the UK, which are operated by the Group:
• Legal & General Group Personal Pension Plan;
• Legal & General Staff Stakeholder Pension Scheme.
These schemes operate within the UK pensions’ regulatory framework.
There were no contributions prepaid or outstanding at either 31 December 2023 or 31 December 2022 in respect of these schemes.
260
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Strategic report
Governance
Financial statements
Other information
The Company also previously participated in the following defined benefit schemes in the UK, operated by the Group:
• Legal & General Group UK Pension and Assurance Fund (the Fund). The Fund was closed to new members from January 1995;
• Legal & General Group UK Senior Pension Scheme (the Scheme). The Scheme was, with a few exceptions (principally transfers from the Fund),
closed to new members from August 2000 and finally closed to new members from April 2007.
The Trustees completed a buy-out of the Fund and the Scheme in November 2023.
5 Auditor’s remuneration
Remuneration receivable by the Company’s auditors for the audit of the Company’s financial statements is not presented. The Group’s consolidated
financial statements disclose the aggregate remuneration receivable by the Company’s auditors for the audit of the Group’s financial statements,
which include the Company’s financial statements, in Note 29.
The disclosure of fees payable to the auditors and its associates for other (non-audit) services has not been made because the Group’s consolidated
financial statements are required to disclose such fees on a consolidated basis.
6 Non-current assets
As at 1 January
Additions1
Impairment
Conversion of loan to equity2
As at 31 December
Investments
in subsidiaries
2023
£m
Loans to
subsidiaries
2023
£m
10,740
251
(9)
–
10,982
–
–
–
–
–
Investments
in subsidiaries
2022
£m
Loans to
subsidiaries
2022
£m
Receivables
amounts due
after more
than one year
2023
£m
244
93
–
–
Total
2023
£m
10,984
344
(9)
–
9,522
516
–
702
337
11,319
10,740
Receivables
amounts due
after more
than one year
2022
£m
188
56
–
–
Total
2022
£m
10,412
572
–
–
244
10,984
702
–
–
(702)
–
1. Additions primarily represent capital injections into Group undertakings.
2. During 2022 a £702m loan with Legal & General America Inc. was converted into equity.
Full disclosure of the Company’s investments in subsidiary undertakings is contained in Note 40 of the Group’s consolidated financial statements.
7 Receivables
Amounts owed by Group undertakings1
Corporation tax
Deferred tax
Other receivables
Receivables: amounts due within one year
2023
£m
718
34
93
2
847
1. Amounts owed by Group undertakings are repayable at the request of either party and include a £574m (2022: £984m) interest bearing balance with a current interest rate of
SONIA+CAS-12.5 bps, floored at zero.
8 Payables: amounts falling due after more than one year
Subordinated borrowings
Amounts owed to Group undertakings1
Payables: amounts falling due after more than one year
Note
11
2023
£m
3,739
911
4,650
2022
£m
1,067
99
22
77
1,265
2022
£m
3,794
910
4,704
1. Amounts owed to Group undertakings falling due after more than one year are unsecured and include £901m (2022: £901m) of interest bearing balances with current interest rates
between 2.39% and 6.12% (2022: 2.39% and 6.12%).
9 Payables: amounts falling due within one year
Amounts owed to Group undertakings1
Accrued interest on subordinated borrowings
Other payables
Payables: amounts falling due within one year
1. Amounts owed to Group undertakings falling due within one year are interest free and repayable at the request of either party.
Note
11
2023
£m
315
29
139
483
2022
£m
397
29
106
532
Company financial statements
Legal & General Group Plc Annual report and accounts 2023
261
Company financial statements
continued
10 Derivative assets and liabilities
Currency swap contracts – held for trading
Currency swap contracts – cash flow hedge
Derivative assets and liabilities
Currency swap contracts – held for trading
Currency swap contracts – cash flow hedge
Derivative assets and liabilities
A description of each type of derivative is given in Note 12 of the Group’s consolidated financial statements.
Fair values
Assets
2023
£m
96
24
120
Liabilities
2023
£m
111
3
114
Fair values
Assets
2022
£m
182
115
297
Liabilities
2022
£m
204
–
204
11 Borrowings
Subordinated borrowings2
5.5% Sterling subordinated notes 2064 (Tier 2)
5.375% Sterling subordinated notes 2045 (Tier 2)
5.25% US Dollar subordinated notes 2047 (Tier 2)
5.55% US Dollar subordinated notes 2052 (Tier 2)
5.125% Sterling subordinated notes 2048 (Tier 2)
3.75% Sterling subordinated notes 2049 (Tier 2)
4.5% Sterling subordinated notes 2050 (Tier 2)
Total subordinated borrowings
Carrying
amount
20231
£m
Coupon
rate
2023
%
590
605
676
396
401
599
501
3,768
5.50
5.38
5.25
5.55
5.13
3.75
4.50
–
Fair
value
2023
£m
600
603
656
382
395
545
467
Carrying
amount
20221
£m
Coupon
rate
2022
%
590
605
712
417
400
599
500
5.50
5.38
5.25
5.55
5.13
3.75
4.50
–
3,648
3,823
Fair
value
2022
£m
541
593
665
389
377
507
439
3,511
Includes accrued interest on subordinated borrowings of £29m (2022: £29m).
1.
2. Further details on the subordinated borrowings of the Company are provided in Note 22 of the Group’s consolidated financial statements.
12 Share capital and share premium
A summary of the Company’s ordinary share capital, share premium and options over the Company’s ordinary share capital are disclosed in Note 32
of the Group’s consolidated financial statements.
13 Restricted Tier 1 convertible notes
On 24 June 2020, Legal & General Group Plc issued £500m of 5.625% perpetual restricted Tier 1 contingent convertible notes. The notes are callable
at par between 24 March 2031 and 24 September 2031 (the First Reset Date) inclusive and every 5 years after the First Reset Date. If not called, the
coupon from 24 September 2031 will be reset to the prevailing five year benchmark gilt yield plus 5.378%.
The notes have no fixed maturity date. Optional cancellation of coupon payments is at the discretion of the issuer and mandatory cancellation is
upon the occurrence of certain conditions. The Tier 1 notes are therefore treated as equity and coupon payments are recognised directly in equity
when paid. During the year coupon payments of £28m were made (2022: £28m). The notes rank junior to all other liabilities and senior to equity
attributable to owners of the parent. On the occurrence of certain conversion trigger events the notes are convertible into ordinary shares of the
issuer at the prevailing conversion price.
262
Legal & General Group Plc Annual report and accounts 2023
Financial statements
Directors’ report and
additional statutory and
regulatory information
The directors submit their Annual report and accounts for
Legal & General Group Plc, together with the consolidated financial
statements of the Legal & General Group of companies, for the year
ended 31 December 2023. The Directors’ report required under the
Companies Act 2006 comprises this section and certain other
disclosures in the Governance report, the Directors’ report
on remuneration, Strategic report and the notes to the Group
consolidated financial statements, including:
An outline of important events that have occurred
during the year
An indication of likely future developments
Engagement with employees
Directors’ biographies
Stakeholders
Section 172 statement
Monitoring and assessing culture
There are no post balance sheet events
Pages 28 to 51
Pages 28 to 51
Pages 43 and 78
Pages 64 to 65
Pages 14 to 15
Pages 76 to 78
Page 70
Annual General Meeting (AGM)
The Company intends to hold this year’s AGM on Thursday, 23 May 2024
at 11am at The British Medical Association, BMA House, Tavistock
Square, Bloomsbury, London, WC1H 9JZ with facilities to join virtually.
Full details of the business to be considered at the meeting will be
included in the Notice of Annual General Meeting.
Board and directors
Articles of Association
The Company’s Articles of Association may only be amended
by a special resolution at a general meeting of shareholders.
The Company’s Articles of Association were last amended
at its Annual General Meeting held on 20 May 2021.
Conflicts of interest
In accordance with the Companies Act 2006, the Board has adopted
a policy and procedure for the disclosure and authorisation (if appropriate)
of conflicts of interest, and these have been followed during 2023. The
Board confirms that it has reviewed the schedule of directors’ conflicts
of interest during the year and that the procedures in place operated
effectively in 2023. None of the directors had an interest in any contract
of significance with the Company or any of its subsidiaries during 2023.
Powers of directors
The directors (as detailed on pages 64 to 65) may exercise all powers of
the Company subject to applicable legislation and regulation and the
Company’s Articles of Association.
