We’re handling it
Annual Report and Accounts 2021
Climate, technology, housing,
regeneration, wellbeing: we are
delivering at pace on a range
of initiatives to address these
wide-reaching challenges.
Actions,
not words
Contents
2 At a glance
4 Chairman’s statement
6 The virtuous circle of inclusive
capitalism
8 ChiefExecutiveOfficer’sQ&A
10 Our strategy
12 Our business model
18 Climate: Inaction is not an option
20 Our people: Doing things differently
22 Technological innovation
119 Financial statements
120 Group consolidated
financialstatements
130 Primary statements
and performance
24 ChiefFinancialOfficer’sQ&A
26 Key performance indicators (KPIs)
28 Tax review
30 Business review
42 A sustainable business
52 Managing risk
55 Group Board viability statement
56 Principal risks and uncertainties
62 Board of directors
64 Executive Committee
66 Letter from the Chairman
68 Stakeholder engagement
73 Major decisions and
discussions during 2021
74 Employee engagement
75 Governance report
80 Committed to the
highest standards
148 Balance sheet management
197Additionalfinancialinformation
226Companyfinancialstatements
234 Directors’ report
238 Shareholder information
240 Alternative performance measures
241 Glossary
82 Nominations and Corporate
Governance Committee report
86 Audit Committee report
92 Group Risk Committee report
94 Directors’ report on
remuneration (DRR)
96 DRR quick read summary
100 Remuneration policy (summary)
102 Annual report on remuneration
Annual report quick read
A summary of the annual report,
highlighting strategy, performance
and how the group is structured,
is available online:
group.legalandgeneral.com/
annualreportsummary
Climate report
group.legalandgeneral.com/reports
Gender pay gap report
group.legalandgeneral.com/reports
Tax supplement
group.legalandgeneral.com/reports
Risk supplement
group.legalandgeneral.com/reports
Strategic report Governance
Financial statements Other information
How we bring our vision of inclusive capitalism to life How we grow our business responsibly
Our financial statements for the
year ended 31 December 2021
Legal & General Group Plc Annual Report and Accounts 2021 1
Strategic report Governance Financial statements Other information
Contents
At a glance
Adjusted operating profit
£m
2,218
2,262
2,286
2,335
2,055
2017 2018 2019 2020 2021
Profit before tax
£m
2,061
2,129
2,156
2,632
1,499
2017
2018 2019 2020 2021
Net release from operations
£m
1,539
1,688
1,597
1,440
1,454
2017 2018 2019 2020 2021
Earnings per share
p
27.00
34.19
30.92
30.79
31.87
2017
2018 2019 2020 2021
Throughout this report, all bar chart scales start from zero.
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.
Profit before tax comprises all items
of income and expense recognised
in profit or loss (excluding tax).
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.
Net release from operations is the release
from operations plus new business surplus/
(strain). It includes the release of prudent
margins from the back book and premium
received, less the setup of prudent reserves
and associated acquisition costs for
new business.
Financial measures
Return on equity
20.5%
(2020: 17.3%)
Solvency II capital coverage ratio
(proforma basis, unaudited)
187%
(2020: 175%)
Performance measures and remuneration
The performance measures used for thepurpose 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 101 of the Directors’ report onremuneration.
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 240.
Full definitions of the financial metrics above are included in the glossary on page 241.
Return on equity (ROE) is the return earned
by shareholders on shareholder capital
retained within the business. ROE is
calculated as profit after tax divided
by average shareholders’ funds.
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.
Employee satisfaction index measures the
extent to which employees report that they
are happy working at Legal & General.
Non-financial measures
Employee satisfaction index
(unaudited)
76%
(2020: 77%)
Operational footprint (Scope 1
and 2 location)
30,706 tCO2e
1
(2020: 31,640 tCO2e)
Solvency II capital coverage ratio (on a
proforma basis), which shows own funds
divided by the solvency capital requirement
including the impact of the final salary
pension scheme, is one of the indicators
of the group’s balance sheet strength, and
aligns to management’s approach of
dynamically managing its capital position.
1. Our total Scope 1 and Scope 2 (location) emissions have been subject to independent limited assurance by PwC. The basis of preparation (or reporting criteria) for our group carbon
footprint is available at group.legalandgeneral.com/sustainabilityreports and PwC’s assurance report is available in our 2021 climate report at group.legalandgeneral.com/reports.
Legal & General Group Plc Annual Report and Accounts 20212 Strategic report
Our businesses
Webenefitfromscaleineachofourbusinesses.Ourbusinesseswork
together to deliver on our purpose and to drive synergies across the group.
2. As of 1 January 2022, LGRR and LGI (our two retail businesses) have come together to form Legal & General Retail. Under the leadership of Bernie Hickman, this division will focus
on serving the savings, protection and retirement needs of our retail and workplace customers.
See more about
our business model
on pages 12 to 17
Institutional retirement
(‘LGRI’)
See page 31
• We take on pension scheme 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.
£7.2bn
pension risk transfer
premiums
Retail retirement
(‘LGRR’)2
See page 34
• We help our customers accumulate pensions savings and transform
them into the income they need to have a colourful retirement.
£957m
individual annuity sales
Investment management
(‘LGIM’)
See page 36
• We are one of the world’s leading asset managers, managing assets
for internal and external clients.
• WearethemarketleaderinUKdefinedcontributionschemeclients.
£1.4tn
assets under management
Capital investment
(‘LGC’)
See page 38
• Our investments across specialist commercial real estate, clean
energy,housingandSMEfinancegenerateattractiveshareholder
returnsandcreatealternativeassetswhichbenefitsociety.
• We are one of the UK’s top ten house builders by revenue.
>2,900
homes sold
Insurance
(‘LGI’)2
See page 40
• We are the UK’s number one individual life insurance provider
and we offer ‘level-term’ life insurance in the US.
• Our group protection business in the UK offers life insurance and
income protection products to individuals through their employers.
>9 million
number of customers
We aim to:
Be a leading provider
of retirement and
protection solutions
Be one of the world’s
largest asset managers
Be an innovative
asset creator
Build a more
sustainable society
Legal & General Group Plc Annual Report and Accounts 2021 3
Strategic report Governance Financial statements Other information
At a glance
Introduction
2021wasayearinwhichLegal&General’s
resilience and sound business model enabled
us to return to growth and play our part as broader
society continued to absorb and address the
consequences of Covid-19. No one company can
address these challenges on its own, but we can
beproudofLegal&General’scontributiontothe
progress made in 2021. We continue to be
thankful for the service of key workers and our
thoughts are with all those who have suffered
during the pandemic, especially those who have
lost loved ones.
OurcustomersrelyonLegal&Generaltopaytheir
pensions, protect their income and manage their
assets. We have worked through two years of
challenging circumstances and I would like to
thankeveryoneatLegal&Generalfortheirhard
work and dedication to make sure that we
maintained the quality of our service during
this time.
In the complex circumstances of 2021, we have
continued to focus on our long-term strategy.
Ourfivegrowingbusinessesarebuildingnew
homes, de-risking pension schemes, providing
annuities, protecting customers, and creating
and managing socially and environmentally useful
investments. We will continue our £33 billion
programme of direct investments, which includes
investmentsintokeysustainabilityfields,such
as renewables and clean energy.
Chairman’s
statement
Social purpose is
at the centre of
everything we do.
Legal & General Group Plc Annual Report and Accounts 20214 Strategic reportStrategic report
The climate decade
COP26 in Glasgow was convened to coordinate
and progress the international effort to limit
global warming to 1.5°C or less. It was more
successful than some expected, but less successful
than others hoped. We continue to advocate
urgent action from both governments and the
private sector, and we will continue to use our
influenceasalargeinvestortopromotethe
transition to a low carbon economy.
This transition requires diligent and determined
approaches to solving all the challenges
of decarbonisation. We continue to regard
engagement as opposed to divestment as a more
effective way of managing the whole spectrum
of these challenges. We will not simply leave the
toughest issues to others.
We are committed to decarbonising both the assets
on our balance sheet and our operations to align
with the ‘Paris’ Agreement. We will validate our
targets through setting science-based targets.
Financial resilience
During 2021, our business achieved balanced
andprofitablegrowth,andwesawthegroup
return to the growth trend rate achieved in the
last decade, following the ‘pause year’ of 2020.
Legal&Generaloperatedthroughout2021without
accessing any furlough scheme or other Covid-19
business support.
Ouradjustedoperatingprofitwas£2.3billion
andprofitfortheyearof£2.0billionwasup30%
comparedwith2020,reflectingarecoveryfrom
the prior year impact of Covid-19. Earnings per
share was 34.19 pence compared with 27.00
pence in 2020. We achieved a return on equity
of 20.5% and our Solvency II coverage ratio was
187% on a proforma basis.
The interim dividend of 5.18 pence and the
recommendedfinaldividendof13.27pence
are consistent with our stated ambition. The
Board’s intention is to maintain its progressive
dividend policy.
Stakeholders
In the Governance section of this report, we
report on our wider engagement with stakeholders.
In October 2021, we hosted a capital markets
event focused on our capital investment business
(LGC), with presentations of LGC’s strategy, our
approachandinvestmentcapability,financial
performance and ambitions.
In May 2021 our Annual General Meeting (AGM)
washeldinourofficeinLondon.While,dueto
Covid-19, shareholders were not able to attend
in person, all were invited to join virtually via an
online video platform. The Board was delighted
to provide shareholders with the opportunity
to ask questions live during the meeting.
The Board is looking forward to welcoming
shareholderstoourfirsthybridAGMthisyear.
Full details of the 2022 AGM and any special
arrangements that may be in place in light of
Covid-19 will be included in the Notice of AGM
that will be sent to shareholders.
The Board
I would like to congratulate Sir Nigel Wilson on
hisknighthood;itisareflectionofhisextraordinary
leadership of the company and of the wider social
purpose he puts at the centre of everything we do.
Julia Wilson stood down from the Board on
31 March 2021 following a nine-year tenure.
Philip Broadley, Chair of the Audit Committee,
has taken on the position of Senior Independent
Director following Julia’s departure from the
Board. We have also recently announced that
Toby Strauss will be standing down from the
Board at the end of April 2022 following his
recent appointment as the Chair of Age UK.
I would like to thank Julia and Toby for their
immensecontributionstoLegal&Generalduring
their time with us.
Nilufer von Bismarck OBE was appointed to the
Board as an independent non-executive director
in May 2021. Laura Wade-Gery was appointed
to the Board in January 2022, bringing extensive
knowledge of digital transformation and
customer experience. We are also delighted
that Tushar Morzaria will be joining the Board
in May 2022.
The Board continues to focus on maintaining
awell-balancedanddiversifiedBoardwiththe
right mix of individuals who can apply their wider
business knowledge and experience to the setting,
and oversight of delivery, of the group’s strategy.
Outlook
Whilst Covid-19 remains very much with us,
weneverthelessmaintainaconfidentbusiness
outlook for 2022.
The preparations we made, both before the
pandemic and those we have implemented over
the last year, have ensured that we have been well
placed to play an important role in an investment-
led economic recovery and to contribute further
to addressing critical societal challenges, especially
long-term investment in the infrastructure
required to reach net zero by 2050.
Sir John Kingman
Chairman
Annual General Meeting 2022
The AGM will be held on 26 May 2022.
Dividend policy
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
itsprogressivedividendpolicy,reflecting
the group’s expected medium-term
underlying business growth, including
measurement of Net release from
operationsandAdjustedoperatingprofit.
Full year dividend
p
17.57
18.45
17.57
16.42
15.35
2017
2018 2019 2020 2021
Final dividend to be paid
on 1 June 2022
13.27p
(2020: 12.64p)
Legal & General Group Plc Annual Report and Accounts 2021Chairman’s statement 5
Strategic report Governance Financial statements Other information
Rethinking retirement
We help people live better in their
later years by investing in innovative
later-living communities and funding
research that will improve the way we
all live as we age. For example, our
joint venture (JV) partnership with
NatWest will invest £500 million
to build later-living communities.
For more details, refer to pages
31 to 33
Future-proofing society
We invest billions of pounds
to help to build a better society
for all. This includes
infrastructure, affordable
homes and support for small
businesses; making money
work harder than ever before.
For more details, refer to pages
38 to 39
5,100
energy-efficienthomes
will be constructed through
our JV with NatWest
A long-term patient
capital injection can
completely transform
towns and cities,
creating real jobs
whilst generating
income topay
pensioners. This is
inclusive capitalism
at its best.”
Sir Nigel Wilson
ChiefExecutiveOfficer
What are we
investing in?
inclusive
capitalism
The virtuous circle of
6 Strategic report
Tackling the climate crisis
We are investing in renewable
energy technologies, from energy
efficienthomestofusionpower,
tohelplimitglobalwarming
and ensure our balance sheet
supportsnetzerocommitments.
For more details, refer to pages
18 to 19
Harnessing technology
From building the data centres
that keep businesses connected,
to supporting our customers with
ourfastandefficientsystems,
weareinvestingintechnology
to build a better future for everyone.
For more details, refer to pages
22 to 23
Inclusive capitalism is what we do.
It drives our strategy, shapes our culture
and has sustainability at its core. We invest
retirement premiums directly into our
communities, providing opportunities
for younger people.
>5,000
directors’electionsweopposed
due to governance concerns
65%
of net zero-related jobs
are expected to come
from the science and
technology sector
by2050
Investing for good
As one of the world’s biggest asset
managers, we use our scale to
encourage the companies we
invest in to behave responsibly
andinawaythatbenefitseveryone.
For more details, refer to pages
36 to 37
Building infrastructure
We are developing essential
infrastructure and injecting capital
into towns and cities that have
suffered long-term under-
investment to ensure they thrive
in the years ahead.
For more details, refer to pages
38 to 39
Legal & General Group Plc Annual Report and Accounts 2021What are we investing in? 7
Strategic report Governance Financial statements Other information
Chief Executive
Officer’s Q&A
We have been
operating inclusive
capitalism at scale.
What were the areas of focus
for Legal & General in 2021?
2021 was a year of strong performance and,
against a challenging global backdrop, we returned
to the rate of growth we delivered in the decade
before Covid-19. I am proud that our team of over
10,000 people adapted well to the challenges of
different working models and continued to deliver
greatcustomerservice,protectingthefinancial
security of millions of customers.
The virtuous circle of inclusive capitalism
We have been operating inclusive capitalism at
scale to help re-shape the UK for a decade now.
We use our own capital and pension assets from
our institutional retirement business to invest
back into society. In this way, the savings of older
policyholders provide opportunities for younger
generations; we call this the virtuous circle of
inclusive capitalism. Be it renewable energy
generated by Hornsea’s wind turbines, urban
regeneration in Manchester and Leeds or
affordable homes in Bristol, we know it works.
Stepping up to levelling up
ForLegal&General,‘LevellingUp’,and‘BuildBack
Better’, are more than phrases; we are leading the
change. We have invested more than £33 billion,
targeted to deliver ‘Levelling Up’ to an economically
more productive, net zero economy. We are creating
thousands of jobs through transformative
regeneration projects from Sunderland to Cardiff.
Strengthening sustainability
Climate change is both the biggest challenge, and
the biggest investment opportunity, of our lifetimes.
Long before COP26, as an investor, an asset
manager and an employer, we were pushing for
climate action and a more sustainable economy.
For the past 18 months, Michelle Scrimgeour (CEO
of LGIM) has co-chaired the COP26 Business
Leaders Group, where we mobilised the skills and
resources of our peers to target net zero by 2050.
COP26 delivered on many of the issues we have
campaigned for, but there remains much more
to be done; words must now give way to actions
delivered at speed and scale.
Legal & General Group Plc Annual Report and Accounts 20218 Strategic report
Areas of focus
How did the business perform in 2021?
Despite the challenges of 2021, our long-term
strategycontinuestodeliverfivesuccessful,
growing businesses. Our global pension risk
transfer business, LGRI, welcomed major new
customers and wrote £7.2 billion of premiums.
LGRR, our retail retirement business, delivered
annuity sales of £957 million.
Our investment management business, LGIM,
is a major global investor with total assets
under management of £1.4 trillion, of which
£290 billion is in responsible investment strategies
explicitly linked to environment, social and
governance (ESG) criteria. Our capital investment
business, LGC, grew its alternative asset portfolio
by 10% to £3.4 billion.
Our insurance business, LGI, delivered adjusted
operatingprofitof£268million.From
1 January 2022, our retail retirement and
insurance businesses have come together
toformLegal&GeneralRetail,whichwillfocus
on serving the savings, protection and retirement
needs of our retail and workplace customers.
What is Legal & General’s focus today?
Creating a sustainable economy
Historic under-investment in the UK has to be
remedied if we are to create a sustainable economy.
This is where the private sector can make a
difference. At COP26, we argued that the private
sector can bring expertise to convert promises
and pledges into real actions.
Funding innovation
We look after the workplace pensions of more
than four million UK workers and the total savings
ofalldefinedcontributionpensionswillsoon
exceed £1 trillion. Currently, workplace pensions
donotbenefitfromthesamelevelofgrowth
offered by venture capital funds. Our capital
investment business has increased its small and
mediumenterprises(SME)financeassetsunder
management to £611 million, supporting over
330 start-up businesses.