Appointment and removal of directors
With regards to the appointment and removal of directors, the Company
is governed by its Articles of Association, the Companies Act 2006 and
related legislation. Directors may be appointed by an ordinary resolution
of the Company or by the Board, in each case subject to the provisions
of the Company’s Articles of Association. The Company may, by way
of special resolution, remove any director before the expiration of that
director’s period of office and may by ordinary resolution, appoint
another director to act as a replacement. The Company’s Articles
of Association (in line with the UK Corporate Governance Code) require
all the directors to retire from office at each Annual General Meeting
of the Company.
Directors’ interests
The Directors’ report on remuneration on pages 94 to 119 provides
details of the share interests of each director, including details of current
incentive schemes and long-term incentive schemes.
Strategic report
Governance
Financial statements
Other information
Indemnities
The Company has agreed to indemnify, to the extent permitted by law,
each of the directors against any liability incurred by a director in respect
of acts or omissions arising in the course of their office. Qualifying
pension scheme indemnities (as defined in section 235 of the Companies
Act 2006) apply, to the extent permitted by law, to certain directors of the
Company’s pension schemes. The indemnities were in force throughout
2023 and remain so. Copies of the deeds containing the relevant
indemnity are available for inspection at the Company’s registered office
and will also be available at the AGM.
Insurance
The Company has arranged appropriate directors’ and officers’ liability
insurance for directors. This is reviewed annually.
Change of control
There are no agreements between the Company and its directors or
employees providing for compensation for loss of office or employment
(whether through resignation, purported redundancy or otherwise) in the
event of a takeover bid, except for those relating to normal notice periods.
The rules of the Company’s share plans contain provisions under which
options and awards to participants, including executive directors, may
vest on a takeover or change of control of the Company or transfer
of undertaking. The Company has a committed £1.5 billion bank
syndicated credit facility which is terminable if revised terms cannot be
agreed with the syndicate of banks in a 30-day period following a change
of control. As at 4 March 2024, the Company has no borrowings under
this facility. There is no change of control conditions in the terms of any
of the Company’s outstanding debt securities. The terms of the
Company’s agreements with its banking counterparties, under which
derivative transactions are undertaken, include in some instances the
provision for termination of transactions upon takeover/ merger
depending on the rating of the merged entity. The Company does not
have any other committed banking arrangements, either drawn or
undrawn, which incorporate any unilateral change of control conditions.
Related party transactions
Details of related party transactions are set out in Note 36 to the Group
consolidated financial statements.
Shares and dividend information
Share capital
As at 31 December 2023, the Company’s issued share capital comprised
5,979,578,280 ordinary shares each with a nominal value of 2.5 pence.
Details of the ordinary share capital can be found in Note 32 to the Group
consolidated financial statements.
At the 2023 AGM, the Company was granted authority by shareholders
to purchase up to 597,331,539 ordinary shares, being 10% of the issued
share capital of the Company as at 31 March 2023. In the year
to 31 December 2023, no shares were purchased by the Company.
This authority will expire at the 2024 AGM. As such, a resolution
is proposed in the Notice of AGM seeking shareholder approval to renew
this authority.
At the 2023 AGM, the directors were given the power to allot shares
up to an amount of £49,777,628, being 33% of the issued share capital
of the Company as at 31 March 2023. This authority will also expire
at the 2024 AGM. As such, a resolution is proposed in the Notice of AGM
seeking shareholder approval to renew this authority.
Further resolutions are proposed, as set out in the Notice of AGM, that
will, if approved by shareholders, authorise the directors to issue shares
up to the equivalent of 10% of the Company’s issued share capital as
at 25 March 2024 for cash without offering the shares first to existing
shareholders in proportion to their holdings. Detailed explanatory notes
to these resolutions are set out in the Notice of AGM.
Directors’ report and additional statutory and regulatory information
Legal & General Group Plc Annual report and accounts 2023
263
Directors’ report and additional
statutory and regulatory information
continued
Other than the above, the directors have no current intention of issuing
further share capital and no issue will be made which would effectively
alter control of the Company without prior approval of shareholders
in a general meeting.
Interests in voting rights
Information on major interests in shares provided to the Company under
the Disclosure Guidance and Transparency Rules (DTR 5) of the UK
Listing Authority is published via a Regulatory Information Service and
on the Company’s website: www.legalandgeneralgroup.com. As at
31 December 2023, the Company had been advised of the following
significant direct and indirect interests in the issued share capital of
the Company:
BlackRock Inc.
Number of
ordinary
shares of 2.5p
298,315,445
% of
capital¹
4.989
1.
Using the voting rights figure as at 29 December 2023, as announced to the London
Stock Exchange on 2 January 2024, of 5,979,578,280.
No material changes to the interests have been disclosed between
31 December 2023 and 4 March 2024.
Dividend
The Company may, by ordinary resolution in a general meeting, declare
dividends in accordance with the respective rights of the members, but
no dividend can exceed the amount recommended by the Board. The
directors propose a final dividend for the year ended 31 December 2023
of 14.63 pence per ordinary share which, together with the interim
dividend of 5.71 pence per ordinary share paid to shareholders on 26
September 2023, will make a total dividend for the year of 20.34 pence
(2022: 19.37 pence). Subject to shareholder approval at the AGM, the
final dividend will be paid on 6 June 2024 to shareholders on the share
register on 26 April 2024 provided that the Board may cancel payment of
the dividend at any time prior to payment in accordance with the Articles
of Association, if it considers it necessary to do so for regulatory capital
purposes. Our dividend policy is set out on page 4.
Rights and obligations attaching to shares
The rights and obligations relating to the Company’s ordinary shares
are set out in the Articles of Association. A copy of the Articles
of Association can be requested from the Company Secretary at the
Company’s registered office. Holders of ordinary shares are entitled
to attend, speak and vote at general meetings. In a vote on a show
of hands, every member present in person or every proxy present, who
has been duly appointed by a member, will have one vote and on a poll
every member present in person or by proxy shall have one vote for every
ordinary share held. These rights are subject to any special terms as
to voting upon which any shares may be issued or may at the relevant
time be held and to any other provisions of the Company’s Articles
of Association. Under the Companies Act 2006 and the Articles of
Association, directors have the power to suspend voting rights and,
in certain circumstances, the right to receive dividends in respect of
shares where the holder of those shares fails to comply with a notice
issued under section 793 of the Companies Act 2006.
The Board can decline to register a transfer of any share which is not
a fully paid share. In addition, registration of a transfer of an uncertificated
share may be refused in the circumstances set out in the uncertificated
securities rules and where the number of joint holders exceeds four.
The Board may also refuse to register the transfer of a certificated
share unless:
•
•
•
the instrument of transfer is duly stamped and is left at the
Company’s registered office or such other place as the Board may
from time to time determine, accompanied by the certificate for
the share to which it relates and such evidence as the Board may
reasonably require to show the right of the transfer or to make
the transfer
the instrument of transfer is in respect of only one class of share
the number of joint holders does not exceed four.
Subject to the provisions of the Companies Act 2006, all or any of the
rights attaching to an existing class of shares may be varied from time
to time, either with the consent in writing of the holders of not less than
three-quarters in nominal value of the issued shares of that class
(excluding any treasury shares) or with the sanction of a special
resolution passed at a separate general meeting of the holders
of those shares.
Shares acquired through the employee share plans rank equally with all
other ordinary shares in issue. Zedra Trust Company (Guernsey) Limited,
as trustee of the Legal & General Employees’ Share Ownership Trust,
held 1% of the issued share capital of the Company as at 4 March 2024
in trust for the benefit of the executive directors, senior executives and
employees of the Group. The trustee of Legal & General Employees’
Share Ownership Trust has waived the right of that trust to receive
dividends on unallocated shares it holds. The voting rights in relation
to these shares are exercised by the trustee. The trustee may vote or
abstain from voting, or accept or reject any offer relating to shares, in any
way it sees fit, without incurring any liability and without being required
to give reasons for its decision. Under the rules of the Legal & General
Group Employee Share Plan (the ‘Plan’), eligible employees are entitled
to acquire shares in the Company. Plan shares are held in trust for
participants by Link Market Services Trustees Limited, which held 0.32%
of the issued share capital of the Company as at 4 March 2024. Voting
rights are exercised by the trustees on receipt of the participants’
instructions. If a participant does not submit an instruction to the
trustees, no vote is registered. In addition, the trustees do not vote
on any unallocated shares held in the trust.
The Company is not aware of any agreements between shareholders
which may result in restrictions on the transfer of securities and/ or
voting rights.
264
Legal & General Group Plc Annual report and accounts 2023
Other information
Strategic report
Governance
Financial statements
Other information
Methodology
We have reported on the emission sources required under the
Companies Act 2006 Strategic report and Directors’ report regulations
2013 and have followed the requirements of the Streamlined
Energy & Carbon Reporting (SECR) framework. The greenhouse gas
emissions data is reported in line with the Greenhouse Gas Protocol
Corporate Accounting and Reporting Standard ‘Operational Control’
method, and emission factors for fuels and electricity are published
here: https://bit.ly/GHG_standards
Our emissions, shown in the table opposite, cover 100% of
Legal & General Group Plc’s operational footprint. We report scope 1
and 2 emissions where we have operational control. Operational control
is where we directly procure utilities for property we occupy, own and
manage, including our subsidiary businesses and joint ventures* or
where we have significant control over energy use. Please refer to the
sustainable business section of this report, our 2023 Climate and nature
report and CDP Disclosure for an overview of the management of
climate risk through our governance processes and internal controls.
The types of measures taken to manage and improve our management
of energy can also be found within these documents.
* Joint ventures are included in our footprint where we are the majority shareholder,
or have operational control.
Climate and nature report
Our Climate and nature report is
available on our Group website. See:
group.legalandgeneral.com/reports
Social impact report
Our Social impact report is available
on our Group website. See:
group.legalandgeneral.com/reports
Greenhouse Gas (GHG) disclosures
Global GHG emissions data
Emissions source
Scope 1
– UK
– International
Scope 2 – location
– UK
– International
Scope 2 – market
– UK
– International
Fugitive emissions (included in scope 1)
Scope 3 – operations
Category 3 – fuel and energy-related
activities
Category 5 – waste
Category 6 – business travel
Category 7 – employee commuting
(home working)
Category 8 – upstream leased assets
(serviced offices)
Category 13 – downstream leased assets
Category 15 – investments
Intensity ratio: tCO2e emissions per
employee (scope 1 and 2)
Energy (kWh)
Total Electricity
– UK
– International
Gas
– UK
– International
On-site fuel (UK only)
Total energy use
Jan – Dec
2022
Jan – Dec
2023
12,506
12,408
98
17,556
16,649
907
2,586
1,679
907
293
8,301
400
5,467
4,739
306
–
5.8m
2.60
10,158
9,452
706
17,564
14,349
3,215
4,215
1,000
3,215
216
7,325
483
7,631
4,568
304
0.3m
5.0m
2.32
Jan – Dec
2022
87,878,000
84,447,000
3,431,000
47,910,000
47,045,000
865,000
16,112,000
Jan – Dec
2023
79,100,000
70,549,000
8,551,000
42,853,000
38,960,000
3,893,000
16,795,000
151,900,000
138,748,000
* LGIMRA data is reported annually from 1 December to 30 November.
Our total scope 1, scope 2 (location) and scope 2 (Market) emissions have been subject
to independent limited assurance by Deloitte. The basis of preparation (or reporting criteria)
for our Group carbon footprint is available within our Climate and nature report and Deloitte’s
assurance report is available on pages 51 to 52 of our 2023 Climate and nature report.
Data Sources: carbon data is collected and aggregated to provide a group-wide footprint
and is based on a combination of actual, extrapolated, estimated and benchmarked data.
Data is sourced from meter readings, invoices, supplier reports, expenses and travel
booking systems. Refer to our reporting criteria document for further details.
Scope 1: All direct emissions from the activities under control.
Scope 2: Emissions from purchased or acquired electricity, steam, heat and cooling.
• Location based – reflects the average emissions intensity of grids on which energy
consumption occurs.
• Market based – reflects emissions from electricity purposefully chosen. It derives
emission factors from contractual instruments.
Scope 3: Indirect emissions from our value chain. Further details on L&Gs assessment
of materiality for all categories of scope 3 emissions can be found within our basis
of preparation in our Climate and nature report.
• Cat. 3 emissions related to energy purchased and consumed by Legal & General
in the reporting year, that are not included in scope 1 and 2.
• Cat. 5 emissions from third-party disposal and treatment of waste generated in occupied
properties and construction activities in the reporting year.
• Cat. 6 emissions from business mileage, flights and train journeys for UK
and US operations.
• Cat. 7 emissions from homeworking only, calculated using BEIS conversion factors.
• Cat. 8 emissions from the operation of assets that are leased to Legal & General
in the reporting year and not included in scope 1 or scope 2, calculated using
REEB 2020 benchmarks.
• Cat. 13 emissions from tenant operations of Legal & General owned assets.
• Cat 15 emissions including equity and debt investments and project finance
in the reporting year, not included in scope 1 or scope 2.
Directors’ report and additional statutory and regulatory information
Legal & General Group Plc Annual report and accounts 2023
265
Directors’ report and additional
statutory and regulatory information
continued
Required disclosures
Requirements of Listing Rule 9.8.4
Information to be included in the Annual report and accounts under
Listing Rule 9.8.4 may be found as follows:
Relevant Listing Rule
LR 9.8.4R (4)
LR 9.8.4R (12)
LR 9.8.4R (13)
Page
94 to 119
264
264
Additional information required under Listing Rule 9.8.6
Additional information to be included in the Annual report and accounts
of a listed company incorporated in the United Kingdom that cannot
be found in the Directors’ report:
Relevant Listing Rule
LR 9.8.6R (1)
LR 9.8.6R (5) & (6)
LR 9.8.6R (7)
LR 9.8.6R (8)
LR 9.8.6R (9), (10) & (11)
Page
113
67
113
45 to 48
83
Disability
We give full and fair consideration to applications for employment made
by disabled persons. Our policies support the employment, promotion,
and career development of disabled persons, as well as supporting
employees who become disabled during the course of their
employment. We make reasonable adjustments, as required under
the Equality Act 2010, for disabled employees, including seeking
redeployment in the event that reasonable adjustments are not possible.
We offer appropriate training, including training in relation to equality,
and will make adjustments to this training where required.
Political donations
No political donations were made during 2023.
Branches
Our investment management business has branches in Australia,
Germany, Italy, the Netherlands, Sweden and Switzerland.
Corporate governance
We measure ourselves against the 2018 UK Corporate Governance
Code. More details on our compliance with the Code, including our 2023
Compliance Statement, can be found on page 67. Information on the
Group’s control and risk management systems can be found on pages
52 to 55, 88 and 92 to 93. A summary of our Diversity and Inclusion
Policy can be found on page 83.
Financial reports and disclosures
Use of financial instruments
Information on the Group’s risk management process is set out on
pages 52 to 59. More details on risk management and the financial
instruments used are set out in Notes 15 to 17 of the Group consolidated
financial statements.
Independent auditors
The Company’s auditor has expressed its willingness to continue
in office and the Audit Committee has recommended its reappointment
to the Board. Resolutions to reappoint KPMG LLP as auditor to the
Company and to authorise the Audit Committee, on behalf of the Board,
to determine its remuneration are proposed for the forthcoming AGM.
Statement of directors’ responsibilities
The directors are responsible for preparing the Annual report and
accounts (group and parent company), including the Directors’ report
on remuneration and the financial statements, in accordance with
applicable law and regulations.
Company law requires the directors to prepare Group and parent
company financial statements for each financial year. Under that law the
directors have prepared the Group financial statements in accordance
with UK-adopted international accounting standards and applicable law
and have elected to prepare the parent company financial statements in
accordance with UK accounting standards and applicable law, including
FRS 101 Reduced Disclosure Framework.
Under company law, the directors must not approve the financial
statements unless they are satisfied that they give a true and fair view
of the state of affairs of the Group and the Company and of the profit
or loss of the Group and the Company for that period. In preparing these
financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently
• make judgements and estimates that are reasonable, relevant, reliable
and prudent
• for the Group financial statements, state whether they have
been prepared in accordance with UK-adopted international
accounting standards
• for the parent company financial statements, state whether
applicable UK accounting standards have been followed, subject
to any material departures disclosed and explained in the parent
company financial statements
• assess the Group and parent company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern
• use the going concern basis of accounting unless they either intend
to liquidate the Group or the parent company or to cease operations
or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the parent company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the parent company and enable them to ensure that
its financial statements comply with the Companies Act 2006. They are
responsible for such internal control as they determine is necessary
to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to them
to safeguard the assets of the Group and to prevent and detect fraud
and other irregularities.
Under applicable law and regulations, the directors are also responsible
for preparing a Strategic report, Directors’ report, Directors’ report
on remuneration and Corporate governance statement that complies
with that law and those regulations. The directors are responsible for
the maintenance and integrity of the corporate and financial information
included on the Company’s website. Legislation in the UK governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
In accordance with Disclosure Guidance and Transparency Rule 4.1.15R,
the annual financial report has been prepared in Extensible Hypertext
Markup Language (‘XHTML’) format. Consolidated financial statements
have also been prepared in accordance with Disclosure Guidance and
Transparency Rule 4.1.16R – 4.1.18R, including the requirement to use
Extensible Business Reporting Language (‘XBRL’) markup language.