Disrupting markets with technology
Affordableandenergy-efficienthousingiscrucial
to ‘Levelling Up’ throughout the UK. We have a
state-of-the-art modular homes factory in Selby
and we use our investments in clean technology,
such as ground source and air source heat pumps
and electric vehicle charging points, to build
homeswhicharecapableofoperatingefficiently.
We will enable all homes we build from 2030 to
operate at net zero carbon. In the US, our Horizon
platform is automating underwriting, helping more
people access the protection products they need.
Delivering on promises
In 2021, we broke ground on a number of
developments that add real growth and real
jobs to the economy. As part of our £4 billion
partnership with Oxford University, construction
began on the new Life and Mind Building. Our
investment in Sky Studios Elstree aims to be the
mostsustainablefilmandTVproductionsite
in the world when it opens in late 2022.
Our £1.5 billion partnership with the University of
Manchester will add another tranche of capacity
totheUK’sscientificcapabilityaswecreateanew
science quarter called IDManchester.
As we have demonstrated over the last two years,
we have adapted to change whilst growing our
business. We have been operating inclusive
capitalism at scale and are set to continue with
this ambition in 2022.
Sir Nigel Wilson
ChiefExecutiveOfficer
Addressing climate change
We are investing in low-carbon
technologies, are a world-leading
ESG investor and have set
ourselves ambitious targets.
See pages 18 to 19
Investing in the real economy
Our direct investments range from
affordable housing, to science hubs
and creative industries.
See pages 6 to 7
Technological innovation
From building data centres
to supporting our customers,
we invest in technology to build
a better future for everyone.
See pages 22 to 23
Improving wellbeing
We prioritise the welfare of our
employees, who in turn support the
millions of people who rely on us.
See pages 20 to 21
We’ve created a culture
where people want to
deliver the right outcomes
and society trusts us.”
Legal & General Group Plc Annual Report and Accounts 2021 9
Strategic report Governance Financial statements Other information
ChiefExecutiveOfficer’sQ&A
Short-term influences
Covid-19
The roll out of vaccines and the
development of treatments for
severe illness from Covid-19 promises
a return to a more normal operating
environment. As the challenges
presented by Covid-19 recede, focus
is moving to re-building from the
economic impacts, including
infrastructure development, house
building and addressing the effects
of ageing demographics, all of which
are key parts of our strategy.
Geopolitical landscape
2022 has seen a range of geopolitical
risks come to the fore, with the
potentialforsignificantdisruption
to global economic activity. We are
carefully monitoring the impacts for
our businesses from a range of
geopolitical scenarios and to ensure
weremainfinanciallyandoperationally
resilient to adverse events.
Economic outlook
Whilst global and UK economic
activity is returning to pre-
Covid-19 levels, the outlook of
aperiodofsustainedinflation,
and higher interest rates to those
seen for a number of years, will
impact consumer sentiment.
Our products and services are
relevant across a range of
economic scenarios helping
our customers to achieve
financialsecurity.
Our strategy
Our strategy
is driven by six
growth drivers
that affect
everyone.
In responding to these long-term drivers,
our strategic priorities are set 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.
Ageing demographics
As populations live longer, their pensions need
to last longer, too. Companies increasingly need
tofindsolutionstotheirongoingpension
commitments. At the same time, individuals
need to ensure that their retirement funds and
otherassetscanfinancelongerretirements.
Strategic priority
We aim to be global leaders in pensions
de-risking and retirement income solutions,
building upon success in the UK and US.
Market opportunity
The world population’s average life expectancy
is projected to reach 77 years by 2050 whilst the
working-age population declines. We participate
in the global pension risk transfer (PRT) market,
focusingoncorporatedefinedbenefit(DB)
pension plans in the UK, the US, Canada,
Ireland and the Netherlands, which together
have nearly £7 trillion of pension liabilities.
Market commentators anticipate between £150
to £250 billion of UK PRT demand over the next
fiveyears.
1
Globalisation
of asset markets
Asset markets are increasingly globalised and
growing.NorthAmerica,AsiaPacificandEurope
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.
Strategic priority
We aim to build a truly global asset management
business, entering new markets and expanding
our existing operations.
Market opportunity
As global assets under management are
projected to increase from $103 trillion in 2020
to $136 trillion by 2025, we will continue to
innovate in the US retirement income market,
expand into European wholesale asset
management and increase our presence
inAsiaPacific.
2
Legal & General Group Plc Annual Report and Accounts 202110 Strategic report
Addressing
climate change
Scientists, policy-makers, markets and
regulators increasingly agree that we must limit
global warming to 1.5°C to avoid potentially
catastrophic impacts of climate change. This
requires a transition to a low-carbon economy,
which in turn creates risk management
challenges but also substantial new growth
opportunities, including in innovative
technologies and clean energy.
Strategic priority
Weareabletosupportthefightagainstclimate
change through the positioning of our own
investments,ourinfluenceasoneoftheworld’s
largest asset managers and through
management of our own operational footprint.
Market opportunity
Asglobalfinancesupportsthechangesour
planet needs to address climate change, this
creates an important shift in investment
allocation and the biggest investment opportunity
of our lifetimes. It is estimated that $20 trillion of
investment is needed by 2025 alone to put us on
the path to achieving global net zero emissions
by 2050.
6
Technological
innovation
Consumers, clients and businesses look
to digital platforms to help organise their
financesandworkinglives.Technological
solutionscanincreasesecurity,improvethe
way we work and how we access information.
This can mean the difference between success
andfailureinbusiness.
Strategic priority
Technology and innovative solutions improve
customers’livesandincreaseefficiency.Weaim
to be market leaders in the digital provision of
insurance, sustaining our UK leadership, growing
in the US and expanding in adjacent markets.
Market opportunity
The retail protection market is expected
to increase to $30 billion in the US by 2025.
We anticipate continued premium growth
across our UK and US protection businesses
as technological innovation makes our products
more accessible to customers and supports
further product and pricing enhancements.
5
Welfare reforms
The plan for adult social care reform in
England highlights the continued need to
protectpeoplefromfinancialuncertainty.
This includes helping people take personal
responsibility for saving for their retirement,
andsafeguardingtheirfinancialwellbeing
and resilience.
Strategic priority
We help people take responsibility for their own
financialsecuritythroughinsurance,pensions
and savings.
Market opportunity
As we recover from the impacts of Covid-19,
the UK’s social security system will be under
increasing strain, thereby placing ever more
onus on individuals to build and maintain their
ownfinancialwellbeing.UKdefinedcontribution
(DC) assets are expected to increase from
£0.6 trillion in 2021 to £1.1 trillion by 2029.
4
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.
Strategic priority
By investing capital over the long term, we
aim to become leaders in direct investments
whilstbenefitingsocietythroughsocially
responsible investments.
Market opportunity
By 2025, an estimated 400,000 build to sell and
build to rent units are expected to be built per
annum in the UK. We invest pension assets and
our own capital into the real economy, delivering
financialsecurityforpensionersandfostering
growth across towns and cities in the UK.
3
Legal & General Group Plc Annual Report and Accounts 2021 11
Strategic report Governance Financial statements Other information
Our strategy
Our business model
Resources
Our resources and relationships are
key to our success and their continued
development and enhancement
is a constant focus for our business.
Our business model
is underpinned by the
depth and breadth of our
resources, which allow
us to execute our strategy.
People
Our experienced, dedicated
professionals offer market expertise
and honesty in their interactions
with customers.
How we develop our people
During 2021, we focused on recruitment and early
careers, continued to train line managers on diversity
and inclusion, and launched a global mentoring
platform. We are designing a ‘Future of Work’ model
thatwillprovideabalanceduseofofficeandremote
working. We engage with and measure our progress
through our employee ‘Voice’ survey.
See page 50 for further details.
Brand
We have a trusted brand with a strong
reputation for stability, financial
strength and a straightforward
approach to business.
How we strengthen our brand
While our heritage is in the UK, in recent years
we have increasingly moved into global markets.
Our presence and customer footprint is growing.
We continue to focus on strengthening our digital
channels and innovation in our communication tools.
We are continually championing data-driven marketing
by providing easy access to key performance indicators
and target audience data across the group.
21 3
Legal & General Group Plc Annual Report and Accounts 202112 Strategic report
Sustainability
Being a responsible and sustainable
business remains at the heart of
our agenda.
How we build a sustainable business
Our guiding principle of inclusive capitalism gives
purpose and focus to the actions we take to create
a more sustainable society.
• Our journey to net zero.
• Building a better society.
• Growing our business responsibly.
See pages 42 to 51 for further details.
Customer loyalty
We have been building customer
relationships since 1836 and we have
a loyal customer base in the UK and,
increasingly, overseas. We partner with
companies throughout their pensions
de-risking journey and withindividuals
over their lifetimes.
How we improve customer experience
We are always looking at ways to improve our
customers’ experience. That is why, from
1 January 2022, we have formed a retail business
that brings together our customer services. It makes
sense for our customers and for our business.
Capital
We are a long-term business with robust
regulatory capital reserves. We invest
our customers’ pension assets and
our own capital directly into the
UK economy in a way which benefits
society as a whole.
How we strengthen our capital
Our commitments to shareholders are underpinned
byarobustbalancesheet.Thismeantwewereresilient
during Covid-19 and are now back on track with our
ambitious growth agenda.
See pages 24 to 27 for further details.
Culture
We have a culture where people are
fulfilled at work and excited to be
a part of our story.
How we foster an inclusive culture
Our purpose tells us why we do what we do;
ourbehavioursdefinehow we do what we do.
• Straightforward communication, building trust
bydoingwhatwesayandsayingwhatwemean.
• Collaborative in our work together, seeking out
originality in ideas and valuing and encouraging
diversity in our teams.
• Purposeful delivery that balances performance
with principles, to do what is right for our business
and our customers.
Legal & General Group Plc Annual Report and Accounts 2021Our business model 13
Strategic report Governance Financial statements Other information
Our business model
continued
Customer
service
Generates
capital
Develops assets
that support our
pension liabilities
Generates
income and
provides capital
Provides asset
management
services
andclient
relationships
Provides asset
management
services
Provides
asset
management
services and
co-invests
Builds
alternative
assets
Capital
investment
Institutional
retirement
Retail
retirement
Investment
management
Insurance
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.
Retirement
We provide guaranteed retirement
income for corporate pension
scheme members and we transform
individuals’ pension savings so they
can live a colourful retirement.
Capital investment
We use some of our customers’
pension assets, as well as the
group’s shareholder capital,
tomakelong-terminvestments
inassetssuchascleanenergy,
housingandSMEfinance.
The model shows how
we operated in 2021.
As of 1 January 2022,
our retail retirement and
insurance businesses
have come together to
form Legal & General
Retail, which will focus
on serving the savings,
protection and retirement
needs of our retail and
workplace customers.
Investment
management
We are one of the world’s largest
asset managers and a major
global investor.
Insurance
We are the UK’s number one
individual life insurance provider
and provide level term insurance
in the US.
21 3
Legal & General Group Plc Annual Report and Accounts 202114 Strategic report
Inclusive capitalism in action
25 years ago, we opened
our first office in Cardiff and
2,000 of our people now live
and work there. We have
invested nearly £1.1 billion
in the city to date.
We have transformed Cardiff Central Square,
which is now home to BBC Wales, the
Government Hub and Cardiff University.
Our institutional retirement business provided
over £350 million in funding towards the
Central Square project and the surrounding
area. Development is now complete, and our
investment management business will manage
the assets on behalf of our retirement business.
We are delivering at pace
By 2023, the next stage of the development,
Cardiff Interchange, will have restaurants,
BuildtoRenthomesandourownoffice.Weare
aimingforthefitouttobenetzerocarbonand
wearereducingembodiedcarbonthroughout
the build. This has been developed with
£200 million of funding from our capital
investment business.
Actions, not words
We are able to make a difference to our
employees and communities, whilst
generating value for our shareholders. It is
the combination of our strengths and the
synergies we achieve from our businesses
working together that sets us apart.
13,000
jobs to be created
for local people
£1.1bn
of gross value added
to the region
318
homes created as
part of our Build
to Rent scheme
Legal & General Group Plc Annual Report and Accounts 2021 15
Strategic report Governance Financial statements Other information
Our business model
Shareholders
Our shareholders are institutional and
individual investors. We provide them with
honest and transparent information on our
strategy and performance and we generate
value through increases in our share price
and a progressive dividend.
1
2
3
4
5
6
We invest shareholder capital (targeting returns)
and retirement capital (for long-term income
streamstopayretirementbenefits)into
environmentally friendly and socially useful
investments, including alternative assets
such as clean energy and affordable housing.
Our investment management business is
continuing to expand into global markets,
with international assets under management
of £479 billion, up 23% on 2020.
We delivered earnings per share of 34.19 pence,
up 27% on 2020.
Employees
Our employees are based in the UK, US,
Bermuda, Hong Kong, Japan, Ireland and
other European countries. We continually
invest in employee development and
wellbeing to create an inclusive culture,
engaging our people and empowering
them to meet their goals.
3
5
Following research and engagement with
employees, we announced our plan for the
‘Future of Work’: a hybrid model blending home
andofficeworking,enabledbytechnology.
Welaunchedourfirstmenopausepolicy,
which explains what the menopause is,
symptoms to look out for and how our
company will support employees before,
during and after the menopause.
We celebrated our 25th year in Cardiff with
progress on the Interchange building that will
see 2,000 employees relocate from their
existingCardiffofficetothismodernspace.
Customers
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 and reliable
products and services.
1
4
5
We used our ‘Voice of Customer’ programme
to engage with customers, requesting feedback
at multiple points in the customer journey and
using this to improve their experience.
We improved customer understanding of
the products they hold with us, producing
personalised videos which enable them to
viewtheirpensionbenefitstatement.
We engaged with third parties and charities
to help train our people to have the right skills
to assist vulnerable customers.
Our business model
continued
How we create value
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.
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
Our stakeholders
In shaping our strategy, we consider the impact
on our stakeholder groups. Below, we provide
just a few examples of how stakeholder
engagementinfluencesourbusiness
and the associated growth drivers.
21 3
Legal & General Group Plc Annual Report and Accounts 202116 Strategic report
Regulators
We are supervised by regulators across all the
markets in which we operate. We recognise the
value of strong regulation which ensures trust
and confidence for customers and all
stakeholders. We actively work with government
and regulatory bodies to ensure regulation
meets the needs of all stakeholders.
1
2
3
4
5
6
We engaged with the Prudential Regulation
Authority (PRA) to ensure our regulatory
approvals continue to keep pace with the
expansion of our investment activities, ensuring
we can continue to invest in the real economy.
As a result of our engagement with the Financial
Conduct Authority (FCA) on climate-related
financialdisclosuresandproductlabels,LGIM
will be represented at the FCA’s Disclosures
and Labels Advisory Group and will help to
develop the new policy.
We partnered with National Trading
Standards as part of their ‘Friends Against
Scams’ initiative which aims to protect people
from being victims of this type of fraud.
Suppliers
We have a broad range of suppliers, from
service and material providers to IT and
software suppliers. We strive to work with
like-minded businesses who comply with
our Code of Conduct. This includes operating
ethically, taking environmental responsibility
and treating workers with respect and dignity.
5
6
We refreshed our Sustainable Sourcing
Principles to help our buyers navigate the
ethical and environmental considerations
that are important to us, with climate change
as one of our core principles.
Following engagement with key stakeholders,
our purchase order system continues to be
utilisedtodrivepaymentefficienciesandcost
controls,andimproveefficiencyforall.
We are building more supplier diversity into our
supply chain to create an equal marketplace,
where opportunities are open to all.
Communities
Our purpose is to improve the lives of our
customers, build a better society for the
long term, empower our employees and
create value for our shareholders. This
inspires us to use our assets in an
economically and socially useful way
to benefit everyone in our communities.
1
3
4
6
We established a long-term partnership
with University College London to create
a multi-million pound charitable fund to
address health inequalities.
We continued to balance the need to address
the UK’s housing shortage with the need to
tackle climate change by developing energy
efficienthomesacrossourhousebuilding
businesses.
We worked with the Charities Aid Foundation’s
social enterprise arm, awarding £300,000 in
blended funding to social enterprises
throughout Wales.
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
wearedeliveringcontributetospecificSDGs.
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 11. Sustainable cities
and communities
7. Affordable and
clean energy
13. Climate action
Legal & General Group Plc Annual Report and Accounts 2021Our business model 17
Strategic report Governance Financial statements Other information
Climate:
Inaction is
not an option
Invest
• We are making progress
towards reducing our group’s
investment portfolio greenhouse
gas emissions intensity by 50%
by 2030 and are targeting a net
zero asset portfolio by 2050.
• We supported Pod Point, an
electric vehicle charging company,
in scaling up at pace, having
completed its initial public
offering in November 2021.
for a better
world
T aking action
Influence
• Our investment management business
(LGIM)’s CEO, Michelle Scrimgeour, is the
co-chair of the COP26 Business Leaders
Group, an important forum focused on
creating business and sector breakthroughs
in how we deliver net zero.
• We use LGIM’s Climate Impact Pledge to
publicly celebrate companies’ successes,
but also take voting and investment actions
against companies falling behind, ensuring
our engagement has meaningful
consequences.
Backed by science
We will set science-based targets
by the end of 2022 and will publish
them in 2023. This is critical to
ensure that our plan is credible,
achievable and backed by science.