The auditor’s report on these financial statements provides no assurance
over the XHTML or XBRL format.
266
Legal & General Group Plc Annual report and accounts 2023
Other information
Strategic report
Governance
Financial statements
Other information
Responsibility statement of the directors in respect
of the annual financial report
We confirm that to the best of our knowledge:
•
•
the financial statements, prepared in accordance with the applicable
set of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and the
undertakings included in the consolidation taken as a whole
the Strategic report includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together
with a description of the principal risks and uncertainties that they face.
The directors of the Company and their functions are listed on pages 64
to 65.
Fair, balanced and understandable
In accordance with the principles of the 2018 UK Corporate Governance
Code, we have processes and procedures in place to ensure that the
information presented in the Annual report and accounts is fair, balanced
and understandable. We describe these processes and procedures
on page 87.
On the advice of the Audit Committee, the Board considers that
the Annual report and accounts, as a whole, is fair, balanced and
understandable, and provides the information necessary for
shareholders to assess the Group’s position, performance, business
model and strategy.
Critical accounting estimates, key judgements
and significant accounting policies
Our critical accounting estimates, key judgements and significant
accounting policies conform with UK-adopted international accounting
standards and are set out on pages 151 to 152 of the consolidated
financial statements. The directors have reviewed these policies and
applicable estimation techniques and have confirmed them to be
appropriate for the preparation of the 2023 consolidated financial
statements.
Disclosure of information to auditors
As far as each of the directors in office at the date of this Directors’
report is aware, there is no relevant audit information (as defined by
section 418 (3) of the Companies Act 2006) of which the Company’s
auditors are unaware, and each such director has taken all the steps
that they ought to have taken as a director to make themself aware
of any relevant audit information and to establish that the Company’s
auditors are aware of that information.
Going concern
The Strategic report on pages 2 to 59 of this report includes information
on the Group structure and business principles, the performance of the
business areas, the impact of regulation and principal risks and
uncertainties.
The Group performance detailed on pages 22 to 25 includes information
on the Group financial results, financial outlook, cash flow and balance
sheet position. The consolidated financial statements include
information on the Group financial investments and investment property
(Note 11), derivatives (Note 12), cash and cash equivalents (Note 14),
asset risk (Note 7), market, credit and insurance risks (Notes 15 to 17)
and borrowings (Note 22).
In line with IAS 1 ‘Presentation of financial statements’, and revised FRC
guidance on ‘risk management, internal control and related financial and
business reporting’, and as set out in the Basis of preparation (Note 1),
management has taken into account all available information about the
future for a period of at least, but not limited to, 12 months from the date
of approval of the financial statements when assessing the Group’s
ability to continue as a going concern.
Details of the main risks affecting the Group and how we manage and
mitigate them are set out in ‘Managing risks’ on pages 52 to 54. Having
assessed the main risks and other matters discussed in connection with
the Group Board viability statement set out on page 55, in accordance
with the 2018 UK Corporate Governance Code and the FRC guidance,
the directors considered it appropriate to adopt the going concern basis
of accounting when preparing the financial statements.
The Directors’ report and Strategic report were approved by the Board
and signed on its behalf.
By order of the Board
G J Timms
Group Company Secretary
Directors’ report and additional statutory and regulatory information
Legal & General Group Plc Annual report and accounts 2023
267
Shareholder information
Annual General Meeting (AGM)
The Board regards the AGM as an important opportunity to communicate
directly with private investors. Full details of the business to be considered
at the meeting will be included in the Notice of Annual General Meeting.
The Notice of Meeting and all other details for the AGM will be available
at: group.legalandgeneral.com/AGM. Details of the 2024 AGM are
included below:
Location: The British Medical Association, BMA House, Tavistock Square,
Bloomsbury, London WC1H 9JZ, with facilities to join virtually.
Date: Thursday 23 May 2024
Time: 11am
Dividend information
This year the directors are recommending the payment of a final
dividend of 14.63 pence per share. If you add this to your interim dividend
of 5.71 pence per share, the total dividend recommended for 2023 will
be 20.34 pence per share (2022: 19.37 pence per share). The key dates
for the payment of dividends are set out in the important dates section.
Dividend payment options
Have your dividends paid into your bank account
Once registered on Investor Centre, you can choose to receive your
dividends directly into your bank account. Just select ‘View/ update your
bank details’ and follow the simple instructions. Alternatively, you can
contact Computershare Investor Services PLC (Computershare) for
a bank mandate form. By opting to receive your dividends electronically,
your dividend will reach your bank account on the dividend payment
date. Alternatively, you can choose to receive your dividends via
a cheque payment.
Re-invest your dividends
The dividend re-investment plan offers a convenient way for
shareholders to build up their shareholding by using dividend money
to purchase additional ordinary shares. The plan is provided by
Computershare Investor Services PLC who are authorised and
regulated by the Financial Conduct Authority.
Annual dividend confirmation
Following the interim dividend that was paid to shareholders on
26 September 2023, Legal & General has adopted an annual dividend
confirmation process in relation to future payments. Instead of issuing
separate payment advices for each dividend, an annual dividend
confirmation will be issued with the interim dividend, usually paid
in September, detailing the dividend payments made throughout
the tax year.
Shareholder tracing programme
Legal & General has engaged Georgeson (a trading name of
Computershare Investor Services PLC, the Company’s Registrar),
to launch a shareholder tracing programme with the aim of reuniting
shareholders with unclaimed entitlements in respect of Legal & General
Group Plc shares and/ or dividend payments. If you have received
a claim form from Georgeson, it is important you respond in order
to claim your assets. Shareholders can contact Georgeson directly using
the contact details below. Alternatively, shareholders can claim their
assets directly from Computershare.
By phone: 0800 953 0077
By International Phone: +44 (0) 370 703 0067
By email: assetreunification@georgeson.com
Website: www.georgeson.com/unclaimed
Important dates
Final
Interim*
Results announcement
6 March 2024
7 August 2024
Ex-dividend date
Record date
25 April 2024
22 August 2024
26 April 2024
23 August 2024
Last day for Dividend Reinvestment
Plan elections
15 May 2024
6 September 2024
Annual General Meeting
23 May 2024
N/A
Dividend payment date
6 June 2024
27 September 2024
* These dates are provisional and subject to change.
Global Payment Service
If you don’t have access to a UK bank or building society account, you
can elect to join the Global Payment Service (GPS) and receive cash
dividends direct to your bank account in your local currency (a small
fee and terms and conditions apply).
Shareholder enquiries
Registrar
Computershare has been appointed by Legal & General Group Plc to act
as our Registrar and offers many services to make managing your
shareholding easier and more efficient.
You can find further details regarding these payment options through
your Investor Centre account or by contacting our Registrar,
Computershare, on the contact details on page 269.
It is important to remember that the value of shares and income from
them can fall as well as rise and you may not recover the amount of
money you invest. Past performance should not be seen as indicative
of future performance. This arrangement should be considered as part
of a diversified portfolio. Please consult an independent advisor if you
need any assistance with financial matters.
Sign up to electronic communications
Help us save paper and get your shareholder information
quickly and securely by signing up to receive your
shareholder communications by email.
You can register for electronic communications
via the Investor Centre.
Investor Centre
The Investor Centre is a secure online site where you can manage
your shareholding. To register for the Investor Centre, just visit
www.investorcentre.co.uk. You will need your Shareholder Reference
Number (SRN), which can be found on your dividend voucher
or by contacting Computershare. Once registered you can:
• view your shareholding and obtain an indicative valuation
• change your address
• arrange to have dividends paid into your bank account or join
•
the Dividend Reinvestment Plan (DRIP)
request to receive shareholder communications by email rather
than post
• view your dividend payment history
• sell shares
• download a variety of forms, including a Stock Transfer Form.
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Other information
Strategic report
Governance
Financial statements
Other information
Contact information
For any queries regarding your shareholding, please contact
Computershare:
By phone: +44 (0) 370 707 1399**
By email: webcorres@computershare.co.uk
In writing: Computershare Investor Services PLC. The Pavilions,
Bridgwater Road, Bristol, BS99 6ZZ
** Calls are charged at the standard geographic rate and will vary
by provider. Calls from outside the UK will be charged at the applicable
international rate. Lines are open 8.30am to 5.30pm, Monday to Friday
excluding public holidays in England and Wales.
Buy and sell shares
Simple and competitively priced services to buy and sell shares
are provided by Computershare. Shareholders are able to sell
Legal & General shares by registering on the Investor Centre (www.
investorcentre.co.uk) and enrolling for Computershare’s share dealing
service. Shareholders are also able to buy shares through a postal
purchase facility. Shareholders will be required to complete Anti-Money
Laundering (AML) checks in advance of dealing in shares and it is
therefore advisable to register your account in advance if you wish
to sell shares.