Legal & General Group Plc Annual Report and Accounts 202118 Strategic report
>800
modular homes in the pipeline,
which are built to achieve
Energy Performance
Certificate(EPC)‘A’rating
To avoid the most extreme impacts
of a changing climate, we must collectively
limit global temperature rises to 1.5°C.
Addressing climate change is one of our
strategic priorities.
Addressing the climate
crisis is embedded in our
business operations and
in how we invest our assets.
We use our scale to influence
and support the transition
to a low-carbon economy.”
Simon Gadd
Group Climate Change Director
Operate
• From 2030, our operational
footprint(occupiedoffices
and business travel) will operate
with net zero carbon emissions.
• CALA, our largest housebuilding
business, committed to achieve
industry-recognised best-practice
‘2030’ targets for embodied carbon
in all new homes in the UK by 2025,
having already met this target
in Scotland.
The road from COP26
The Glasgow Climate Pact may
narrow the gap between the
current warming trajectory and
limiting the rise in global
temperatures to 1.5°C, so
long as delivery matches
commitments. We will remain
at the forefront of greening
financeandfinancinggreen.
See our climate report: group.
legalandgeneral.com/reports for
our full list of commitments and
our journey to net zero
Legal & General Group Plc Annual Report and Accounts 2021Climate: inaction is not an option 19
Strategic report Governance Financial statements Other information
Doing things
differently
Our people
Mike has worked with us for over
30 years and is home-based. He
likes to do things differently and
this year his team held a meeting
from the top of Pen y Fan.
Over three and a half
hours, we got to know
each other more than in
the previous three years
of working together.”
Mike Pritchard
Commercial Manager
(DistributionQualityandRetention)
(Pictured: Mike Pritchard, Rhian Stacey,
Lynne Cunningham and Hannah Bannister)
Legal & General Group Plc Annual Report and Accounts 202120 Strategic report
2,000
employees
Will benefit from our new office
in Cardiff’s Interchange. We are
creating the workplace of the future.
Every day the work we do
is shaped by our people.
Our business succeeds
because of their diverse
skills and experiences and
is underpinned by our
behaviours, which inspire
us to act responsibly towards
our customers and everyone
whose lives we touch.
We are straightforward,
collaborative and
purposeful.
We prioritise the welfare of our employees,
who in turn support the millions of people who
rely on us. Our success relies on us collaborating
across the business, sharing ideas, and making
things happen at pace. We have demonstrated
that we can do this both remotely and when we
are in the same building. We are designing
a future of work that makes a balanced use of
officeandremoteworking,wherespaceisused
in purposeful and innovative ways and where
hybrid working is the norm.
Our employees have shown resilience and
determination in the face of changes to ways
of working. They have continued to support
our customers, the communities we serve,
and each other. Here are some of our stories…
Jenny realised she could make
a difference when she found out
only 2% of the UK’s population are
on the stem cell register. It was
a shock when she was identified
as a match, but after two full days
in hospital and six days of paid
leave, Jenny has given a stranger
a second chance at life.
How many chances do you
get to save someone’s life?”
Jenny Reeve
Corporate Reporting Lead
Simone participated in our reverse
mentoring programme, providing
insight to one of our finance
directors on her experience at work
as someone from a minority ethnic
background.
I am unapologetically
myself.”
Simone Perkins
Data Protection Oversight Manager
Diversity hero
Deon is Head of Marketing Operations
at LGIM and also co-founder of
InterInvest, a network of investment
professionals driving LGBT+ inclusion
in the asset management and savings
industry. He is co-chair of our L&GBT+
allies employee network and co-chair
of the Diversity Project’s LGBT+ group
workstream. Deon is a visible role model
and has won a number of awards
including “Diversity Hero” at the 2021
British LGBT Awards.
We all have a key role to
play in driving change.
Through fostering a
culture of inclusion
and diversity we can
make a difference.”
Deon Pillay
Head of Marketing Operations
Our people 21
Strategic report Governance Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021
Cloud first
Our retirement business has
brought our huge wealth of data
together on one cloud-based
platform. This helps us to optimise
processes, provide better pricing
and make better decisions.
Technological
innovation
Disrupting underwriting
theidol.comisafintechsubsidiary
of our insurance business. It has
developed a ‘no-code’ platform,
Asanto, to make it easier for
non-developers to build apps
without coding.
We have partnered with a US
technology business to modernise
the US protection market, which has
a $12 trillion insurance coverage
gap and we are automating
underwriting to make it easier and
quicker for people to purchase the
life insurance cover they need.
Driving inclusivity
through
digital
transformation
Legal & General Group Plc Annual Report and Accounts 202122 Strategic report
£
Reframing real estate
Our Real Assets business launched
a digital business-to-business
platform, Vizta, to provide real-time
property and portfolio management
to property occupiers.
Financing the future
Throughouralternativefinance
and our venture capital
platforms, we are continuing
to support growth businesses,
delivering enhanced returns
while boosting job creation,
innovation, and science and
technology advancements.
Supercharging science
Data centres are essential
IT infrastructure that support
businesses and consumers.
We have invested in Kao Data
which hosts data for the
London marketplace and
research institutes in the
innovation corridor between
London and Cambridge.
100%
Kao’s 15-acre campus will be
powered by 100% renewable
energy, once fully operational
Technological innovation is one of
our six growth drivers. From building
the data centres that keep businesses
connected to supporting our customers,
we are investing in technology to build
a better future for everyone.
Vizta is a game changer that
will transform the way we
engage with our occupiers.”
Bill Hughes
Head of LGIM Real Assets
Legal & General Group Plc Annual Report and Accounts 2021 23
Strategic report Governance Financial statements Other information
Our business is closely
aligned to long-term
growth drivers.
You have delivered an excellent set of results
in 2021 – what were the highlights?
2021 was a strong year for us, despite Covid-19
continuing to adversely impact society.
Excluding the one-off 2020 mortality reserve
release of £177 million (pre tax), we grew
adjustedoperatingprofitby11%to£2.3billion¹.
Profitfortheyearsurpassed£2billionforthe
firsttime,resultinginearningspershare(EPS)
of 34.19 pence, up 27% on 2020.
We again delivered a strong IFRS return on
equity of 20.5% and £1.6 billion of Solvency II
operational surplus generation from our growing
back book.
Acrossourdiversifiedbusinessmodel,we
benefitedfromthepostpandemiceconomic
recovery and easing of restrictions. Our
institutional retirement division (LGRI) delivered
over£1billionofadjustedoperatingprofitfor
thethirdyearinarow,reflectingthescaleof
the business, in addition to robust new business
volumes and margins.
Our capital investment division (LGC), which
contributed c.20% of the group’s earnings,
deliveredadjustedoperatingprofitof
£461million,up68%on2020,benefitingfrom
a rebound in the UK housing market and strong
valuation growth of investments within the
alternative asset portfolio.
How are you performing against
your ambitions?
We are making good progress against our
five-year(2020–2024)ambitionswhich
we set out at our capital markets event in
November 2020.
Againstcumulativeambitionsof£8–£9billion
respectively, cash generation (net release from
operations) stands at £3.2 billion and capital
generation (Solvency II operational surplus
generation) stands at £3.1 billion at the end
of 2021. We have seen growth of 12% in both
cash and capital generation over 2021 from
continuing operations.
Against cumulative dividend ambitions of
£5.6–£5.9billionovertheperiod,cumulative
dividends declared stand at £2.1 billion at the
endof2021,withthe2021interimandfinal
dividend growing by 5%.
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,withover£0.3billionsurplus
accrued to the end of 2021.
Weremainconfidentinachievingtheseambitions,
with our businesses closely aligned to long-term
growth drivers, which will persist regardless of
any short- or medium-term volatility.
>£2bn
Profitfortheyearsurpassed
£2billionforthefirsttime
34.19p
Earnings per share
Chief Financial
Officer’s Q&A
Jeff Davies
ChiefFinancialOfficer
1. One-off mortality reserve release for 2020 relates to an update in the longevity trend assumption from adjusted CMI 2017 to adjusted CMI 2018.
Legal & General Group Plc Annual Report and Accounts 202124 Strategic report
OurIFRS17projectrepresentsasignificant
investment for the business that will deliver new
end-to-endfinanceprocesses,drivingefficiencies
as well as meeting the requirements of the new
standard. We will continue to assess the
quantitative impact of the regime over 2022,
withthefirstcomparativeresultsexpectedin
early 2023.
How does the business consider ESG
investments in balancing shareholder
returns and doing the right thing?
We consider ESG through three lenses: 1) how
we invest our proprietary assets; 2) how we
influenceasoneoftheworld’slargestasset
managers; and 3) how our businesses operate.
We are committed to decarbonising our balance
sheet to align with the Paris Agreement’s
objective of limiting global warming to 1.5°C
and have made steady progress by reducing
the carbon intensity of the group balance sheet
by 17.0% compared to 2020. We will validate
our commitments through setting science-
based targets. Our climate report, prepared in
line with recommendations by the Task Force
on Climate-related Financial Disclosures (TCFD),
provides more detail on our commitments.
In respect of how we invest our proprietary
assets, ESG assessment forms an integral part
of our investment process and, of course, has
been central to our mission to deliver inclusive
capitalism.
In terms of assets sourced for our £89.9 billion
annuity portfolio, we have seen increased
competition for ESG assets in the open market,
especially in the clean energy sector. Despite
this, we have deployed £1.4 billion in a range
of clean energy investments, including solar
and offshore wind, and a further £8.1 billion in
social infrastructure such as affordable housing,
student accommodation and healthcare, whilst
delivering above our investment return hurdles.
We are also able to utilise LGC’s strong asset
origination capabilities. LGC provides us with
ample opportunities to originate ESG-friendly
assets that also deliver attractive returns. For
example, we have deployed growth equity into
new innovative clean technology such as Pod
Point and Kensa Group, enabling these businesses
to scale up at pace. Our investments in urban
regeneration, affordable homes and build to
rentaccommodationprovidesignificantsocietal
benefit,whilstalsobenefitingourretirement
division and our policyholders. ESG remains
a key underpin in our investment process.
What is the role of capital investment?
Over 2021, our capital investment division, LGC,
has continued to evolve and mature. Since
inception, our alternative asset portfolio net
asset value (NAV) has grown to £3.4 billion, with
our total portfolio, including traded and treasury,
at £8.6 billion at the end of 2021.
The capital investment division has three
objectives: 1) to deliver shareholder returns; 2) to
create assets for our annuity portfolio and third
parties; and 3) to secure lasting value for society.
The division aims to deliver on these objectives
throughfourspecificassetclasses:1)specialist
commercial real estate (including digital
infrastructure); 2) multi-tenure housing; 3) clean
energy;and4)SMEfinance.
2021 has seen four notable proof-point
transactions which demonstrate our ability
to create and realise value for shareholders: the
sale of MediaCity (with a continuing investment
in Manchester via a £1.5 billion SciTech joint
venture with the university); the formation of
a £500 million later living joint venture with
Natwest Group Pension Scheme; the initial
public offering of Pod Point; and the sale of
Current Health. Together, these investments
generated returns of 1.6 times the initial
investment.
At our capital markets event in October 2021,
we restated our ambitions for LGC. By the end
of 2025, we aim to grow our alternative assets
to£5billion,andtodelivera10–12%return.
In total, our ambition is for LGC to deliver
£600–£700millionofannualadjustedoperating
profitby2025.Overthesameperiod,wehave
also set an ambitious target to grow third-party
capitalto£25–£30billion.Weseeourcapital
investment division as a source of competitive
advantage and a key driver of future growth for
the group.
How are you preparing for IFRS 17?
IFRS 17 is a new accounting standard which
will come into effect from 1 January 2023. The
standard will impact insurance contracts, which
in our case represents business written through
our retirement and insurance divisions. Our
investment management and capital investment
divisions are unaffected. It is worth highlighting
that the accounting standard only impacts the
timingofprofitrecognitionoverthelifetime
ofthecontract–thecashemergenceand
economics of the contract remain the same.
We are making good
progress against our
five year (2020 – 2024)
ambitions.”
Climate report
Our 2021 climate report is available
on our group website. See: group.
legalandgeneral.com/reports
£8 – £9bn
cash generation
(progress to date: £3.2 billion)
£8 – £9bn
capital generation
(progress to date: £3.1 billion)
£5.6 – £5.9bn
dividends
(progress to date: £2.1 billion)
Over the period 2020 – 2024,
our cumulative ambition is for:
• cash and capital generation to
significantlyexceeddividends
• earnings per share to grow faster
than dividends
• net surplus generation (including
new business strain) to exceed
dividends.
Legal & General Group Plc Annual Report and Accounts 2021 25
Strategic report Governance Financial statements Other information
ChiefFinancialOfficer’sQ&A
Profit before tax
£m
2,061
2,129
2,156
2,632
1,499
2017 2018 2019 2020 2021
Return on equity
(ROE) %
17.3
20.5
20.4
22.7
25.6
2017 2018 2019 2020 2021
Guide to symbols used in these
financial results
Alternativeperformancemeasure
(APM), see page 240 for
definitions
Keymeasureintheremuneration
of executives, see pages 100 and
101fordefinitions
We consider that the measures
presented on these pages are
KPIs, some of which are also
used for executive remuneration
as explained below.
In previous years, the Solvency II capital
position was shown on a ‘shareholder
view’, where the contribution from
thefinalsalarypensionschemes
was excluded from the group position.
The impact of excluding the contribution
has become smaller and so the results
belowincludetheimpactofthefinal
salary pension schemes.
We again delivered
a strong IFRS return
on equity of 20.5%,
and £1.6 billion of
Solvency II operational
surplus generation from
our growing back book.”
Jeff Davies
ChiefFinancialOfficer
Key performance
indicators (KPIs)
Purpose: To measure the profit
before tax of the group.
Profitbeforetaxhasincreasedby76%
to £2,632 million largely as a result
of a positive investment variance of
£341 million (2020: £(691) million).
Purpose: To show how efficiently we
are using our financial resources to
generate a return for shareholders.
Thereturnonequityof20.5%reflects
a strong performance on operational
earnings and a positive investment
variance.
Legal & General Group Plc Annual Report and Accounts 202126 Strategic report
Full year dividend p
17.57
18.45
17.57
16.42
15.35
2017
2018 2019 2020 2021
Earnings per share
p
27.00
34.19
30.92
30.79
31.87
2017
2018 2019 2020 2021
Solvency II su
rplus £bn
(proforma basis, unaudited)
8.2
6.96.9
7.4
7.3
2017 2018 2019 2020 2021
Solvency II coverage
%
(proforma basis, unaudited)
187
181181
175
179
2018
2017 2019 2020 2021
Dec 11 Dec 12 Dec 13 Dec 14 Dec 16Dec 15 Dec 17 Dec 18 Dec 19 Dec 20 Dec 21
FTSE 100 FTSE 350 Life Legal & General
As at 31 December 2021
200%
300%
400%
500%
100%
-100%
0%
Purpose: To measure the total return
to shareholders, including dividends
and share price movements, over time.
Our one year total shareholder return
(TSR) of 22% outperformed both the
FTSE 100 index (16%) and FTSE 350 Life
index (9%). Our performance over a
three year period of 60% also compares
favourably against both indices (FTSE
100: 23%, FTSE 350 Life: 30%). The chart
indicates the TSR over the last 10 years.
Total shareholder return %
22%
(2020: -7%)
Purpose: To illustrate the profitability
associated with each share owned by
our investors.
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.
EPS increased by 7.19 pence to
34.19 pence. Excluding the one-off 2020
mortality reserve release of £153 million
and the £271 million gain on the Mature
Savings disposal in 2020, EPS increased
by 72% on 2020 (19.84 pence).
The Board has recommended to
growourfinaldividendby5%
to 13.27 pence. The cost of the full
year dividend is £1,099 million (2020:
£1,048 million) and is covered by net
release from operations 1.5 times.
Our stated ambition is for low to mid
single digit growth in dividends.
The group’s capital position is strong,
with a Solvency II surplus of £8.2 billion
(2020: £7.4 billion) over its Solvency
Capital Requirement.
The Solvency II coverage ratio increased
to 187% in 2021 (2020: 175%) on a
‘proforma’ basis. The coverage ratio has
increased over the year primarily due to
rising interest rates and equity returns.
Legal & General Group Plc Annual Report and Accounts 2021 27
Strategic report Governance Financial statements Other information
Key performance indicators (KPIs)
Our approach to tax
supports our purpose
of improving lives through
inclusive capitalism.”
Our approach to tax supports our purpose
of improving lives through inclusive
capitalism. We aim for our tax affairs to be
sustainable in the long term. This relies on
an approach that is well-governed,
transparent, and fair to our customers,
shareholders and the public.
You can read more about our tax strategy
and 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
Tax review
Our 2021 tax position
The effective tax rate for the year of 17.9% is
higher than in 2020 (12.1%). The increase in rate
is mainly due to the increase in the UK rate to
25% from 1 April 2023, which has resulted in
a revaluation of our UK deferred tax balances
from19%to25%.Ourtaxrateisalsoinfluenced
bythedifferenttaxratesthatapplytoprofits
earned outside of the UK.
The tax environment
The tax environment is always dynamic,
more than ever in the wake of recent events.