Once registered and AML checks have been completed, shareholders
can choose to deal online or to download a dealing form and trade
via a postal dealing service. Any holder of certificated shares will be
required to send Computershare their original share certificate and
an authorisation letter before a trade can be executed.
This is not a recommendation to buy and sell shares and this service
may not be suitable for all shareholders. The price of shares can
go down as well as up and you are not guaranteed to get back the
amount you originally invested. Terms, conditions and risks apply.
Corporate sponsored nominee
The corporate sponsored nominee allows you to hold shares in the
Company without the need for a share certificate and enables you
to benefit from shorter market settlement periods. The corporate
sponsored nominee also offers lower rate dealing costs. Individual
shareholders hold their Legal & General shares in a nominee holding
registered in the name of Computershare Company Nominees Limited.
To join or obtain further information, contact the Registrar. You will
be sent a deposit form outlining the terms and conditions under which
your shares will be held.
Communication with shareholders
Internet
Information about the Company, including details of the current share
price, is available on the website: legalandgeneralgroup.com.
Investor relations
Private investors should contact the Registrar with any queries.
Institutional investors can contact the investor relations team by email:
investor.relations@group.landg.com.
Financial reports
The Company’s financial reports are available on the website.
The Annual report and accounts are sent to those shareholders who
have elected to receive paper copies. Alternatively, shareholders may
elect to receive notification by email by registering on the Investor Centre.
If you receive more than one copy of our communications, it could be
because you have more than one record on the share register. To avoid
duplicate mailings, please contact the Registrar, who can arrange for
your accounts to be amalgamated.
General information
Capital gains tax: for the purpose of calculating UK capital gains tax,
the market value on 31 March 1982 of each share was 7.996 pence after
adjusting for the 1986 capitalisation issue and the 1996 and 1999
sub-divisions, but not reflecting any rights taken up under the 2002
rights issue.
Close company provisions: The Company is not a close company within
the terms of the Corporation Tax Act 2010.
Registered office: One Coleman Street, London EC2R 5AA. Registered
in England and Wales, No. 01417162.
Shareholder offer line: For details of shareholder offers
on Legal & General products, call 0800 107 6830.
Share fraud warning
Fraudsters use persuasive and high-pressure tactics to lure investors
into scams. They may offer to sell shares that turn out to be worthless
or non-existent, or to buy shares at an inflated price in return for an
upfront payment. While high profits are promised, if you buy or sell
shares in this way you will probably lose your money.
How to avoid share fraud
Have you been:
Contacted out of the blue; or
Promised tempting returns and told the investment is safe.
Called repeatedly
Told the offer is only available for a limited time? If so, you might have
been contacted by fraudsters.
Reject cold calls
If you’ve been cold called with an offer to buy or sell shares, chances
are it’s a high risk investment or a scam. You should treat the call with
extreme caution. The safest thing to do is to hang up.
Check the firm on the FS register at fca.org.uk/register
The Financial Services Register is a public record of all the firms
and individuals in the financial services industry that are regulated
by the FCA.
Get impartial advice
Think about getting impartial financial advice before you hand over
any money. Seek advice from someone unconnected to the firm that
has approached you.
If you suspect that you have been approached by fraudsters, please
tell the FCA using the share fraud reporting form at
fca.org.uk/scamsmart where you can find out more about investment
scams. You can also call the FCA Consumer Helpline on 0800 111
6768. Alternatively, you can inform Computershare Investor Services,
on 0370 707 1399 (Computershare are not able to investigate such
incidents themselves, but they will record the details, pass them
on to us, and liaise with the FCA).
If you have lost money to investment fraud, you should report it to
Action Fraud on 0300 123 2040 or online at actionfraud.police.uk.
If you deal with an unauthorised firm, you will not be eligible to receive
payment under the Financial Services Compensation Scheme.
Find out more at fca.org.uk/scamsmart.
Shareholder information
Legal & General Group Plc Annual report and accounts 2023
269
Alternative Performance
Measures
An alternative performance measure (APM) is a financial measure of
historic or future financial performance, financial position, or cash flows,
other than a financial measure defined under IFRS or the regulations of
Solvency II. APMs offer investors and stakeholders additional information
on the Company’s performance and the financial effect of ‘one-off’ events,
and the Group uses a range of these metrics to enhance understanding
of the Group’s performance. However, APMs should be viewed as
complementary to, rather than as a substitute for, the figures determined
according to other regulations. The APMs used by the Group are listed in
this Note, along with their definition/explanation, their closest IFRS or
Solvency II measure and, where relevant, the reference to the
reconciliations to those measures.
For the Group’s long-term insurance businesses, reinsurance
mismatches are also excluded from adjusted operating profit.
Reinsurance mismatches arise where the reinsurance offset rules in
IFRS 17 do not reflect management’s view of the net of reinsurance
transaction. In particular, during a period of reinsurance renegotiation,
reinsurance gains cannot be recognised to offset any inception losses
on the underlying contracts where they are recognised before the new
reinsurance agreement is signed. In these circumstances, the onerous
contract losses are reduced to reflect the net loss (if any) after
reinsurance, and future contractual service margin (CSM) amortisation
is reduced over the duration of the contracts.
The adoption of IFRS 17 by the Group has led to changes in both the
definition or result of several of the APMs, although the principles
underlying them have not changed.
The APMs used by the Group may not be the same as, or comparable to,
those used by other companies, both in similar and different industries.
The calculation of APMs is consistent with previous periods, unless
otherwise stated.
APMs derived from IFRS measures
Adjusted operating profit
Adjusted operating profit is an APM that supports the internal
performance management and decision making of the Group’s
operating businesses, and accordingly underpins the remuneration
outcomes of the executive directors and senior management. The Group
considers this measure meaningful to stakeholders as it enhances the
understanding of the Group’s operating performance over time by
separately identifying non-operating items.
Adjusted operating profit measures the pre-tax result excluding the
impact of investment volatility, economic assumption changes caused
by changes in market conditions or expectations and exceptional items.
Key considerations in relation to the calculation of adjusted operating
profit for the Group’s long-term insurance businesses and shareholder
funds are set out below.
Exceptional income and expenses which arise outside the normal
course of business in the year, such as merger and acquisition and
start-up costs, are excluded from adjusted operating profit.
Long-term insurance
Adjusted operating profit reflects longer-term economic assumptions
for the Group’s retirement and insurance businesses. Variances between
actual and long-term expected investment return on traded and real
assets are excluded from adjusted operating profit, as well as economic
assumption changes caused by changes in market conditions or
expectations (e.g. credit default and inflation) and any difference
between the actual allocated asset mix and the target long-term asset
mix on new pension risk transfer business. Assets held for future new
pension risk transfer business are excluded from the asset portfolio
used to determine the discount rate for annuities on insurance contract
liabilities. The impact of investment management actions that optimise
the yield of the assets backing the back book of annuity contracts is now
included within adjusted operating profit.
Application of IFRS 17 has changed the timing of the recognition of profit
from insurance contracts. This includes spreading both the day one
profit arising on new business and the impact of assumption changes
into the contractual service margin. Accordingly, the application of IFRS
17 reduced the reported 2022 operating profit from divisions by £0.8bn
in comparison with the result presented under IFRS 4.
Shareholder funds
Shareholder funds include both the Group’s traded investments portfolio
and certain direct investments for which adjusted operating profit is
based on the long-term economic return expected to be generated. For
these direct investments, as well as for the Group’s traded investments
portfolio, deviations from such long-term economic return are excluded
from adjusted operating profit. Direct investments for which adjusted
operating profit is reflected in this way include the following:
• Development assets, predominantly in the specialist commercial real
estate and housing sectors within the LGC alternative asset portfolio:
these are assets under construction and contracted to either be sold
to other parts of the Group or for other commercial usage, and on
which LGC accepts development risks and expects to realise profits
once construction is complete.
‘Scale-up’ investments, predominantly in the alternative finance
sector within the LGC alternative asset portfolio as well as the fintech
business within Retail: these are investments in early-stage ventures
in a fast-growing phase of their life cycle, but which have not yet
reached a steady-state level of earnings.
•
Shareholder funds also includes other direct investments for which
adjusted operating profit reflects the IFRS profit before tax. Direct
investments for which adjusted operating profit is reflected in this way
include the following:
•
‘Start-up’ investments: these are companies in the beginning stages
of their business lifecycle (i.e. typically less than 24 months), which
therefore have limited operating history available and typically are in
a pre-revenue stage.
• Mature assets: these are companies in their final stages of business
lifecycle. They are stable businesses and have sustainable streams
of income, but the growth rate in their earnings is expected to remain
less pronounced in the future.