Governments around the world will be looking
for ways to pay for the exceptional measures
brought in because of Covid-19. The additional
layers of taxes and legislation which are
implemented make managing the tax affairs
of large corporates ever more complex, while
governments, investors and other stakeholders
rightly continue to have high expectations of
compliance, risk management and transparency.
We will continue to engage with all our stakeholders
and supplement our disclosures on tax where
we believe these will add value.
In 2021, we have seen new UK tax-raising measures,
such as the corporate tax rate increase to 25%,
the 1.25% social care levy, and a new 4% residential
property developers tax which will impact our
house building businesses.
Looking ahead, it seems likely that the global
focus on climate change will result in changes
to how businesses pay tax. While ‘green’ taxes
make up a modest proportion of tax revenue at
present, such taxes may well become evermore
prevalent as the world aims to limit the extent
and impact of climate change.
It is vital that new tax measures are properly
considered in the context of their aims, simplicity,
existing tax measures and compliance burden
to manage the cumulative impact effectively
andefficientlyfortaxpayers,taxauthorities
and wider society.
Also in 2021, the Organisation for Economic
Co-operation and Development (OECD) agreed
a landmark deal to implement a global minimum
tax rate, alongside a tax on digital services based
on the end user location. Model rules for the
global minimum tax rate were published in
December 2021, with the intention that these
should be effective from 2023. This is an
ambitious target for introducing a new global
taxregimeandsignificanteffortisrequiredfor
multi-national groups to achieve compliance
with the new rules.
As our businesses expand internationally,
the group will continue to pay more tax overseas
and our compliance obligations will increase.
This creates new tax risks and complexity for
each new territory we enter. We continue to
manage these 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
detailonourfourmainriskareas–andhow
wemanagethoserisks–canbefoundinour
tax supplement.
Tax supplement
Our tax supplement is available
on our group website. See: group.
legalandgeneral.com/reports
Grace Stevens
ChiefTaxOfficer
Legal & General Group Plc Annual Report and Accounts 202128 Strategic report
£1,655m
In 2021, our total tax contribution was
£1,655 million (2020: £1,629 million)
of which 94% (2020: 96%) arose in
our UK businesses and 6% (2020: 4%)
in our overseas businesses.
Total tax contribution in 2021
£835m
£368m Profit taxes
£188m Withholding taxes suffered in the UK
£88m UK property and other taxes
£66m UK irrecoverable VAT and premium taxes
£77m UK payroll taxes
£8m Overseas profit taxes
£40m Other overseas taxes
Total taxes paid
£820m
£355m UK PAYE deducted from policyholders
£11m UK property and other taxes
£196m UK VAT and premium tax
£212m UK payroll taxes
£46m Overseas taxes
Total taxes collected
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
818
811
820
835
781
782
700
565
560
590
695
538
2017
2016
2018 2019 20212020
200
400
600
800
1000
1,200
1,400
1,600
1,800
Total taxes paid
Total taxes collected
Total tax contribution
Our total tax contribution is the
amountoftaxthatLegal&General
pays together with the amount of
tax that we collect on behalf of our
employees, suppliers, customers
and policyholders. We paid £835
million (2020: £818 million) of tax
and collected £820 million (2020:
£811 million).
Legal & General Group Plc Annual Report and Accounts 2021 29
Strategic report Governance Financial statements Other information
Tax review
Business review
Capital markets event
For full details of our external ambitions,
see our capital markets event: group.
legalandgeneral.com/CME
2021 in review
In 2021 our businesses delivered long-term,
diversifiedgrowthacrossthegroup.
Our retirement businesses continued to apply
disciplinedpricingtosourcestablecashflows.
Our investment management business
demonstrated stable growth and our capital
investment business grew at pace as the economy
recovered from Covid-19, and as underlying
investments matured. Our insurance business
continued to apply a data-driven approach to
optimise the value add of new business in the
context of continued high claims experience,
especially in the US.
As of 1 January 2022, our two retail businesses
(retail retirement and insurance) have come
togethertoformLegal&GeneralRetail.Under
the leadership of Bernie Hickman, this division
will focus on serving the savings, protection
and retirement needs of our retail and workplace
customers allowing us to take a joined-up
approach to our customers, data and technology.
Outlook
Our institutional retirement business is the only
player in the direct pension risk transfer (PRT)
market writing business in the UK and US, while
also innovating our product offering with Assured
Payment Policies (APPs). APPs allow companies
to begin their de-risking journey with a pathway
to buy-in or buy-out at a future date. Our ambition
is to write £40 to £50 billion of new UK PRT and
$10 billion of international PRT between 2020
and 2025. By the end of 2021, we had already
written £14 billion and approaching $3 billion
respectively.
The new retail division’s ambition is to be the
UK’s leading insurance, savings and retirement
brand, enabling all our customers to have
a secure retirement whilst generating long
durationassetsandprofitsforthegroupand,
over time, to expand internationally. Together,
wecanprotectpeoplefromfinancialuncertainty
throughout their lives and help to secure the
retirement they deserve.
The three pillars of our investment management
business’s strategy are: modernise, diversify and
internationalise. This positions us to grow our
profits,expandourinternationalpresence,diversify
by client, channel and geography, and to maintain
a cost:income ratio in the high 50% range.
The success of our capital investment business
in creating and scaling alternative asset capabilities
has resulted in a number of realisations
generating high returns on our initial investments.
As communicated at the capital markets event
in October 2021, our ambition is to build our
diversifiedalternativeassetsundermanagement
to c.£5 billion by 2025, with a blended portfolio
returntargetof10%–12%.Weplantoincrease
ourthird-partycapitalto£25–£30billion(2021:
£12.3 billion) to generate additional fees for
the business.
57
pension risk transfer
transactions globally
£957m
individual annuity sales
£290bn
assets managed for our clients
are linked to ESG
4,364
new homes completed
£279m
paid out in Covid-19-related claims
In line with our purpose of
inclusive capitalism, we are
innovating and investing to
make a difference.
Legal & General Group Plc Annual Report and Accounts 202130 Strategic report
Institutional
retirement
Response to Covid-19
Covid-19 has highlighted the need for scheme
administrators to be able to react and adapt
to change quickly. Our customer service is
provided in-house in the UK, which means that
we can make decisions and implement them
rapidly. This is evidenced by the fact that we
complete 97% of member enquiries within
fiveworkingdays.
The development of digital solutions including
over the phone settlements and the option to sign
documentation electronically allows us to
continue to offer our services despite the challenges
presented by the working from home environment.
2021 key activities
In 2021 we have brought together our expertise
in investment management, asset sourcing,
mortality trends and longevity risk. We have
remained disciplined in the deployment of our
capital, selecting opportunities that allow
us to invest in high credit quality assets,
matching our long-term liabilities and meeting
our target returns.
CCA Global Standard Accreditation
Our retirement business provides income and
security in retirement to more than half a million
customers and has had a Net Promoter Score
(NPS) of over 70 for four years, which is widely
regarded as being at a ‘world class’ level.
Our efforts have been recognised after we
successfully attained the Customer Contact
Association (CCA) Global Standard Accreditation
for 2022, marking the third consecutive year that
we have received this accreditation.
New business
In 2021 we secured premiums of £7.2 billion
across the UK, US and internationally compared
to £8.8 billion in 2020. In a challenging economic
environment we focused on commercially
attractive opportunities and maintaining pricing
discipline, whilst sustaining our historic market
shareof20%–25%intheUK.
Opportunities for small- and mid-sized
pension schemes
72% of UK pension schemes have assets of less
than £100 million. Within such a vast market it is
important that we provide opportunities for
small- and medium-sized pension schemes.
Last year we completed 31 transactions which
were below £100 million each, totalling
£900millioninpremiums.Thisisasignificant
increase of transaction volume from 2019, when
we launched our streamlined small scheme
proposition.
Institutional retirement
sales
£bn
7.2
8.8
11.4
2019
2020 2021
£7.2bn
Institutional retirement achieved strong
sales of £7.2 billion. We transacted
on 57 deals globally, achieving
£6.2 billion in premiums in the UK, whilst
growing our presence in the US market,
writing premiums of £789 million.
Our reinsurance hub also wrote £147
million of premiums. Premiums shown
exclude longevity insurance.
Net promoter score
+73
+72
+73
2019 2020 2021
+73
Net Promoter Score (NPS) measures
customer experience and the average
NPSinthefinancialservicesindustry
is around +35. Over the past three years
our NPS has consistently remained
above +70 which is widely regarded as
a world-class level of service. We have
maintained this while shifting to hybrid
working, demonstrating how we have
continued to support our customers.
Two buy-ins worth c.£800 million with TUI
We agreed two PRT transactions with the TUI
Group UK Pension Trust. The two transactions
include a £610 million partial buy-in and a
£184 million full buy-in for the scheme.
Thesetransactionsmarkthescheme’sfirst
PRT transactions with us and cover two of
the three pension sections within the scheme.
£310 million buy-in with Reuters
Supplementary Pension Scheme
Driving innovation, we agreed a £310 million
full-scheme buy-in transaction with the
Reuters Supplementary Pension Scheme.
The transaction involved the assessment and
insuranceofacomplexmulti-currencybenefit
structureandisthescheme’sfirsttransaction
with us. This demonstrates how innovation in
the market can cater to each pension scheme’s
specificneeds.
£650 million buy-in with Mitchells & Butlers
Executive Pension Plan
In December 2021 we agreed a £650 million
buy-inwithMitchells&ButlersExecutive
Pension Plan. The plan is an existing client, with
our investment management business providing
managementofthePlan’sDefinedContribution
(DC) pension scheme assets.
Laura Mason
ChiefExecutiveOfficer,
Legal&GeneralRetirementInstitutional
CEO introduction
2021 has been another prosperous year and
has built upon the successes of 2020 with
45 transactions in the UK worth £6.2 billion
and 11 transactions in the US for $1.1 billion
(£789 million).
As the global economy continues its recovery,
we are in a strong position as a leading global
business that helps defined benefit (DB)
pension schemes and their sponsors to secure
their members’ retirement income. We are the
UK’s longest serving and largest pension risk
transfer (PRT) provider with successful
positions in the US and internationally.
Our internal asset sourcing capabilities, as
well as our relationships with our investment
management and capital investment
businesses, mean that we are well positioned
to meet increasing levels of demand for
de-risking solutions.
As of 1 January 2022, Andrew Kail has taken
over from Laura Mason as CEO.
Growth drivers
• Ageing demographics.
• Investing in the real economy.
• Addressing climate change.
Legal & General Group Plc Annual Report and Accounts 2021 31
Strategic report Governance Financial statements Other information
Institutional retirement
This approach demonstrates the value that can
be realised by engaging with insurers at an early
stage and working with them to achieve a clearly
definedpricingtarget.
Assured Payment Policies (APP)
We have continued to drive innovation in the
PRT market with APPs which allow companies
to begin their de-risking journey with a pathway
to buy-in or buy-out at a future date.
In 2021 we completed our largest ever APP,
a£925milliontransactionforLegal&General’s
Group UK Pension and Assurance Fund.
In addition, we partially converted two APPs
into buy-ins.
International pension de-risking
Despite a more competitive market in the US,
we delivered US new business volumes of
$1,095 million (£789 million). Our global
reinsurance hub in Bermuda provides our
businesswithregulatorycapitalflexibility.
This enables us to write more PRT business
inacapital-efficientway.
agreement. We then tailor each transaction
to our clients’ needs. This process enables
smoother transactions for additional tranches
with the same client.
Our close relationship with our investment
management business puts us in a strong
position to support pension schemes at any
stage of their lifecycle. We secured more than
£1.5 billion of retirement income through umbrella
contracts in 2021, including the transactions below.
£760 million buy-in with Sanofi Pensions
Wesigneda£760millionbuy-inwithSanofi
PensionSchemesecuringthebenefitsofc.2,900
retirees.Thismarkedthescheme’sfirstPRT
transaction with us after being a long-term asset
management client. This agreement is another
great example of our ability to support schemes
at all stages of their journey.
£130 million buy-in with QinetiQ
Pension Scheme
Wesigneda£130millionbuy-inwithQinetiQ
PensionSchemecoveringthepensionbenefits
for over 390 new retirees following a previous
pensioner buy-in in April 2019. This agreement’s
umbrella contract will enable future transactions
with us to be completed quickly and easily
on the same pre-agreed terms.
The power of pensions
Our retirement businesses generate stable cash
flowsfrompensionersthatwecaninvestto
benefitwidersocietyandyoungergenerations.
We seek out opportunities to invest capital in an
environmentally friendly and socially useful way.
We are passionate about the projects we
undertake, believing in their transformative
power to stimulate positive change in the world.
Protecting people’s pensions
We announced a £150 million Pension
Protection Fund (PPF) transaction with the
Mowlem (1993) Pension Scheme, following the
liquidation of its sponsor. This transaction will
enabletheTrusteetosecurebenefitswithus
that are greater than those which would have
been provided by the Pension Protection Fund.
Understanding the risks
Taking on the responsibility for pension
scheme liabilities and providing income in
retirement exposes us to the risk that people
may live longer than we have anticipated, or
that we experience defaults in the investments
backing our obligations. We remain vigilant
in our pricing to the long-term trends in
longevity and use reinsurance to manage
selected risks. Working with our investment
management business’ credit and property
experts, we seek to 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 positions.
US PRT deals
We wrote a $355 million (£262 million) PRT
transaction with Trinity Industries, Inc. The deal
securesthebenefitsofmorethan7,500
participants.Ourfinancialstrength,combined
with a steadfast commitment to delivering
outstanding service, are intended to provide
peace of mind to the participants of Trinity’s
pension plan.
Other international PRT deals
ThroughLegal&GeneralReinsurancewewrote
a new CAD$250 million Canadian PRT
transaction. The deal was written on a quota
share basis with a new partner, an established
Canadian PRT insurer. This marks our second
external PRT transaction in Canada and is a
strong indication that our strategy of providing
reinsurance through a competitive proposition
has positioned us well for success in the
Canadian PRT market.
We anticipate further global deals as
international markets continue to grow.
Relationships
We want to build long-lasting and strong
relationships with our clients. We facilitate this
through umbrella contracts which set out key
transactional terms in a master framework
Adjusted operating
profit
£m
1,154
1,331
1,216
2019
2020 2021
£1,154m
Institutional retirement achieved a
strongadjustedoperatingprofitof
£1,154 million driven by the performance
of our annuity portfolio and by routine
assumptionupdates.Thefiguresshown
include releases associated with changes
to future mortality improvements (2021
release: £nil, 2020 release: £102 million).
Institutional retirement
continued
We are well-positioned
to meet increasing levels
of demand for de-risking
solutions.”
Laura Mason
ChiefExecutiveOfficer,
Legal&GeneralRetirement
Institutional
APP conversion
In 2021 we announced the market’s
first conversion of an APP to a
buy-in; a £63 million transaction
agreed with AIB Group UK Pension
Scheme, converting c.20% of the
original APP transaction completed
in 2019. As the pension scheme’s
market risk is covered by the APP,
volatility between the assets and
buy-in pricing is significantly
reduced. This gives the pension
scheme far more certainty on the
timing and cost of reaching their
goal of full risk removal.
Legal & General Group Plc Annual Report and Accounts 202132 Strategic report
This transaction builds on our track record of
working with schemes in PPF to bring peace of
mindtothemembersthroughhavingtheirbenefits
secured. We used additional recoveries received
through the sponsor’s insolvency proceedings,
along with the innovative transaction structure
that we agreed as part of the original transaction,
toprovideadditionalbenefitstoplanmembers.
Contribution to society
Building on the efforts we made in 2020,
we have continued to be socially mindful.
Lighthouse Connect, an education-focused fund
launched by us, is on track to deliver more than
230 laptops to Bermuda’s students this
academic year. Lighthouse Connect addresses
the increased need for digital learning tools
during Covid-19, while also contributing to the
long-term learning of Bermuda’s students.
Build to Rent
We believe it is more important than ever that
we deliver the houses that our society needs
to address structural shortages across every
dimension of the market.
Legal&General’sBuildtoRent(BTR)urban
platform launched in 2015 and now has 20
schemes in operation or development across
the UK and has delivered 7,000 homes.
We partner with our capital investment business
to invest in housing developments. Our BTR and
Suburban Build to Rent (SBTR) businesses are a
great example of how we invest pension scheme
assets to solve our society’s needs.
The SBTR business develops large-scale ‘single
family’ rental communities in suburban locations
across the UK. SBTR will partner with housebuilders
to bring forward large-scale sites, as well as
undertake a direct delivery programme to deliver
1,000 homes each year by 2024. The SBTR
housing schemes will be community focused
and service-led, offering residents choice,
securityoftenureandflexibility.
Our journey to net zero
We have one of the largest retirement annuity
books in the UK and we recognise that our scale
brings a responsibility to act decisively on
matters such as climate change. We strongly
support the ‘Paris’ Agreement’s aim of limiting
global warming to 1.5°C and have made the
following commitments starting from a 2019
baseline:
• by 2025, reduce portfolio greenhouse gases
(GHG) emission intensity by 18.5%.
• by 2030, reduce portfolio GHG emission
intensity by 50%.
• by 2050, we are targeting a net zero asset
portfolio, in line with a 1.5°C ‘Paris’ objective.
Refer to our climate report for full details.
60% of LGRI’s renewable investments, by market
value, are in the UK offshore wind sector and
we continue to increase our investment in
renewable energy. We have invested in three
offshore wind farms with the capacity to provide
power for millions of homes.
This includes £370 million invested in Hornsea
Project One located in the North Sea. Once
completed, it will be the world’s largest offshore
wind farm with 174 turbines. We have also
invested in the Walney Extension, off the coast
of Cumbria, and the Dudgeon Offshore Wind
Farm off the east coast of England.
Outlook
Effective from 1 January 2022, Andrew Kail has
taken over from Laura Mason as CEO of our
institutional retirement business. Andrew brings
with him a wealth of industry knowledge and
experience, having joined our retail retirement
business in 2021.
The UK PRT market has experienced rapid
growth over the past decade. A baseline of over
£25 billion per annum of PRT volume is now well
established.Weexpecttoseesignificantgrowth
in both the UK and US PRT markets over the
next decade and beyond as more DB pension
schemes move closer to full buy-out funding.
Build to Rent
We have invested over £500 million
in 2021 on the development of four
Build to Rent (BTR) schemes in
Stratford (pictured), Hove,
Southampton and Lewisham, which
will create over 1,300 new homes for
the local communities. Our well
established BTR platform works
alongside third parties to develop
best-in-class BTR schemes, which
help to tackle the UK’s housing crisis
by using pension funds to deliver
thousands of new homes. From 2030,
all of our BTR homes built will be
enabled to operate at net zero carbon.
We are using pensions funds to
regenerate cities around the country
and supporting the UK economy.
Climate report
Our 2021 climate report is available
on our group website. See: group.
legalandgeneral.com/reports
Legal & General Group Plc Annual Report and Accounts 2021 33
Strategic report Governance Financial statements Other information
Institutional retirement
Retail
retirement
CEO introduction
Our mission is to be the financial home for
customers’ savings and retirement needs
supporting more colourful futures. The
business currently comprises the group’s
retirement savings and income, later life
lending and care solutions businesses.
As of 1 January 2022, our two retail businesses
(retirement and insurance) have come together
to form Legal & General Retail. Under the
leadership of Bernie Hickman, this division will
focus on serving the savings, protection and
retirement needs of our retail and workplace
customers allowing us to take a joined-up
approach to our customers, data and
technology. Andrew Kail is taking over from
Laura Mason as CEO of our institutional
retirement business.
Growth drivers
• Ageing demographics.
• Investing in the real economy.
• Welfare reforms.
• Technological innovation.
• Addressing climate change.
attheInvestmentLife&PensionsMoneyfacts
Awards 2021.
Recognisingthatsomepeoplewillbenefitfrom
greaterflexibilityintheirretirement,wehave
continued to enhance our drawdown proposition
that we launched in the second half of 2020.
We understand that everyone’s retirement plans
will be different and that we need to provide the
products and guidance to support this.
Retirement lending
In July 2021 we launched our new later life
mortgages portal, with greater automation
and improved product functionality, to cater
for adviser needs and customer choice.
Our recent research shows that a third of all
non-retirees (35%) have less than £10,000 in
their pension pot, but own a property, and that
22% of current workers plan on using the value
of their home to fund their retirement, following
record house price increases. We anticipate that
using your home to fund your retirement will
become more commonplace in the future,
whether by downsizing to free up funds or
releasing money tied up in your home through
products such as lifetime mortgages. To help
support this change in need, we continue to
add new features to our products.
Response to Covid-19
Our sales performance has responded resiliently
in 2021 despite the challenges that the UK continues
to face, with annuity sales up 5%, lifetime mortgage
(LTM) and retirement interest only (RIO) mortgage
advances up 7% and Workplace Savings net
flowsup9%.Manyofourcolleagueshave
continued to work from home, but we continued
to deliver excellent customer service and ensured
that all our annuitants continued to be paid.
2021 key activities
Workplace pensions
Our Workplace Savings business was
transferred from our investment management
business to our retail retirement business at the
start of 2021, and now serves 4.4 million people
saving for retirement. This allows us to better
serve these customers as we are able to provide
savings and retirement advice and products to
members before and after retirement as their
needs change.
Aswellasbeingbeneficialforourcustomers,it
allows us to retain their custom for longer and
bring greater value to the group. One of our key
WorkplaceofferingsistheL&GMastertrust.In
line with the Department for Work and Pensions
guidance on providing value for pension scheme
members,theL&GMastertrust,asthelargest
commercial master trust on the market, provides
schemes with value for money alongside
best-in-class governance.
Supporting the group’s commitment to climate
change,theL&GMastertrustunveiledaproposed
roadmap to achieve net zero by 2050 across all
of our auto-enrolment default investment options
(this applies to the standard Mastertrust default
options:L&GMulti-AssetFund,L&GFutureWorld
Multi-AssetFundandL>argetDateFunds).
Retirement income
Although we have seen some recovery in
the annuity market during the year, we expect
ittogrowfurtherinthefutureasthedefined
contribution (DC) pension market continues
to increase and fewer people reach retirement
withdefinedbenefitpensionsandsoseekthe
longevity protection that an annuity provides.
We continue to invest in our underwriting and
pricing capability in order to ensure that we offer
our customers the best possible rates as well as
in our operational areas so that we can continue
to provide excellent customer service.
We were recognised as winners of the Best
Annuity Provider for the second year running
and were commended for Best Annuity Service
Individual annuity
sales
£m
957
910
970
2019
2020 2021
£957m
We have had a strong 2021 with new
business volumes of £957 million, 5%
higher than 2020 as the annuities
market started to recover from the
impact of Covid-19.
Lifetime and
retirement interest
only mortgages
£m
848
791
965
2019
2020
2021
£848m
Lifetime and retirement interest
only mortgage lending advances
of £848 million were 7% higher than
the prior year, whilst still maintaining
pricing and underwriting discipline.
Andrew Kail
ChiefExecutiveOfficer,
Legal&GeneralRetirementRetail
Legal & General Group Plc Annual Report and Accounts 202134 Strategic report
As the number of ‘property millionaire areas’ in
EnglandandWaleshasincreasedby95%infive
years, we continue to see more people using
lifetime mortgages to pass wealth to future
generations. We expect this trend to grow the
market in the coming years. In order to support
this, we have designed a new premier lifetime
mortgage offering for clients with properties
worth over £1 million to cater for the growing
interest in this area. The new offering will provide
a specially designed product and additional
support to advisers when dealing with larger loans.
Health and care
Launched in January 2021, our Care Concierge
service is designed to offer practical and emotional
support through a dedicated online hub and a
confidentialtelephoneadvisoryservice.Itoffers
comprehensiveandconfidentialadviceand
guidance, to help people to effectively plan for
the cost of long-term care, understand their
optionsandfindtherightcareasquicklyas
possible. We recently announced an industry-
leading partnership with professional services
consultancy Barnett Waddingham, integrating
Understanding the risks
As a provider of retail retirement products,
we are exposed to the risk that people
live for longer than we have assumed
in the pricing of our products. In pricing
our lifetime mortgages, we also make
assumptions for the long-term outlook
of the housing market. Our mortgage
underwriting seeks to ensure that we
are selective in the risks we take on and
that our loan portfolio is resilient to a
range of economic scenarios. As we
increasingly advise on mortgages, we
inherently increase our exposure to advice
risks, and we have invested heavily in
ensuring our advisory business leads
to good customer outcomes.
Our mission is to be
the financial home
for customers’ savings
and retirement needs,
supporting more
colourful futures.”
Andrew Kail
ChiefExecutiveOfficer,
Legal&GeneralRetirementRetail
Adjusted operating
profit
£m
352
397*
353
2019
2020 2021
£352m
Adjustedoperatingprofitdecreased
by 11% as the prior year included
a £75 million reserve release**. Excluding
thisrelease,adjustedoperatingprofit
grew by 9% driven by the ongoing
release from operations, positive
mortality experience due to the tragic
impact of Covid-19, and routine updates
to our valuation assumptions.
Rewirement
In May, we launched Rewirement,
a podcast series hosted by Angellica
Bell opening up the conversation
on retirement across an eight-part
series. Each episode looks at a
different area of retirement, such as
how to keep mentally and physically
fit, relocating later in life and retirement
in the LGBTQ+ community.
our Care Concierge service into their digital
platform, which offers clients ‘cradle-to-grave’
benefitstotheirworkforce.
Outlook
Effective 1 January 2022, our retail retirement
business will come together with our insurance
businesstoformLegal&GeneralRetail–bringing
together our people, ideas and technology so
we can be there when it matters most to our
customers.
Our ambition is to be the UK’s leading insurance,
savings and retirement brand, enabling all our
customers to have a secure retirement whilst
generatingprofitsforthegroupand,overtime,
to expand internationally. Together, we can
protectpeoplefromfinancialuncertainty
throughout their lives and help to secure the
retirement they deserve.
* 2020 has been restated to reflect the change in segmentation of the
Workplace Savings business, which moved from LGIM to LGRR. 2019
has not been restated.
** In 2020 we adopted an adjusted version of the CMI 2018 mortality tables.
Legal & General Group Plc Annual Report and Accounts 2021 35
Strategic report Governance Financial statements Other information
Retail retirement
Michelle Scrimgeour
ChiefExecutiveOfficer,
Legal&GeneralInvestmentManagement
CEO introduction
Our purpose is to create a better future through
responsible investing. Our growth ambition is
driven by our three-pillar strategy, to modernise,
diversify and internationalise the business.
Over the past year, we increased revenue
to over £1 billion for the first time, grew
assets under management to £1.4 trillion
($1.9 trillion) and reinforced our position as
a global leader in environment, social and
governance (ESG), demonstrated by our
leading role at COP26.
Growth drivers
• Ageing demographics.
• Globalisation of asset markets.
• Investing in the real economy.
• Welfare reforms.
• Addressing climate change.
Response to Covid-19
The plans we put in place at the start of the
pandemic to limit the effects of Covid-19 on our
business remained effective throughout 2021.
We continue to follow these plans and have
sufficientresourcestowithstandtheeffects
of the pandemic and any further lockdowns.
2021 key activities
Our investment performance was strong in 2021.
Of our mainstream actively managed funds
which includes active bond, active equity and
multi-asset strategies, 61% outperformed their
benchmark over one year, 81% over three years
and76%overfiveyears(usingourregulated
Undertakings for Collective Investments for
Transferable Securities ‘UCITS’ as a proxy for
the performance returns).
Stewardship
Weuseourinfluencetoraisemarketstandards
and best practice, committing to engagement
with consequences. During the 2021 proxy
season, we subjected 130 companies to voting
sanctions, with banking, insurance, real estate,
technology and telecoms sectors the most
highly sanctioned through a vote. We divested
fromfourcompaniesduetoinsufficientaction
to address the risks posed by climate change.
We announced a partnership with NTR, a leading
renewable energy specialist, to address climate
change by providing institutional investors in the
UK, Europe and Asia access to the €1 trillion
European energy transition in 2022.
We have consistently received A+ rankings
for our responsible investment strategy and
active ownership by the UN Principles for
Responsible Investment (UN PRI), and in 2021
the FRC listed LGIM as a signatory to the UK
Stewardship Code.
Modernise
We continue to invest in the business to achieve
the resilience and agility critical to future success.
In July 2021 we extended our existing partnership
with State Street by expanding the usage of
CharlesRivertechnologytodelivermiddleoffice
servicing. The use of this technology across a
number of our investment management services
in the UK, America, Asia and Europe will enable
us to offer a more automated, consistent and
seamless experience for all of our clients based
around the world.
Our purpose is to create
a better future through
responsible investing.”
Michelle Scrimgeour
ChiefExecutiveOfficer,
Legal&GeneralInvestment
Management
Investment
management
£34.6bn
Externalnetflowsof£34.6billionare
70% higher than 2020, driven by strong
performance internationally, especially
in Europe and Japan.
£1.4tn
AUM grew by 11% to £1.4 trillion in 2021.
£290 billion of the AUM we manage for
our clients is in responsible investment
strategies explicitly linked to ESG criteria.
External net flows
£bn
34.6
20.4
86.4
2019
2020 2021
Assets under
management (AUM)
£bn
1,421
1,279
1,196
2019
2020 2021
Legal & General Group Plc Annual Report and Accounts 202136 Strategic report
Real Assets
LGIM Real Assets is well positioned and enjoyed
notable successes in 2021, including raising
£362 million for the Secure Income Assets Fund
while initiatives such as an innovative digital
occupier engagement platform help future-proof
the portfolio and ensure we become an owner
of choice for occupiers. We expect future growth
inflowstobesupportedbyourBuildtoRent
strategy, which now has a pipeline of c.9,000
homes across the country, infrastructure equity
and by private credit, which offers clients
diversificationofsecureincomeandvalue
protection solutions.
Diversify
We are continuing to expand our investment
offering, with a focus on higher-margin product
areas such as Real Assets, Exchange-traded
Funds (ETFs), Multi Asset and Solutions.
Around 80% of our recent product launches
havebeeninESG-specificareas.During2021,
we launched innovative new products including
the ESG Paris Aligned World Equity Index Fund,
a low carbon transition index equity fund suite
for UK pension clients, and a number of ESG
thematic ETFs.
UK Defined Contribution (DC) and retail
We continue to innovate in this market, as shown
by the launch of the Sustainable DC Property
Fund which enables investors to access real
assets and to incorporate more ambitious ESG
targets. Our Mastertrust recently surpassed
£17 billion in assets under management (AUM).
It now spans 230 employers and c.1.4 million
members, making it the largest commercial
mastertrust on the market.
In June 2021, we announced the launch of
our Model Portfolio Service (MPS), a range
of growth and income model portfolios with
varyingriskprofiles.TheMPSrange,whichis
availabletoinvestorsviatheirfinancialadviser,
includes 21 growth-focused model portfolios
designed to cater to investors looking to grow
their capital over time, and four income-focused
model portfolios, which will hold a balance of
underlying funds to deliver income, while also
maintaining the potential for capital growth.
Internationalise
Overthelastfiveyears,ourinternationalAUM
has more than doubled to reach £479 billion,
34% of our total AUM. Our ambition is to
continuegrowinginternationalAUMprofitably
and at pace in the US, Europe and Asia.
US
In the US, we are deepening our strong client
relationships through innovation in DC and
leadership in ESG. We remain a leading provider
intheUSDefinedBenefitmarket.
Europe
We are building on our success in Germany and
Italy to expand further into European markets
and channels through higher-margin thematic
ETFsandactivefixedincomestrategies.We
partnered with Universal Investment to launch
an Absolute Return Emerging Market Debt fund
forGermaninvestors.Europesawpositiveflows
of £13.6 billion from multiple clients across the
region, with European institutional AUM reaching
€100 billion.
Asia Pacific
Our strategy is to retain and increase the
proportion of funds invested with us with
existing clients and deepen our footprint in
existingmarkets–Japan,mainlandChina,
HongKong,TaiwanandKorea–byshowcasing
investment solutions that address key market
trends. In 2021, we also partnered with
institutional clients in New Zealand on a
market-leading climate investment strategy.
Outlook
We continue to focus on attracting higher
marginnetflowsandondiversifyingandfurther
internationalising our business. We remain
confidentofgrowingcumulativeprofitsinthe
rangeof3%–6%.
Understanding the risks
Ensuring robust internal controls so
that funds are managed in line with
client mandates, fund performance is
consistently delivered and operational
errors are minimised are integral to
attracting new funds under management,
minimisingfundoutflowandmanaging
regulatory and reputational risks. Our
continued investments in systems,
processes and people seek to ensure we
maintain a control environment that
aligns with the operational risk exposures
across our global operating model.
In 2021, we were at the heart of the
COP26 programme, as Michelle
Scrimgeour co-chaired the COP26
Business Leaders Group alongside
President for COP26, Rt Hon Alok
Sharma MP. Our aim is to push the
private sector to do more on the
transition to net zero and to
galvanise climate action in the
public sector.
COP 26
£422m
Ouradjustedoperatingprofitgrew
by 4% to £422 million in 2021. Revenue
increased by 6% to more than £1 billion
while our cost:income ratio remains
in the high 50% range as we invest
for growth.
* 2020 has been restated to reflect the
change in segmentation of the Workplace
Savings business, which moved from LGIM
to LGRR. 2019 has not been restated.
Adjusted operating
profit
£m
422
407*
394
2019
2020 2021
Picture: the SEC in Glasgow (venue for COP26)
Legal & General Group Plc Annual Report and Accounts 2021 37
Strategic report Governance Financial statements Other information
Investment management
Laura Mason
ChiefExecutiveOfficer,
Legal&GeneralCapital
CEO introduction
As the group’s alternative asset business,
Legal & General Capital (LGC) deploys
shareholder capital to support the UK’s
real economy. LGC has three objectives:
1. profit and value generation for shareholders
2. asset creation for long-term investors,
including the group’s retirement businesses
3. a focus on identifying and meeting the need
for investment in society to drive positive
environmental and social impact.
Our ambition is to build LGC’s diversified
alternative assets under management (AUM)
to c.£5 billion by 2025 (2021: £3.4 billion), with
an upgraded blended portfolio return target
of 10% – 12% (previously 8% – 10%).
Growth drivers
• Ageing demographics.
• Globalisation of asset markets.
• Investing in the real economy.
• Welfare reform.
• Technological innovation.
• Addressing climate change.