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Financial statements
Other information
Note 2(i) Adjusted operating profit reconciles adjusted operating profit
with its closest IFRS measure, which is profit before tax attributable to
equity holders. Further details on reconciling items between adjusted
operating profit and profit before tax attributable to equity holders are
presented in Note 2(v) Investment and other variances.
Adjusted profit before tax attributable to equity holders
Adjusted profit before tax attributable to equity holders is equal to profit
before tax attributable to equity holders plus the pre-tax results of
discontinued operations. There has been no change in definition as a
result of the adoption of IFRS 17.
Return on Equity (ROE)
ROE measures the return earned by shareholders on shareholder capital
retained within the business. It is a measure of performance of the
business, which shows how efficiently we are using our financial
resources to generate a return for shareholders. ROE is calculated as
IFRS profit after tax divided by average IFRS shareholders’ funds (by
reference to opening and closing shareholders’ funds as provided in the
IFRS Consolidated Statement of Changes in Equity for the period). In the
current period, ROE was quantified using annualised profit attributable to
equity holders of £457m (31 December 2022: £783m) and average
equity attributable to the owners of the parent of £4,699m (31 December
2022: £5,014m), based on an opening balance of £5,067m and a closing
balance of £4,331m (31 December 2022: based on an opening balance
of £4,960m and a closing balance of £5,067m). The methodology for
determining the ROE has not changed following the adoption of IFRS 17
and IFRS 9.
Assets under Management
Assets under management represent funds which are managed by our
fund managers on behalf of investors. It represents the total amount of
money investors have trusted with our fund managers to invest across
our investment products. AUM include assets which are reported in the
Group Consolidated Balance Sheet as well as third-party assets that
LGIM manage on behalf of others, and assets managed by third parties
on behalf of the Group. AUM has not changed following the adoption
of IFRS 9.
The table below reconciles AUM with Total financial investments,
investment property and cash and cash equivalents.
Assets under management1
Derivative notionals2
Third party assets3
Other4
2023
£bn
1,159
(247)
(458)
47
Restated
2022
£bn
1,196
(337)
(412)
45
Total financial investments, investment property
and cash and cash equivalents
501
492
1. These balances are unaudited.
2. Derivative notionals are included in the assets under management measure but are not
for IFRS reporting and are thus removed.
3. Third party assets are those that LGIM manage on behalf of others which are not
included on the Group’s Consolidated Balance Sheet.
4. Other includes assets that are managed by third parties on behalf of the Group, other
assets and liabilities related to financial investments, derivative assets and pooled funds.
Note 2(i) Adjusted operating profit reconciles adjusted profit before
tax attributable to equity holders to profit for the year. In absence of
discontinued operations, adjusted profit before tax attributable to equity
holders is equal to profit before tax attributable to equity holders.
APMs derived from Solvency II measures
The Group is required to measure and monitor its capital resources on a
regulatory basis and to comply with the minimum capital requirements
of regulators in each territory in which it operates. At a Group level,
Legal & General has to comply with the requirements established by
the Solvency II Framework Directive, as adopted by the PRA.
Solvency II surplus
Solvency II surplus is the excess of Eligible Own Funds over the Solvency
Capital Requirements. It represents the amount of capital available to
the Group in excess of that required to sustain it in a 1-in-200 year risk
event. The Group’s Solvency II surplus is based on the Partial Internal
Model, Matching Adjustment and Transitional Measures on Technical
Provisions (TMTP).
Differences between the Solvency II surplus and its related regulatory
basis include the impact of TMTP recalculation when it is not approved
by the PRA, incorporating impacts of economic conditions as at the
reporting date, and the inclusion of unaudited profits (or losses) of
financial firms, which are excluded from regulatory Own Funds. This
view of Solvency II is considered to be representative of the shareholder
risk exposure and the Group’s real ability to cover the Solvency Capital
Requirement (SCR) with Eligible Own Funds. It also aligns with
management’s approach to dynamically manage its capital position.
Further details on Solvency II surplus and its calculation are included
in Note 26 Management of capital resources – Solvency II. This note
also includes a reconciliation between IFRS equity and Solvency II
Own Funds.
Solvency II capital coverage ratio
Solvency II capital coverage ratio is one of the indicators of the Group’s
balance sheet strength. It is determined as Eligible Own Funds divided
by the SCR, and therefore represents the number of times the SCR is
covered by Eligible Own Funds. The Group’s Solvency II capital coverage
ratio is based on the Partial Internal Model, Matching Adjustment and
TMTP.
Differences between the Solvency II capital coverage ratio and its related
regulatory basis include the impact of TMTP recalculation when it is not
approved by the PRA, incorporating impacts of economic conditions as
at the reporting date, and the inclusion of unaudited profits (or losses) of
financial firms, which are excluded from regulatory Own Funds. This view
of Solvency II is considered to be representative of the shareholder risk
exposure and the Group’s real ability to cover the SCR with Eligible Own
Funds. It also aligns with management’s approach to dynamically
manage its capital position.
Alternative Performance Measures
Legal & General Group Plc Annual report and accounts 2023
271
Alternative Performance Measures
continued
Further details on Solvency II capital coverage ratio and its calculation
are included in Note 26 Management of capital resources – Solvency II.
Solvency II operational surplus generation
Solvency II operational surplus generation is the expected surplus
generated from the assets and liabilities in-force at the start of the year.
It is based on assumed real world returns and best estimate non-market
assumptions, and it includes the impact of management actions to the
extent that, at the start of the year, these were reasonably expected to be
implemented over the year.
It excludes operating variances, such as the impact of experience
variances, changes to valuation assumptions, methodology changes
and other management actions including changes in asset mix. It also
excludes market movements, which represent the impact of changes in
investment market conditions during the period and changes to future
economic assumptions. The Group considers this measure meaningful
to stakeholders as it enhances the understanding of its operating
performance over time, and serves as an indicator on the longer-term
components of the movements in the Group’s Solvency II surplus.
Note 26 Management of capital resources – Solvency II includes an
analysis of change for the Group’s Solvency II surplus, showing the
contribution of Solvency II operational surplus generation as well as
other items to the Solvency II surplus during the reporting period.
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Other information
Glossary
Strategic report
Governance
Financial statements
Other information
* These items represent an alternative performance measure (APM)
Adjusted operating profit*
Refer to the alternative performance measures section.
Adjusted profit before tax attributable to equity holders*
Refer to the alternative performance measures section.
Alternative performance measures (APMs)
A financial measure of historic or future financial performance,
financial position, or cash flows, other than a financial measure defined
under IFRS or the regulations of Solvency II.
Annual premiums
Premiums that are paid regularly over the duration of the contract such
as protection policies.
Annuity
Regular payments from an insurance company made for an agreed
period of time (usually up to the death of the recipient) in return for either
a cash lump sum or a series of premiums which the policyholder has
paid to the insurance company during their working lifetime.
Assets under administration (AUA)
Assets administered by Legal & General, which are beneficially owned
by clients and are therefore not reported on the Consolidated Balance
Sheet. Services provided in respect of assets under administration are of
an administrative nature, including safekeeping, collecting investment
income, settling purchase and sales transactions and record keeping.
Assets under management (AUM)*
Refer to the alternative performance measures section.
Assured Payment Policy (APP)
A long-term contract under which the policyholder (a registered UK
pension scheme) pays a day-one premium and in return receives a
contractually fixed and/or inflation-linked set of payments over time
from the insurer.
Back book acquisition
New business transacted with an insurance company which allows
the business to continue to utilise Solvency II transitional measures
associated with the business.
CAGR
Compound annual growth rate.
Common Contractual Fund (CCF)
An Irish regulated asset pooling fund structure. It enables institutional
investors to pool assets into a single fund vehicle with the aim of
achieving cost savings, enhanced returns and operational efficiency
through economies of scale. A CCF is an unincorporated body
established under a deed where investors are “co-owners” of underlying
assets which are held pro rata with their investment. The CCF is
authorised and regulated by the Central Bank of Ireland.
Contract boundaries
Cash flows are within the boundary of an insurance contract if they arise
from substantive rights and obligations that exist during the reporting
period in which the Group can compel the policyholder to pay the
premiums or has a substantive obligation to provide the policyholder
with insurance contract services.
Contractual service margin (CSM)
The CSM represents the unearned profit the Group will recognise for
a Group of insurance contracts, as it provides services under the
insurance contract. It is a component of the asset or liability for the
contracts and it results in no income or expense arising from initial
recognition of an insurance contract. Therefore, together with the risk
adjustment, the CSM provides a view of both stored value of our in-force
insurance business, and the growth derived from new business in the
current year. A CSM is not set up for groups of contracts assessed as
onerous.