Later Living
Growth in our Inspired Villages Later Living
business continues at pace, with six operational
villages supporting c.1,000 residents, four
schemes under construction (including two
thatwillbecometheUK’sfirstnetzerocarbon
regulated energy retirement village) and
a pipeline of 22 further sites.
During 2021, LGC entered into a 15-year joint
venture partnership with NatWest Group
Pension Fund, aiming to expand Inspired
Villages’ portfolio to 34 villages supporting
around 8,000 residents.
Modular Homes
While we recognise that, since its establishment
in 2016, Modular Homes has not progressed at
the speed we would have originally planned or
anticipated, the business is now generating
significantmomentum,commencing
construction on sites in Selby, Bristol and
Broadstairs to deliver 450 homes, as well as
seeking planning permission for c.400 homes
across three further sites. All modular homes
achieveanEnergyPerformanceCertificate‘A’
rating, a standard met by fewer than 1% of
new-build homes in the UK.
Response to Covid-19
LGC’s success is based upon identifying areas
of society that require investment, which is even
more important as the UK recovers from
Covid-19. We launched a new Rebuilding Britain
Index (RBI) in 2021 to act as a benchmark in
identifying the UK’s investment priorities,
regional investment gaps and barriers to
increasing investment.
2021 key activities
Housing
LGC provides quality homes for all ages, tenures,
and demographics. During 2021, our housing
propertyportfoliogrewsubstantially,reflecting
the sustained long-term demand for housing in
the UK. As a business, we have the unique
combination of long-term capital, expertise and
commitment to continue to scale up this
platform further, whilst working towards our
commitment for all new homes delivered from
2030 being capable of operating with net zero
carbon emissions.
Affordable Homes
Our Affordable Homes business is one of the
UK’s leading institutional developers and owners
of affordable housing. In 2021, we increased our
number of operational affordable homes by 997,
and secured a pipeline of over 7,000 homes. We
also agreed a £270 million investment with our
retirement business creating assets to meet its
pension liabilities.
Build to Sell
LGC’s Build to Sell business, CALA, had a strong
rebound in 2021. Now the 10th largest
housebuilder in the UK by revenue, CALA
deliveredasignificantincreaseinadjusted
operatingprofitthroughthesaleofmorethan
2,900 units.
Build to Rent
Our urban Build to Rent (BTR) business provides
purpose-built rental housing. The long-term
rental income provides high-quality assets for
LGR and for LGIM clients, with a £2.6 billion
portfolio of over 7,000 UK-wide homes currently
in operation or development.
Our Suburban Build to Rent (SBTR) business
submitted a planning application for a site in
North Horsham, a multi-tenure scheme to be
delivered by our different housing businesses.
SBTR also acquired a site in Peterborough,
building its pipeline to over 750 homes across
the UK.
Direct investments £bn
3.1
3.4
2.9
2019
2020 2021
£3.4bn
Our direct investment portfolio has
grown to £3.4 billion, an increase of
10% over 2020. This growth is the
result of continued deployment of
capital to progress our housing
businesses, as well as investing into
start-up businesses via our venture
capital funds.
Adjusted operating
profit
£m
461
275
363
2019
2020 2021
£461m
Adjustedoperatingprofithas
significantlyrecovered,showing
68% growth on 2020 and 27% growth
on 2019, as a result of a bounce-back
in the housebuilding market and the
continued maturing of the underlying
investments in our venture capital and
clean energy businesses.
Capital
investment
Legal & General Group Plc Annual Report and Accounts 202138 Strategic report
Alternative finance and venture capital
Through our venture capital investments, we are
providing funding for over 400 companies across
34 funds. We continue to back exciting and
innovative companies such as Onto, which is
dedicated to making electric cars widely available,
and AccurX, a healthcare messaging company
which was at the heart of the NHS’s Covid-19
vaccination effort. Many of the funds we invested
in early are now maturing, with the strongest
assets achieving new funding rounds at
increased valuations. We also lend to small and
medium-sized UK and European businesses
through our 40% stake in Pemberton.
Specialist commercial real estate
We are involved in some of the UK’s largest urban
transformation schemes across 18 towns and
cities. Our 2021 projects include expanding
Bruntwood SciTech’s life sciences network
through the Birmingham Health Innovation
Campus, as well as a £1.5 billion partnership with
the University of Manchester. This will deliver a new
Innovation District creating 10,000 full-time jobs
and 1,300 homes over 15 years. We also received
planning permission for a mixed-use scheme
atSheffield’sWestBardevelopment.
As part of our £4 billion partnership with Oxford
University, we began construction on the
£200 million ‘Life and Mind Building’, as well as
agreeing to fund and deliver a new innovation
district with the University.
We have partnered with Kao Data who are a
leading computing provider for life sciences and
financialservicesintheUK.KaoDatasecured
co-investment at an accretive valuation from the
£11 billion infrastructure fund, HRL Morrison.
Clean energy
We invest in early-stage innovative clean
technology companies and low carbon renewable
energy infrastructure. Expanding on our existing
investments in Pod Point, Kensa Group, Tokamak
Energy and Oxford PV, we recently took a 19%
stake in Sero Technologies, a company supporting
the transition to net zero across the residential
Understanding the risks
Our early stage investments through
Legal&GeneralCapitalareinherently
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 values.
Site health and safety is a core focus area
across all our property development and
operating activities.
By investing in and
developing high-quality
alternative assets, our
capital investment business
generates attractive
risk-adjusted returns
for shareholders.”
Laura Mason
ChiefExecutiveOfficer,
Legal&GeneralCapital
housingsector.Therearesignificantopportunities
for Sero to work with our existing housing assets
and businesses. We also own a 25% share of
NTR Asset Management Europe, a Principles for
Responsible Investment A+ rated sustainable
infrastructure asset manager, with more than
€500 million deployed across two funds.
Traded portfolio
Ourdiversifiedtradedportfoliohasperformed
strongly over 2021, while continuing our strategy
to shift LGC’s asset mix towards alternative assets.
Consistent with our publicly stated climate
targets, we continue to reduce the carbon
emissions intensity of the listed equity portfolio
by investing into assets where carbon reduction
targets are a key objective or by investing in
more climate impact stocks, such as renewable
infrastructure companies.
Outlook
LGC’s ambition is to deliver adjusted operating
profitof£600–£700millionin2025.Weplan
to increase fee-generating third-party capital to
£25–£30billion(2021:£12.3billion)by2025,
driven by a wide range of strategies. As part
of our ambition, we also target international
opportunities, primarily focusing on the US.
Homes completed
4,364
3,334
2,737
2019
2020 2021
4,364
Across our housing portfolio, we
continue to deliver at pace to help
address the UK’s chronic under supply
of housing. Across all tenures, we
completed on 4,364 homes in 2021,
an increase from 3,334 in 2020.
Pod Point is an electric vehicle
charge point provider first backed by
LGC in 2019. Pod Point’s partnership
with Volkswagen and Tesco has
powered more than 10 million miles
of travel and helped to accelerate
the adoption of electric vehicles.
We expect demand to grow as sales
of new petrol- and diesel-powered
vehicles will be banned from 2030.
Pod Point’s IPO in 2021 raised
c.£120m of gross proceeds. This
implies a return of 3.8x on LGC’s
investment, demonstrating our
commitment to addressing climate
change and our ability to create value
through realisations.
Pod Point
LGC capital markets event
group.legalandgeneral.com/CME
Legal & General Group Plc Annual Report and Accounts 2021 39
Strategic report Governance Financial statements Other information
Capital investment
Bernie Hickman
ChiefExecutiveOfficer,
Legal&GeneralInsurance
CEO introduction
Our investment in digital solutions has helped
us deliver growth, with record new business
volumes in UK retail protection and record
lending through our mortgage club.
As Covid-19 continues, our insurance
businesses provide much-needed financial
support when tragedy strikes and provide
peace of mind to over nine million customers.
As of 1 January 2022, our two retail businesses
(retirement and insurance) have come together
to form Legal & General Retail. Under the
leadership of Bernie Hickman, this division
will focus on serving the savings, protection
and retirement needs of our retail and workplace
customers allowing us to take a joined-up
approach to our customers, data, and technology.
Growth drivers
• Welfare reforms.
• Technological innovation.
way they are approaching it varies widely.
Recognising this, we refreshed our wellbeing
proposition: be well, get better and be supported.
This is intended to be easy for our customers to
understand and helps clients and their
employees when they need it most.
US protection
By harnessing data and technology, we are
continuing to grow in the sizeable and growing
US protection market, which has over $27 billion
of term life premiums each year. We seek to be
the insurer of choice for families in the US who
seek simple, affordable and digitally accessible
life insurance.
We continue to develop our market-leading,
digital new business platform, Horizon. Adoption
of Horizon is now over 65% of new business and
we expect this to increase next year. We have
significantlyreduceduseofphysicalmedical
assessments, from 85% of all applications
needing a physical assessment at the start of
2020 to less than 50% of applications currently.
We have a range of further underwriting
innovations being deployed to reduce the need
for physical assessments and reduce the time
taken to provide an underwriting decision.
Response to Covid-19
We continue to serve our customers and
distributors remotely with customer satisfaction
levels remaining high and record new business
volumes being written in 2021.
We invested in technology to help new customers
through their application process. We expanded
our virtual screenings’ capabilities for protection
applicants by providing digital blood pressure
machines to a selection of customers requiring
amedicalassessment,andwhoqualifiedtodo
it virtually. We continued to offer deferred payment
holidays where vulnerable customers request
help with payments and we have helped our
customers to remain protected.
We paid £2.1 billion of protection claims in 2021,
of which £279 million related to Covid-19, helping
families during this devastating time.
2021 key activities
UK retail protection
There was an increase in demand in the UK retail
protection market in 2021. As a result of strong
relationships with our key distribution partners
and our investment in technology, we
maintained a market share of over 25%.
Advances in our digital underwriting processes
allow us to offer immediate terms to over 84%
of our applicants, which we believe to be market
leading. We have enhanced our digital offering
to align with the changes that our partners and
customers require in accessing and buying their
financialservices.
We continue to develop our health and wellbeing
assistanceoffering.‘Umbrellabenefits’includes
twonewoptionalprotectionbenefits–fracture
coverandprivatediagnostics–withaccessto
wellbeing support and rehabilitation support
services also available on income protection
policies to help advisers offer their clients more
choice, more cover and more assistance when
they need it most. We expanded our offer to the
under-served rental market, with the launch of a
non-advised income protection product, illness
and injury insurance.
UK group protection
2021 was a year of innovation, growth and a
focus on customers. We launched Protect to the
market: a new digital proposition that provides
a way for employees to tailor their protection
benefitstotheirowncircumstances.We
conducted research that showed that, whilst
wellbeing is high on businesses’ agendas, the
Solvency II new
business contribution
£m
216
254
262
2019
2020 2021
£262m
Our data-driven approach to optimise
the value we add from writing new
business has delivered a Solvency II
new business contribution of
£262 million, a 3% growth on last
year in a challenging market. We have
focused on higher margin products,
enhanced pricing sophistication and
continued to deliver good expense
management.
Gross written
premiums
£bn
2.9
2.8
2.7
2019
2020 2021
£2.9bn
Gross written premiums grew by 2%
to £2.9 billion, driven by increased
customer retention and renewals
in our UK group protection business
as well as strong new business from
our distribution reach in UK and US
retail protection. Our longer-term focus
remains on enhancing competitive
advantage through effective use
of technology.
Insurance
Legal & General Group Plc Annual Report and Accounts 202140 Strategic report
Fintech solutions
We have a number of direct investments where
we leverage both the agile mentality and the
technology solutions of start-up businesses
in strategically important market segments to
enhance delivery of our core businesses and
to help these businesses scale and succeed.
We hold investments in businesses specialising
inworkplacebenefits,insurtech,mortgages,
health and care.
Salary Finance
SalaryFinancesupportsfinancialwellbeing
through employers by offering products such
as salary deductible loans, savings and early
wage access, which over four million employees
in the UK and the US have access to. The UK
gross revenue has nearly doubled and the new
employee loan volumes in the US have grown
fivefoldyear-on-year.Grossrevenuegrewto£30
million, an increase of 85% year-on-year. These
trends in key metrics are expected to continue
with growing employee awareness and increasing
platform engagement in both the UK and US.
Asanto
Asanto is a no-code cloud-based decision
making platform developed by our technology
business,theidol.com.Asantoallowsfinancial
servicesproductstobeconfiguredandlaunched
more effectively than traditional legacy platforms
by removing the need for IT developers and
allowing other business areas to make changes
themselves. During 2022, the Asanto team will
build more tools in order to provide advanced
mortgage services and will partner with a US
technology business to modernise the US
protection market and make automated
underwriting more accessible.
Understanding the risks
Providing protection products means
that we have to make assumptions
about our customers’ life spans, how
healthy they will be, and how long they
will continue with the policy. We seek
to price and underwrite our products
to take account of these risks, and use
reinsurancetomanagesignificant
exposures. In delivering our ambition
to be a market leader in the digital
provision of insurance, as we develop
our digital propositions, we are also
exposed to technology risks and cyber
risks which if not well controlled may
lead to both reputational damage and
financialloss.
Adjusted operating
profit
£m
268
189
314
2019
2020 2021
£268m
Adjustedoperatingprofitincreased
42% to £268 million, primarily driven
by increased new business contribution
and assumption changes (including
modellingrefinementstotheliability
discount rate in our retail protection
business). This is partially offset by high
claims experience, particularly in our US
protection business, driven by Covid-19.
Mortgage services
We continue to enhance our mortgage services
offering to borrowers, brokers and lenders by
improving the portfolio of attractive mortgage
assets through innovative technology solutions.
Mortgage club
Our mortgage club is the largest and longest
running mortgage club in the UK, facilitating
aroundoneinfiveofallmortgages.Wework
closely with a broad range of lenders to deliver
bothmainstreamandspecificproductsforour
advisers. We saw record lending levels through
the mortgage club in 2021, with £97.5 billion
of lending transacted. We continue to innovate
to pursue our vision of a frictionless mortgage
journey for customers.
Surveying services
As one of the largest market participants,
managing over 528,000 valuations in 2021,
we continue to invest in new technology and
inrefiningourdigitalvaluationproposition.
Our remote digital valuation solution processed
over 49,000 digital valuations, compared with
43,000 in 2020, as lockdowns increased the
value of our service to lenders.
Outlook
Effective 1 January 2022, our insurance
business came together with our retail
retirementbusinesstoformLegal&General
Retail–bringingtogetherourpeople,ideas,and
technology so we can be there when it matters
most to our customers.
We continue to target mid-single digit growth in
revenues across our UK protection businesses,
and to achieve double digit growth in US new
business sales.
Horizon, our digital new business
platform in the US, leverages
increasingly available electronic
health data, combined with
disciplined underwriting and
strong expertise from our UK
business. Automating our
underwriting process and reducing
reliance on physical assessments
and paper-based evidence will
deliver meaningful growth, facilitate
new distribution partnerships and
provide cost efficiencies.
We will continue to invest
and provide support to
customers in our new
retail division,
incorporating our
insurance division with
retail retirement to create
a single interface for our
retail clients.”
Bernie Hickman
ChiefExecutiveOfficer,
Legal&GeneralInsurance
Automating
underwriting
Legal & General Group Plc Annual Report and Accounts 2021 41
Strategic report Governance Financial statements Other information
Insurance
A sustainable
business
Being a sustainable business defines our
role in society and the value we create.
Sustainability report
Our sustainability report will be
published later in 2022. For details
see: group.legalandgeneral.com/
sustainabilityreports
42
A sustainable business
Our guiding principle of inclusive capitalism
gives purpose and focus to the actions we take
to build a more sustainable society.
We invest in creating better places to live and
work. We fund critical research into the
technologies, and develop the infrastructure,
which will enable the transition to a low-carbon
economy. Through our relationships with
policy-makers, institutional clients and other
stakeholders,weinfluencepublicdebateand
corporate actions on a range of sustainability-
related issues and we demonstrate the power
of capital to solve problems. At its core, our
business is geared around providing access
tofinancialservicesforthosewhoneedthem.
Being a responsible and sustainable business
remains at the heart of our agenda.
During 2021, the market’s focus on environment,
social and governance (ESG) matters continued
to intensify. We have long believed that these
issues are critical to the ways in which we do
business. Our prosperity as a company depends
on a strong and resilient society and a stable
economic context. It is increasingly clear that
this will only be achieved for the long term
if environmental, social and health concerns
are addressed by companies such as
Legal&General.
During 2021 we reviewed our sustainability
strategy. Our 2021 sustainability report, to be
published later in 2022, will include more detail
on our achievements in 2021 and our future
strategy. In the meantime, we have continued
to take steps on our journey to net zero,
contributed to the creation of a better society
and worked to ensure our company is governed
in a responsible way, consistent with our goal
to be a sustainable business.
Journey to net zero
We recognise that ‘environment’ encompasses
more than just climate change and we face a
broadsetofspecificrisksandopportunities
across our businesses and balance sheet.
Scientificandpolicyopinioncontinueto
emphasise the need to limit warming to 1.5°C
or lower in order to avoid the most catastrophic
physical and economic risks associated with
climate change. 2021 was the second year
of the ‘climate decade’, and while COP26 gave
grounds for cautious optimism, there remains
much to be done to align across the economy
on the need to act.
We have continued our journey to net zero.
There are three principal ways in which we
contribute to a low-carbon future:
• investing our own assets in low-carbon
technology and infrastructure. We also seek
to reduce the environmental impact of our
investments–suchasinaffordableandbuild
torenthousing–whichserveasocialpurpose.
• influencing others, both using our position
as one of the world’s largest asset managers
and leveraging our relationships with
policymakers and in public debate.
• operating our business in a way which seeks
to reduce our Scope 1, 2 and 3 emissions.
Key progress in 2021 includes:
• bringing our climate scenario modelling
capabilities in-house.
• constructingourfirstnetzerocarbon
retirement community.
• working towards setting and validating
science-based targets, which will be
disclosed in 2023.
• appointing Simon Gadd as Group Climate
Change Director and Nilufer von Bismarck as
non-executive director with focus on climate.
Investing our own assets
We fund investments in technology and
infrastructure which are aligned with the Paris
Agreement’s objective of limiting global warming
to 1.5 °C. We have invested £1.4 billion in clean
energy to date and we have commitments
to decarbonise our balance sheet. We choose
to engage with companies to support and
encourage them to decarbonise before
divesting. Please refer to our climate report
for full details.
Climate report
Our 2021 climate report is available
on our group website. See: group.
legalandgeneral.com/reports
Our goal is to create
a better future through
responsible investing.
Climate change remains
the number one challenge
for us today. I am
determined that we
will do all that we can
to tackle this. Inaction
is not an option.”
Michelle Scrimgeour
ChiefExecutiveOfficerofour
investment management business
and co-chair of the COP26
Business Leaders Group
Investment portfolio
carbon footprint (Scope
3 investments)
74 tCO2e/£m
(2020: 89 tCO2e/£m)
1
Purpose: Measures the greenhouse gases
associatedwithourinvestment portfolio.
The carbon emission intensity of our proprietary assets was
74 tonnes of carbon dioxide equivalent per £1 million invested, down
17.0%fromlastyear.Thisisduetoacombinationofrefinementsto
methodology, the organic decarbonisation of our investments,
which includes an impact from Covid-19, along with changes in
our portfolio, such as that driven by our coal divestments as well
as the impact of market movements on company valuations.
Our Scope 3 non-investment emissions (business travel, working from home and
serviced offices) were 5,466 tCO2e.
1. 2020 figure rebased (previously reported as 117 tCO2e). Refer to page 51
of our 2021 climate report for details.
In this section we indicate which
UN SDGs we contribute most to.
Legal & General Group Plc Annual Report and Accounts 2021 43
Strategic report Governance Financial statements Other information
A sustainable business
A sustainable business
continued
Using our influence
Wecontinuedtoinfluencepolicymakers,
regulators and other companies to take steps
consistent with the ‘Paris’ objective.
As co-chair of the COP26 Business Leaders
Group, Michelle Scrimgeour, CEO of our
investment management business, represented
Legal&GeneralinGlasgow.During2021,
we joined a number of initiatives which either
demonstrate progress made, or set out our
ambition for further progress:
• the UK Government’s Get Nature Positive
campaign, in recognition of the role that
protecting and restoring biodiversity will play
in creating a more sustainable future.
• as one of the 236 members of the Net Zero
Asset Managers’ Alliance, we were part of
that body’s announcement that $4.2 trillion
of assets are now being managed in line
with achieving net zero by 2050.
• the Glasgow Financial Alliance for Net Zero,
contributing towards its commitment of
$130trillioninprivatecapitaltofinance
the economic transition to net zero.
Operational carbon footprint
Our operational carbon footprint is detailed
below and includes the carbon footprint from
the operations we directly control, including
the energy consumed:
• inourcoreoccupiedoffices.
• from our landlord activities.
• from the construction of new homes
within our housing businesses, including
joint ventures.
During 2021 we have taken steps towards our
net zero targets:
• business travel: whilst the carbon from our
2021 business travel has remained lower
(71%) than in 2019, due to Covid-19
restrictions, we have still accounted for the
carbon impact of our employees’ journeys
associated with business travel. We
relaunched our business travel policy,
focusing on sustainable modes of transport
and enhancing our business travel booking
system to enable users to understand the
carbon associated with their journey and
therefore make informed and sustainable
travel choices.
• occupied offices: we undertook net zero
carbonauditsofourcoreoccupiedoffices,
the outputs of which will feed into our future
of work strategy, with the aim of achieving net
zero emissions from 2030.
• renewable energy: several of our businesses
were impacted by energy suppliers ceasing
to trade and as a result our Scope 2 - Market-
based emissions have increased.
During 2022 and 2023 we expect our operational
footprint to increase due to the recovery from
Covid-19, as working patterns change and
business travel increases.
However we will continue to manage and reduce
the carbon emissions from our operational
footprintthroughidentifyingefficienciesand
improvements in technology, increasing the
consumption of onsite and offsite renewable
energy,designingandbuildingenergy-efficient
homes and buildings, and seeking to better
understand and manage our need to travel
for business.
FCA’s Listing Rule 9.8.8R
A summary of our climate-related
financial disclosures is set out
on the next page. Our disclosures
are consistent with the
recommendations by the Task
Force on Climate-Related Financial
Disclosures and can be found in
full in our separate climate report.
Our climate report is available at:
group.legalandgeneral.com/
reports.
Companies Act 2006 and SECR
In building our footprint we have
reported on the emission sources
for January to December 2021
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.
We have included within Scope 1
and Scope 2 the energy from
offices where we are sole
occupants, where we directly
procure the utilities or have a
separate meter feed. Offices
where we do not haveaccess to
our energy consumption data is
included within Scope 3, as per
greenhouse gas reporting guidance.
Operational footprint
(Scope 1 and 2 location)
30,706
tCO2e
1
(2020: 31,640 tCO2e)
2
Purpose: Measures the greenhouse gases associated
with our direct operations.
DuetotheimpactofCovid-19itisdifficulttodrawmeaningful
comparisons between 2021 and 2020. Whilst carbon from LGIM
Real Assets has decreased due to the implementation of Covid-19
restrictions, our housing businesses continued to grow at pace and
completed 1,030 more homes in 2021 than in 2020. Please refer
to page 236 for our mandatory carbon reporting disclosures and
further detail on our Scope 1 and Scope 2 footprint.
1. Our total Scope 1, Scope 2 (location) and Scope 2 (market) emissions have been
subject to independent limited assurance by PwC. The basis of preparation
(or reporting criteria) for our group carbon footprint is available at group.
legalandgeneral.com/sustainabilityreports and PwC’s assurance report
is available in our 2021 climate report: group.legalandgeneral.com/reports
2. 2020 figure restated from 35,482. Refer to page 236 for further details.
Legal & General Group Plc Annual Report and Accounts 202144 Strategic report
Summary disclosure against TCFD recommendations
Strategy
Climate-related risks
and opportunities
• There are undoubtedly risks from climate change, yet the transition to net zero also creates opportunities.
Ourbusinessmodelisnotexpectedtobesignificantlydisruptedbyclimatechange,howeverthefinancial,operational
and reputational risks which we manage will be impacted.
• As the response to climate change emerges so will the development of new markets and opportunities. We are
well placed to play a role in the decarbonisation of the economy and we are already embracing the opportunities
in many areas.
Impact on our
businesses, strategy
and financial planning
• As one of our six strategic growth drivers, we have built a three-pillar approach to address climate change: how we
investourassets,howweinfluenceasanassetmanagerandhowourbusinessesoperate.Ourproprietarymodel
on climate change is used to quantify the potential impacts of climate change on our portfolio.
Resilience based on
scenarios, including a
2°C or lower scenario
• Through our scenario analysis, including ‘Well-below 2°C’ and ‘4°C’ scenarios, we believe that we will remain resilient
despite the scale of adjustments that will need to be undertaken over the coming decades.
• Giventhatourexposureislargelythroughfinancialassets,manyofwhicharelisted,wehavetheflexibilitytoadapt
by trading to the desired carbon position. We mainly hold investment grade bonds, so the price risk is substantially lower
comparedtoinvestorswithportfoliosholdingalargerexposuretoequities.Thebalancesheetiswelldiversifiedacross
different sectors and we actively manage our credit portfolio.
Governance
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) through the Group Risk Committee and Executive
Risk Committee. We appointed a Group Climate Change Director and Non-Executive Director with a focus on climate
in 2021.
Management’s role in
assessing risks and
opportunities
• The GEC is chaired by the Group Climate Change Director and is responsible for providing strategic direction in respect
ofthemanagementofenvironmentalimpacts,withaparticularfocusonthegroup’smanagementofthefinancialrisks
from climate change.
Risk management
Processes for
identifying and
assessing climate-
related risks
• Climate change impacts will emerge through our current risk exposures and climate risk management has been
integrated into our risk and governance framework. We have used scenario analysis to carry out a detailed assessment
of how we can expect climate risk to emerge across our business model.
• We identify transition risk impacts on asset valuation and the economy as a result of the low-carbon economy
transition, and physical risks from the impacts on asset holdings or changes to life insurance liabilities as a result
of more frequent and severe weather events and longer-term shifts in climate.
Processes for managing
climate-related risks
• We deploy a range of management actions to meet our risk management objectives, namely: a commitment-setting
framework with supporting interim targets, our exclusion policy and high carbon escalation process, reviewing existing
frameworks to incorporate climate considerations, and active engagement with regulators and investee companies.
How we integrate these
risks into our overall risk
management
• Thegroup’sclimategovernancehasbeendesignedtoensurethatthemanagementofthefinancialrisksfrom
climate change are integrated across the whole governance system and embedded into the existing risk
management framework.
Metrics and targets
Internal metrics
• Our metrics support our commitment to align with the ‘Paris’ 1.5°C objective. We focus on our investment portfolio
carbon intensity, implied portfolio temperature alignment and operational carbon footprint.
• Wealsomeasureourengagementwithinvesteecompaniestoensurewecontinuetoexertourinfluenceconsistently
and widely across markets.
Greenhouse gas
emissions
• Our Scope 1 and 2 (location) operational emissions were 13,350 tonnes of carbon dioxide equivalent (tCO2e) and 17,356
tCO2erespectively.OurScope3non-investmentemissions(businesstravel,workingfromhomeandservicedoffices)
were 5,466 tCO2e. Our Scope 3 investment emissions were 74 tCO2e/£m.
Targets
• We have set group balance sheet carbon intensity targets to align with ‘Paris’, targeting net zero carbon emission
intensity in the group portfolio by 2050.
• Our operational footprint is targeted to operate with net zero carbon emissions by 2050.
Legal & General Group Plc Annual Report and Accounts 2021 45
Strategic report Governance Financial statements Other information
A sustainable business
A sustainable business
continued
Building a better society
Our success as a business depends on a
resilient society and a strong economy. As
communities began to recover from Covid-19
in 2021, the importance of our efforts to build
a better society became more pronounced
than ever.
We are committed to making investments and
managing money in ways which are socially
useful. This year we shaped our response around
the need to continue supporting communities
affected by Covid-19, while thinking ahead to
future social needs and continuing to tackle
the most pressing issues facing us today.
Our work to build a better society has focused
onfivekeyareas:
• investing in solutions to the housing crisis
and regenerating our towns and cities.
• supporting healthcare systems and
partnering on research.
• helping young people in the aftermath
of Covid-19.
• working with social enterprises.
• funding community groups and supporting
our employees’ activities.
Housing and city regeneration
We are tackling the housing crisis by investing
in affordable housing, alongside our mainstream
build to rent and build to sell businesses. By
investing institutional capital at scale, we are
able to provide safe, secure, affordable housing
where it is most needed.
During 2021, our affordable homes business
announced its pipeline stood at 5,500 homes
across the UK. In July 2021, our modular
housingbusinessopeneditsfirstshowhomes
at the Portholme development in Selby, including
up to 30% affordable housing. At our Lockleaze,
Bristol site, 50% of the 185 modular homes for
which we gained planning permission in 2021
will be affordable. The use of air source heat
pumps, photovoltaic cells and high-quality
building standards will place the homes in
the top 1% nationally for energy performance.
Meanwhile, our 153 modular homes planned
at Broadstairs, Kent will have public amenity
added in the form of 8,500 new trees.
Our £1 billion, 2,750-home plan for North
Horsham, Sussex saw us bring together our
affordable, suburban build to rent and modular
housingbusinessesforthefirsttimeina
multi-tenure site, with a school and other
community amenities.
The housing crisis affects people of all age groups,
and there is a shortage of age-appropriate homes
forolderpeopleintheUK.OurMillfieldGreen
retirement community in Bedfordshire will
provide 200 such homes within a net zero
development, using ground source heat pump
technology from Kensa, an investee company, to
reduce running costs and emissions and insulate
residents against energy price rises.
A new partnership between our real assets
business and “believe housing” will fund 1,200
newaffordablehomesinthenextfiveyearsin
the north-east of England. Meanwhile, in Leeds
city centre, the new £57 million Tower Works
development sees us funding a development
site through our build to rent fund. In Manchester,
we are partnering with Bruntwood and the
University of Manchester to deliver a new
£1.5 billion innovation district covering four
million square feet in the city centre.
We look forward to
working together to create
an outstanding innovation
district which will play a
large role in helping the
UK to build back better.”
Professor Dame Nancy Rothwell
President and Vice-Chancellor of
The University of Manchester
We launched the ESG Academy
in November 2020 and continued
to build the offering in 2021, with
resources aimed at a wide range
of role types, drawing on external
and in-house expertise.
The programme features online
learning, webinars and talks and
is available for everyone in our
investment management business.
Building
ESG skills
SDG Contribution
Legal & General Group Plc Annual Report and Accounts 202146 Strategic report
We believe that business
can be a force for good
in society if we work to
identify areas where we
can positively impact
people’s lives. That is the
aim of the partnership.”
Pete Gladwell
Group Social Impact and
Investment Director,
Legal&GeneralCapital,
commenting on our IHE
partnership.
Supporting healthcare systems and
partnering on research
Building resilience to future pandemics is a
critical element of ensuring future social and
economic stability.
In June 2021 we announced a long-term
partnership with University College London
epidemiologist Sir Michael Marmot, with the
objective of creating a multi-million pound
charitablefund.TheLegal&GeneralandInstitute
of Health Equity (IHE) Places Fund will examine
how improvements to the design and construction
of our towns and cities can help to address health
inequalities and support ‘levelling up’ across the
UK’s regions.
In November 2021 we broke ground on the
Life and Mind Building, part of our £4 billion
partnership with the University of Oxford.
The new facility will be the university’s largest
teaching building and support scientists working
in biology and psychology to solve some of our
major global challenges.
We continue to support the University of
Edinburgh’s Advanced Care Research Centre
(ACRC),whichaimstofindsolutionsthat
support the quality of life for older people.
Helping young people after Covid-19
The pandemic, with its knock-on effects on
education and employment, hit young people
particularly hard. We continued to support
them in accessing education and in providing
opportunities to develop skills to access
employment.
We built on our position as founding partners
in the digital and business skills programme,
FastFutures, increasing our investment by
£100,000 this year. We funded three additional
cohorts, providing young people from
underrepresented backgrounds with the
opportunity to access online learning,
mentoring and networks in businesses including
Legal&General.Theprogrammeispurposefully
targeted to those sections of the community
which have traditionally been less able to access
such opportunities.
We supported the Duke of Edinburgh’s Awards’
Youth Without Limits strategy, designed to widen
accessibility of the scheme to more young
people. The focus of our support was in south
Wales and north-eastern England.
Working with social enterprises
Our support for small social enterprises this
year took the form of the SE-Assist programme,
run by CAF Venturesome, the Charities Aid
Foundation’s social enterprise arm. Supported
byLegal&General,SE-Assistawarded£300,000
inblendedfinancetosocialenterprisesacross
Wales–thefifthroundofsuchinvestments.
Funding community groups and
supporting our employees’ activities
We have continued to support our employees’
fundraising and volunteering efforts through
matched funding schemes. The total donated
to UK charities including through company
matching during 2021 was £1.3 million, including
over £90,000 in funding to charities with income
below £1.5 million in our Small Donations campaign.
In the US, our charity drive raised over $800,000.
In the UK, we continued our partnership with the
Samaritans, where our funding supported the
expansion of the charity’s training programmes.
We were headline sponsors of the charity’s
inaugural Dawn Walk, which raised £60,000.
In 2021 we launched the Critical Capabilities
programme, with the aim of helping our
employees understand, articulate and act
on the possibilities of technology, data and
new ways of working. The programme seeks
to develop technical and behavioural skills
and is based on a hybrid blend of workshops,
practical activity, thought leadership and
self-directed content.
New ways
of working
SDG Contribution
(Pictured: Jethro Escobar-young, Customer Contact Advisor)
47
Strategic report Governance Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021A sustainable business
Growing our business
responsibly
Diversity and inclusion (D&I)
Diverse workforce, inclusive workplace:
our diversity and inclusion vision
Our vision is to build a workplace where we can
all perform at our best, no matter who we are.
There is a clear ethical and commercial logic
to ensuring everyone is given the conditions in
which to succeed. Not only is it the right thing
to do, but 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 vision, our action plan and measuring our
progress are the responsibility of our global
Diversity and Inclusion Council, which reports to
the Group Board and is chaired by Laura Mason,
CEO of our capital investment business.