The CSM is released as profit as the insurance services are provided.
Coverage Period
The period during which the Group provides insurance contract services.
This period includes the insurance contract services that relate to all
premiums within the boundary of the insurance contract.
Credit rating
A measure of the ability of an individual, organisation or country to repay
debt. The highest rating is usually AAA. Ratings are usually issued by a
credit rating agency (e.g. Moody’s or Standard & Poor’s) or a credit
bureau.
Deduction and aggregation (D&A)
A method of calculating Group solvency on a Solvency II basis, whereby
the assets and liabilities of certain entities are excluded from the Group
consolidation. The net contribution from those entities to Group Own
Funds is included as an asset on the Group’s Solvency II balance sheet.
Regulatory approval has been provided to recognise the (re)insurance
subsidiaries in the US and Bermuda on this basis.
Defined benefit pension scheme (DB scheme)
A type of pension plan in which an employer/sponsor promises a
specified monthly benefit on retirement that is predetermined by a
formula based on the employee’s earnings history, tenure of service and
age, rather than depending directly on individual investment returns.
Defined contribution pension scheme (DC scheme)
A type of pension plan where the pension benefits at retirement are
determined by agreed levels of contributions paid into the fund by the
member and employer. They provide benefits based upon the money
held in each individual’s plan specifically on behalf of each member.
The amount in each plan at retirement will depend upon the investment
returns achieved as well as the member and employer contributions.
Derivatives
Contracts usually giving a commitment or right to buy or sell assets
on specified conditions, for example on a set date in the future and at
a set price. The value of a derivative contract can vary. Derivatives can
generally be used with the aim of enhancing the overall investment
returns of a fund by taking on an increased risk, or they can be used with
the aim of reducing the amount of risk to which a fund is exposed.
Direct investments
Direct investments, which generally constitute an agreement with
another party, represent an exposure to untraded and often less volatile
asset classes. Direct investments also include physical assets, bilateral
loans and private equity, but exclude hedge funds.
Glossary
Legal & General Group Plc Annual report and accounts 2023
273
Glossary
continued
Earnings per share (EPS)
A common financial metric which can be used to measure the
profitability and strength of a company over time. It is calculated as total
shareholder profit after tax divided by the weighted average number of
shares outstanding during the year.
Insurance new business
New business arising from new policies written on retail protection
products and new deals and incremental business on Group protection
products.
Eligible Own Funds
The capital available to cover the Group’s Solvency Capital Requirement.
Eligible Own Funds comprise the excess of the value of assets over
liabilities, as valued on a Solvency II basis, plus high quality hybrid capital
instruments, which are freely available (fungible and transferable) to
absorb losses wherever they occur across the Group.
Employee satisfaction index
The Employee satisfaction index measures the extent to which
employees report that they are happy working at Legal & General. It is
measured as part of our Voice surveys, which also include questions on
commitment to the goals of Legal & General and the overall success of
the Company.
ETF
LGIM’s European Exchange Traded Fund platform.
Irish Collective Asset-Management Vehicle (ICAV)
A legal structure investment fund, based in Ireland and aimed at
European investment funds looking for a simple, tax-efficient investment
vehicle.
Key performance indicators (KPIs)
These are measures by which the development, performance or position
of the business can be measured effectively. The Group Board reviews
the KPIs annually and updates them where appropriate.
LGA
Legal & General America.
LGAS
Legal and General Assurance Society Limited.
LGC
Legal & General Capital.
Euro Commercial Paper
Short-term borrowings with maturities of up to 1 year typically issued for
working capital purposes.
LGIM
Legal & General Investment Management.
Expected credit losses (ECL)
For financial assets measured at amortised cost or FVOCI, a loss
allowance defined as the present value of the difference between all
contractual cash flows that are due and all cash flows expected to be
received (i.e. the cash shortfall), weighted based on their probability of
occurrence.
Fair value through other comprehensive income (FVOCI)
A financial asset that is measured at fair value in the Consolidated
Balance Sheet and reports gains and losses arising from movements in
fair value within the Consolidated Statement of Comprehensive Income
as part of the total comprehensive income or expense for the year.
Fair value through profit or loss (FVTPL)
A financial asset or financial liability that is measured at fair value in the
Consolidated Balance Sheet and reports gains and losses arising from
movements in fair value within the Consolidated Income Statement as
part of the profit or loss for the year.
Fulfilment cash flows
Fulfilment cash flows comprise unbiased and probability-weighted
estimates of future cash flows, discounted to present value to reflect the
time value of money and financial risks, plus the risk adjustment for
non-financial risk.
Full year dividend
Full year dividend is the total dividend per share declared for the year
(including interim dividend but excluding, where appropriate, any special
dividend).
Generally accepted accounting principles (GAAP)
A widely accepted collection of guidelines and principles, established by
accounting standard setters and used by the accounting community to
report financial information.
LGRI
Legal & General Retirement Institutional.
LGRI new business
Single premiums arising from pension risk transfers and the notional
size of longevity insurance transactions, based on the present value of
the fixed leg cash flows discounted at the SONIA curve.
Liability driven investment (LDI)
A form of investing in which the main goal is to gain sufficient assets to
meet all liabilities, both current and future. This form of investing is most
prominent in final salary pension plans, whose liabilities can often reach
into billions of pounds for the largest of plans.
Lifetime mortgages
An equity release product aimed at people aged 55 years and over. It is a
mortgage loan secured against the customer’s house. Customers do not
make any monthly payments and continue to own and live in their house
until they move into long-term care or on death. A no negative equity
guarantee exists such that if the house value on repayment is insufficient
to cover the outstanding loan, any shortfall is borne by the lender.
Longevity
Measure of how long policyholders will live, which affects the risk profile
of pension risk transfer, annuity and protection businesses.
Matching adjustment
An adjustment to the discount rate used for annuity liabilities in Solvency
II balance sheets. This adjustment reflects the fact that the profile of
assets held is sufficiently well-matched to the profile of the liabilities,
that those assets can be held to maturity, and that any excess return over
risk-free (that is not related to defaults) can be earned regardless of
asset value fluctuations after purchase.
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Other information
Strategic report
Governance
Financial statements
Other information
Morbidity rate
Rate of illness, influenced by age, gender and health, used in pricing and
calculating liabilities for policyholders of life products, which contain
morbidity risk.
Mortality rate
Rate of death, influenced by age, gender and health, used in pricing and
calculating liabilities for future policyholders of life and annuity products,
which contain mortality risks.
Net zero carbon
Achieving an overall balance between anthropogenic carbon emissions
produced and carbon emissions removed from the atmosphere.
Onerous contracts
An insurance contract is onerous at the date of initial recognition if
the fulfilment cash flows allocated to the contract, any previously
recognised acquisition cash flows and any cash flows arising from the
contract at the date of initial recognition, in total are a net outflow.
Open Ended Investment Company (OEIC)
A type of investment fund domiciled in the United Kingdom that is
structured to invest in stocks and other securities, authorised and
regulated by the Financial Conduct Authority (FCA).
Overlay assets
Derivative assets that are managed alongside the physical assets held
by LGIM. These instruments include interest rate swaps, inflation swaps,
equity futures and options. These are typically used to hedge risks
associated with pension scheme assets during the derisking stage of
the pension life cycle.
Paris Agreement
An agreement within the United Nations Framework Convention on
Climate Change effective 4 November 2016. The Agreement aims to
limit the increase in average global temperatures to well below 2°C,
preferably to 1.5°C, compared to pre-industrial levels.
Pension risk transfer (PRT)
Bulk annuities bought by entities that run final salary pension schemes
to reduce their responsibilities by closing the schemes to new members
and passing the assets and obligations to insurance providers.
Persistency
Persistency is a measure of LGIM client asset retention, calculated as a
function of net flows and closing AUM.
Present value of future new business premiums (PVNBP)
PVNBP is equivalent to total single premiums plus the discounted value
of annual premiums expected to be received over the term of the
contracts using the same economic and operating assumptions used for
the new business value at the end of the financial period. The discounted
value of longevity insurance regular premiums and quota share
reinsurance single premiums are calculated on a net of reinsurance
basis to enable a more representative margin figure. PVNBP therefore
provides an estimate of the present value of the premiums associated
with new business written in the year.
Proprietary assets
Total investments to which shareholders are directly exposed, minus
derivative assets, loans, and cash and cash equivalents.
Qualifying Investor Alternative Investment Fund (QIAIF)
An alternative investment fund regulated in Ireland targeted at
sophisticated and institutional investors, with minimum subscription and
eligibility requirements. Due to not being subject to many investment or
borrowing restrictions, QIAIFs present a high level of flexibility in their
investment strategy.
Real assets
Real assets encompass a wide variety of tangible debt and equity
investments, primarily real estate, infrastructure and energy. They have
the ability to serve as stable sources of long-term income in weak
markets, while also providing capital appreciation opportunities in
strong markets.
Retail Retirement new business
Single premiums arising from annuity sales and individual annuity back
book acquisitions and the volume of lifetime and retirement interest only
mortgage lending.
Retirement Interest Only Mortgage (RIO)
A standard retirement mortgage available for non-commercial
borrowers above 55 years old. A RIO mortgage is very similar to a
standard interest-only mortgage, with two key differences:
• The loan is usually only paid off on death, move into long-term care
or sale of the house.
• The borrowers only have to prove they can afford the monthly
interest repayments and not the capital remaining at the end of the
mortgage term.
No repayment solution is required as repayment defaults to sale
of property.
For insurance, persistency is the rate at which policies are retained over
time and therefore continue to contribute premium income and assets
under management.
Return on Equity (ROE)*
Refer to the alternative performance measures section.
Platform
Online services used by intermediaries and consumers to view and
administer their investment portfolios. Platforms usually provide
facilities for buying and selling investments (including, in the UK
products such as Individual Savings Accounts (ISAs), Self-Invested
Personal Pensions (SIPPs) and life insurance) and for viewing an
individual’s entire portfolio to assess asset allocation and risk exposure.
Risk adjustment
The risk adjustment reflects the compensation that the Group would
require for bearing uncertainty about the amount and timing of the cash
flows that arises from non-financial risk after diversification. We have
calibrated the Group’s risk adjustment using a Value at Risk (VAR)
methodology. In some cases, the compensation for risk on reinsured
business is linked directly to the price paid for reinsurance. The risk
adjustment is a component of the insurance contract liability, and it is
released as profit if experience plays out as expected.
Glossary
Legal & General Group Plc Annual report and accounts 2023
275
Glossary
continued
Risk appetite
The aggregate level and types of risk a company is willing to assume
in its exposures and business activities in order to achieve its
business objectives.
Single premiums
Single premiums arise on the sale of new contracts where the terms of
the policy do not anticipate more than one premium being paid over its
lifetime, such as in individual and bulk annuity deals.
Solvency Capital Requirement (SCR)
The amount of Solvency II capital required to cover the losses occurring
in a 1-in-200 year risk event.
Specialised Investment Fund (SIF)
An investment vehicle regulated in Luxembourg targeted to well-
informed investors, providing a great degree of flexibility in organisation,
investment policy and types of underlying assets in which it can invest.
Société d’Investissement à Capital Variable (SICAV)
A publicly traded open-end investment fund structure offered in Europe
and regulated under European law.
Total shareholder return (TSR)
A measure used to compare the performance of different companies’
stocks and shares over time. It combines the share price appreciation
and dividends paid to show the total return to the shareholder.
Transitional Measures on Technical Provisions (TMTP)
An adjustment to Solvency II technical provisions to bring them into line
with the pre-Solvency II equivalent as at 1 January 2016 when the
regulatory basis switched over, to smooth the introduction of the new
regime. This decreases linearly over the 16 years following Solvency II
implementation but may be recalculated to allow for changes impacting
the relevant business, subject to agreement with the PRA.
Yield
A measure of the income received from an investment compared to the
price paid for the investment. It is usually expressed as a percentage.
Solvency II
These are insurance regulations designed to harmonise EU insurance
regulation. Primarily this concerns the amount of capital that European
insurance companies must hold under a measure of capital and risk.
Solvency II became effective from 1 January 2016. The Group complies
with the requirements established by the Solvency II Framework Directive,
as adopted by the Prudential Regulation Authority (PRA) in the UK, and
measures and monitors its capital resources on this basis.
Solvency II capital coverage ratio*
Refer to the alternative performance measures section.
Solvency II capital coverage ratio – regulatory basis
The Eligible Own Funds on a regulatory basis divided by the Group
solvency capital requirement. This represents the number of times the
SCR is covered by Eligible Own Funds.
Solvency II new business contribution
Reflects present value at the point of sale of expected future Solvency II
surplus emerging from new business written in the period using the risk
discount rate applicable at the end of the reporting period.
Solvency II Operational Surplus Generation*
Refer to the alternative performance measures section.
Solvency II risk margin
An additional liability required in the Solvency II balance sheet, to ensure
the total value of technical provisions is equal to the current amount a
(re)insurer would have to pay if it were to transfer its insurance and
reinsurance obligations immediately to another (re)insurer. The value of
the risk margin represents the cost of providing an amount of Eligible
Own Funds equal to the Solvency Capital Requirement (relating to
non-market risks) necessary to support the insurance and reinsurance
obligations over the lifetime thereof.
Solvency II surplus*
Refer to the alternative performance measures section.
Solvency II surplus – regulatory basis
The excess of Eligible Own Funds on a regulatory basis over the SCR.
This represents the amount of capital available to the Company in
excess of that required to sustain it in a 1-in-200 year risk event.
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Legal & General Group Plc Annual report and accounts 2023
Other information
Forward-looking statements
This Annual report and accounts may contain
‘forward-looking statements’ with respect
to the financial condition, performance and
position, strategy, results of operations and
businesses of the Company and the Group
that are based on management’s current
expectations or beliefs, as well as assumptions
and projections about future events. These
forward-looking statements can be identified
by the fact that they do not relate only to
historical or current facts. Forward-looking
statements often use words such as ‘aim’,
‘ambition’, ‘may’, ‘could’, ‘will’, ‘expect’, ‘intend’,
‘estimate’, ‘anticipate’, ‘believe’, ‘plan’, ‘seek’,
‘continue’, ‘milestones’, ‘outlook’, ‘target’,
‘objectives’ or other words of similar meaning.
By their very nature, forward-looking statements
are subject to known and unknown risks and
uncertainties and can be affected by other
factors that could cause actual results, and
the Group’s plans and objectives, to differ
materially from those expressed or implied
in the forward-looking statements. Recipients
should not place undue reliance on, and are
cautioned about relying on, any forward-
looking statements.
There are several factors which could cause
actual results to differ materially from those
expressed or implied in forward-looking
statements. The factors that could cause
actual results to differ materially from those
described in the forward-looking statements
include (but are not limited to): changes
in global, political, economic, business,
competitive and market forces or conditions;
future exchange and interest rates; changes
in environmental, social or physical risks;
legislative, regulatory and policy developments;
risks arising out of health crises and
pandemics; changes in tax rates, future
business combinations or dispositions; and
other factors specific to the Group. Further
details of risks, uncertainties and other factors
relevant to the business can be found on pages
56 to 59. Any forward-looking statement
contained in this document is based on past
or current trends and/or activities of the Group
and should not be taken as a guarantee,
warranty or representation that such trends
or activities will continue in the future.
No statement in this document is intended
to be a profit forecast or to imply that the
earnings of the Group for the current year
or future years will necessarily match or exceed
the historical or published earnings of the
Group. Each forward-looking statement speaks
only as of the date of the particular statement.
Except as required by any applicable laws
or regulations, the Group expressly disclaims
any obligation to revise or update any
forward-looking statement contained within
this document, regardless of whether those
statements are affected as a result of new
information, future events or otherwise.
Caution about climate information
This Annual report and accounts contains
climate and ESG disclosures which use a large
number of judgments, assumptions and
estimates in connection with involved and
complex issues. The ESG disclosures should
be treated with special caution, as ESG and
climate data, models and methodologies are
often relatively new, are rapidly evolving and
are not of the same standard as those available
in the context of other financial information,
nor are they subject to the same or equivalent
disclosure standards, historical reference
points, benchmarks, market consensus
or globally accepted accounting principals.
These judgments, assumptions and estimates
are likely to change over time, in particular
given the uncertainty around the evolution and
impact of climate change and around broader
factors, such as impacts and dependencies
on nature. In addition, the Group’s climate risk
analysis and net zero strategy and wider
sustainability strategy remain under
development and the data underlying
the analysis and strategy remain subject
to evolution. As a result, certain climate and
ESG disclosures made in this report are likely
to be amended, updated, recalculated or
restated in future reports. This statement
should be read together with the Cautionary
statement contained in the Group’s latest
Climate and nature report.
The information, statements and opinions
contained in this Annual report and accounts
do not constitute an offer to sell or buy or the
solicitation of an offer to sell or buy any
securities or financial instruments nor do they
constitute any advice or recommendation with
respect to such securities or other financial
instruments or any other matter.
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Legal & General Group Plc is a holding
company, subsidiary undertakings of which
are authorised and regulated by the Financial
Conduct Authority and/or Prudential
Regulation Authority, as appropriate.