More diversity, greater inclusion: progress
on our action plan
A key focus for 2021 was continuing to build
a better picture of our employee base, and to
do this, we focused on increasing the quantity
of characteristic data we hold on our employees.
As this is shared with us on a discretionary basis,
we ran a communication and engagement
programme, ‘Count Me In’, encouraging
employees to share information about their
background (ethnicity, sexual orientation, gender
identity, socio-economic background and others).
During 2021, the rate of disclosure for ethnicity
increased from 52.6% to 67.9%. Across all other
characteristics, we saw an average 79% increase
(from a lower average baseline of disclosure).
During 2021, we:
focused on recruitment and early careers:
• conducted an audit of our recruitment
practices to assess our maturity across
arangeofD&Icharacteristics(including
gender, age and ethnicity) to help us
understand where improvements to our talent
attraction and hiring approach can be made.
We introduced anonymised CVs into our
recruitment processes.
• continued our support for the
#10000BlackInterns programme by providing
internship opportunities at LGIM for 17 black
students.
• through our socio-economic mobility
employee group, undertook a programme of
engagement and outreach activities including
mentoring students from under-represented
backgrounds through our partnership with
Kingston University’s Beyond Barriers
Mentoring Scheme.
continued to train line managers on D&I:
• piloted a new inclusive line management
programme with 100 managers.
• introducedD&Ibasicslearning(the‘inclusion
accelerator’)–adigitallearningprogramme
for line managers based on short learning
sprints,coveringkeyD&Ithemes.Amongthe
100 leaders who have been through this pilot,
understandingofcoreD&Iconcepts(bias,
micro-messages and working inclusively)
increased by 95%.
widened opportunities for employees:
• launched a global mentoring platform, which
sawover370peopleregisterinthefirstthree
months; developed reverse mentoring for our
senior leadership teams, giving them an
opportunity to learn from more junior employees.
• continued to support our employee
representative groups. Three new groups
were launched: Women and Tech; the Ability
Working Group; and an inclusion network for
those in our insurance business.
We also issued internal communications
celebrating Inclusion Week, Black History Month,
Pride Month and International Women’s Day;
continued to tell diverse employee stories through
the ‘Our Story’ campaign; and had the Chairman
of our Board participate in a Listening Project
focus group, where he heard from employees
about their lived experience of diversity and
inclusionatLegal&General.
Measuring our progress
In our most recent group-wide employee survey
(Voice), our people gave us a favourable score
of 75% when asked if everyone has an equal
chancetosucceedatLegal&General–level
with our 2020 score.
Through the Women In Finance Charter, we have
committed to achieving overall workforce gender
balance by 2025; 40% female representation
among managers and senior managers; and 33%
female representation on our Board. We support
the FCA’s recent consultation on increasing
Board representation for women to 40%.
Legal & General’s workforce Female Male
Board directors 3 7
Executive Committee 3 9
Middle/senior management 1,570 2,769
All employees 4,779 5,964
As at 31 December 2021
This year, we additionally committed to
achieving 8% representation for ethnic minority
employees among senior leaders and on our
Group Board, both of which we achieved during
2021 (at 12% and 20% respectively).
A sustainable business
continued
Empowering our employees
tobuildnetworks
We support employee
representative groups focused
onarange of joint interests
relating to D&I. These include:
• The Ability Working Group
• Culture Club (ethnicity)
• Disability Network
• Family and Carers Exchange
(parental status and carer
status)
• Gender balance
• Health and wellbeing
• L&GBT+ Allies (sexual
orientation and gender identity)
• Neurodiversity
• Socio-economic mobility
• Women and Tech
SDG Contribution
Legal & General Group Plc Annual Report and Accounts 202148 Strategic report
We continue to pursue external benchmarking
andrecognitionofourD&Iefforts.Weachieved
a Bloomberg Gender Equality Index Score of
79.06% with a disclosure score of 100%. We also
attained the level of ‘Advanced Employer’ in the
Investing in Ethnicity Maturity Matrix,
recognising our commitment and progress to
ensure equal opportunity and representation,
regardless of ethnicity.
Gender pay gap
In 2021 we again saw a continued, progressive
narrowing of our median pay gap, from 26.6%
to 24.1%, with positive movement in all our
reportable entities.
Please see our separate gender pay gap report
for full data and commentary.
Gender
pay gap
2021
Mean
2021
Median
2020
Mean
2020
Median
Hourly pay
26.3% 24.1% 30.8% 26.6%
Bonus
53.1% 42.1% 48.0% 40.6%
Employee wellbeing
Supporting our employees’ wellbeing
If 2020 was characterised by protecting our
employees from the physical and mental wellbeing
threat of Covid-19, 2021 was a year in which we
supported them through a safe return to workplaces
and continued to offer support on both physical
and mental wellbeing.
For those employees accessing or returning to
our workplaces, we continued to apply safety
measures in line with government guidance,
including social distancing, sanitisation,
temperaturechecksandprovidinglateralflow
tests (before these were made available on the
NHS in the UK). Throughout the return to the
office,weworkedinpartnershipwiththetrade
union Unite and our own management
consultative forum.
A commitment to mental health
We are committed to supporting our people
with their mental health. This includes providing
a safe and open environment where colleagues
feel empowered to speak up about any mental
health challenges they may be facing. Therefore,
communicating our mental health provision to
employees remained a focus during 2021. We
marked Mental Health Awareness Week in the
UK and US, as well as World Mental Health Day,
with internal communications. All of these were
opportunities to remind employees about our
support offering:
• ournetworkof100mentalhealthfirstaiders.
• our partnership with market-leading mental
health app Unmind.
• our employee assistance programme
and private healthcare provision.
Our communications focused on the importance
of normalising discussions about mental health,
and included personal testimonials from our
ChiefTechnologyOfficerandawellbeing-
themed conversation between Jeff Davies,
GroupChiefFinancialOfficerandexecutive
sponsor for wellbeing, and Sir Nigel Wilson,
GroupChiefExecutiveOfficer,whichwas
published on our intranet.
Our efforts to support employee wellbeing were
recognised by the City Mental Health Alliance’s
award of an ‘Excelling’ accreditation mark in its
annual Thriving at Work assessment.
We take a data-driven approach to managing
workplace mental health. We draw insights from
a range of sources including our Voice surveys
(see page 50) and sickness and other employee
data and use these to inform our existing
strategies and policies on topics including
diversityandinclusion,stressandflexible
working, among others.
In response to employee feedback, we launched
ourfirstmenopausepolicyin2021,coveringall
employees in our core UK businesses and
setting out our approach to supporting those
experiencing the menopause.
Employee engagement
Keeping our people connected and informed
During 2021 we built on the progress made
during 2020 in keeping our employees informed
aboutlifeatLegal&Generalandconnectedwith
our corporate purpose. We continued to focus
on managing the impacts of Covid-19, with
communications to keep employees informed
about the practical measures taken to keep
them safe, and new messages developed and
communicated about our future hybrid ways
of working.
Ongoing remote or hybrid working has presented
the risk of erosion of organisational culture and,
to mitigate this, we increased our efforts to
communicate our corporate purpose to our
employees. We continued to deliver virtual town
halls, both at a divisional and group level, including
for our full-year results, and launched a new video
series,‘YourQuestionTime’,inwhichemployees
are invited to ask members of the Executive
Committee questions of interest. The recordings
are shared on the corporate intranet. Topics
covered include wellbeing, inclusive capitalism
and emerging technology.
Gender pay gap report
Our 2021 gender pay gap report is
available on our group website. See:
group.legalandgeneral.com/reports
We are committed to
supporting our people
with their mental health.
This includes not only
providing services and
help for those who suffer
directly with mental
ill-health, but also
creating a safe and open
environment where
employees feel supported,
connected and engaged
in meaningful work. It is
also important that we
tackle stigma by
empowering them to
speak up about any
mental health challenges
they are facing.”
Sir Nigel Wilson
GroupChiefExecutiveOfficer
Legal & General Group Plc Annual Report and Accounts 2021 49
Strategic report Governance Financial statements Other information
A sustainable business
Listening to our people’s views
During 2021 we issued two Voice surveys. With
our focus shifting from managing the acute
pandemic crisis to planning for a post-lockdown
future, we consulted with our employees through
bespoke ‘future of work’ surveys in March 2021.
The insights and data gathered, supplemented
by stakeholder interviews and engagement with
employee representatives, helped inform our
planning for the post-Covid workplace.
More information on employee engagement
can be found in an update from Lesley Knox,
our designated workforce director, on page 74.
Learning and development
Empowering our people to perform
at their best
We are committed to empowering our people
to perform at their best in their role today,
develop in their career tomorrow and connect
with peers to drive business performance.
This approach to learning and development
informed our activity during 2021. We routinely
identify opportunities for our people through:
• our strategic workforce planning process,
whichdefinesourfuturecapabilityneeds
and aligns these with our business and
financialplans.
• use of employee feedback, received both
through direct conversation with our talent
and development practitioners and through
our employee survey, Voice.
• applying qualitative and quantitative impact
analysis from previous learning interventions
and business metrics to shape future
programmes.
We apply this methodology to help us build a
data-led, consistent development experience
for all our employees. It also helps us to focus
on driving our four strategic outcomes:
• leaders who deliver change and business
results through inclusive leadership. This year,
we launched Thriving, a global leadership
programme, to three cohorts of leaders.
• employees who can access talent and
development experiences in a straightforward
way. We appointed a new managed learning
service provider to enable this.
• a workforce which consists of future-ready
professionals with the skills they need both
now and in future. In 2021, we rolled out the
CriticalCapabilitiesprogramme–seepage47
for more.
• a performance-driven culture characterised
by high levels of trust and challenge.
Supply chain
A sustainable supply chain
We believe that the sustainability of our supply
chain goes beyond risk avoidance: it is also
about positive impact, for people and the planet.
We recognise the importance that deepening
our understanding of the impacts our supply
chain can have, as well as improving procurement
professionals’ knowledge of sustainability. In
2021 we engaged third-party experts to help us
build and deliver training to procurement team
members and supplier relationship managers
to help us adapt what we procure and how we
source; scrutinise our procurement partners;
andinfluenceoursupplierstoimprove.
Alongside this activity, we took steps to improve
elements of our supply chain governance.
Wefurtherrefinedoursustainablesourcing
principles statement to aid ease of use, make the
case for the importance of sustainable sourcing
and provide tangible actions. This has created
what we consider to be a more compelling
document which will engage and inspire people
in our business to become part of our
sustainable sourcing mission.
We also completely redesigned our supplier
questionnaire on corporate responsibility. This
incorporates 35 questions on themes including
firms’carbonreductionintentions,deforestation,
the circular economy, living wages and working
hours,D&Iandsocialenterprises.Theuseof
questiontargeting,scoringandweighting–
alongsideguidancenotes–helpsustoassess
results and therefore pre-qualify and score
suppliers and ‘request for proposal’ responses.
The revised questionnaire will be used with our
supplier relationship management teams to
ensure that any in-contract risks are captured
and monitored, along with the maturity of our
supply chain.
In our November 2021 employee
survey (Voice), 83% of employees
either agreed or strongly agreed
with the statement “I can get the
support I need from my line
manager” (up 1% vs 2020). 70%
agreed or strongly agreed with
the statement “My overall level of
personal wellbeing is good” (a new
measure for 2021).
The operation of our core offices
is managed via a health and safety
system aligned with ISO45001 and
audited by the consultancy RPS.
A sustainable business
continued
Employee
satisfaction index
76%
(2020: 77%)
Purpose: Measures employee satisfaction in response
to the statement “I am happy working at Legal & General”
77% of employees took part in the fourth quarter Voice survey,
providing 27,684 individual comments. Our employee satisfaction
score fell by one point to 76 compared to October 2020, although
it remains above pre-pandemic levels (74 in March 2020). Our
research indicates that our employees have adapted well to
changes in the way we work, enabled by their line managers,
but work-life balance remains a challenge for some.
Legal & General Group Plc Annual Report and Accounts 202150 Strategic report
Responsible investing
Our position as a leading asset manager gives
usanopportunitytoinfluenceothercompanies’
approaches to meeting their ESG obligations.
Climate change remains a dominant theme of
engagement, as we continue to hold companies
to account on their progress to net zero.
Alongside this, we are committed to stepping
up action on the interrelated issues of
deforestation and biodiversity loss, as outlined
in our biodiversity policy and our deforestation
commitment.
In 2021, our investment management business
continued to actively engage in sustainability
policy dialogue with policy-makers and
regulators around the world, primarily with
leaders in UK, EU, US, Japanese and Australian
markets. Topics have ranged from strengthening
transparencyacrosssustainablefinanceandthe
improvement and harmonisation of disclosure
standards, to minority shareholder rights and
supporting policies that credibly deliver on the
transition to net zero.
We have further deepened our commitment to
gender diversity, taking it beyond the board level
to ensure the largest companies in the US and
UK also have a minimum of one female on the
Executive Committee. We will begin voting in line
with this expectation in 2022.
Following our support of the Parker review on
diversity on UK boards, 2022 will see us applying
voting sanctions against large UK and US
companies with no board members from
an ethnic minority background.
Good health is the basis on which social
wellbeing and economic prosperity are built.
In 2022, we will continue to promote awareness
and action on antimicrobial resistance, access
to medicine and access to nutrition. This includes
awillingnesstofileorco-fileshareholder
resolutions, as recently demonstrated at Moderna.
Inequality and health are interconnected; through
our ongoing work on income inequality we are
increasingly emphasising the importance of
employee wellbeing.
Publicly pre-declaring our vote intentions is
an important tool for our engagement activities.
2021wasthefirstyearLGIMcentralisedthe
reporting of our vote intentions in advance of
a company’s AGM.
We have become an active member of the
Supplier Diversity Council UK with the goal of
providing practical guidelines and support on
implementing a supplier diversity programme
which is inclusive of all.
Modern slavery and human rights
We believe that setting and progressing a clear
strategy, as well as working in partnership with
suppliers, is key to addressing and eliminating
modern slavery from supply chains.
We have created a risk assessment process
which we will complete for the remainder of our
supply chain, allowing us to categorise each key
supplier, strategic partner or contractor based on
modern slavery risk criteria.
Alongside Stronger Together, we delivered
training to 40 of our suppliers on spotting signs
of modern slavery in their own operations and
supply chain.
Our human rights policy, published in 2020, sets
out our position on these issues in our own
operation and our supply chain. We support the
principles set out in the UN Guiding Principles
on Business and Human Rights; the International
Bill of Human Rights; and the International
Labour Organization’s (ILO) Core Conventions.
Anti-bribery and corruption
We will not tolerate any person acting on behalf
of the group participating in any form of corrupt
practice and we will not accept, promise, offer
or give anything that may be considered a bribe.
Ourfinancialcrimeriskpolicyappliesacross
the group and mandates that controls are put
in place to detect and prevent 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.
Non-financial and sustainability
reporting statement
Under sections 414CA and 414CB
of the Companies Act 2006, we are
required to include in our strategic
report a non-financial information
statement.
This section of the strategic report
(pages 42 to 51) provides the
following information required
to be included in the non-financial
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 17)
• principal risks and how they are
managed (pages 52 to 59)
• non-financial key performance
indicators (pages 42 to 51).
Details of relevant policies, due
diligence processes, the outcome
of these policies and processes, and
our non-financial key performance
indicators are contained
throughout the strategic report.
Our non-financial and sustainability
reporting statement focuses on
the stakeholders and issues that
are important for us to deliver on
our purpose of inclusive capitalism.
Legal & General Group Plc Annual Report and Accounts 2021 51
Strategic report Governance Financial statements Other information
A sustainable business
Managing risk
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.
Aswellasmanagingfinancialandoperational
risks to our businesses, our risk framework
considers broader factors including the delivery
of good customer outcomes and the threats from
climatechange.Infocusingbeyondpurefinancial
measures of risk, we enable our businesses to
fulfiltheirsocialpurpose.
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.
Chris Knight
GroupChiefRiskOfficer
Finding what you need online
Detailed information can be found
in our risk management supplement.
Please visit:
group.legalandgeneral.com/reports
Our risk landscape
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.
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.
Our risk section is organised into the following subsections:
Risk appetite
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
limitsforourmaterialfinancialandother
risk exposures.
In focusing beyond pure
financial measures of risk,
our businesses can fulfil
their social purpose.”
Legal & General Group Plc Annual Report and Accounts 202152 Strategic report
Strategy Wemanageadiversifiedportfolioinwhichweacceptriskinthenormalcourseofbusiness
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.
Capital We aim to maintain an appropriate buffer of capital resources over the minimum regulatory
capital requirements.
Monitoring metrics: capital coverage ratios.
Earnings We have a low appetite for volatility of earnings; in particular volatility arising from risks
whereLegal&Generalhasmoreexposurethanthewidermarket.
Monitoring metric: maximum acceptable variance in earnings compared to plan.
Customer and
reputation
We treat our customers with integrity and act in a manner that protects or enhances
the group franchise.
Monitoring metric: customer and reputation risk dashboard.
Climate 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.
Liquidity We expect to be able to meet our payment and collateral obligations under extreme,
but plausible, liquidity scenarios.
Monitoring metric: minimum liquidity coverage ratio.
Risk appetite
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.
We set further risk tolerances covering our
specificexposurestomarket,credit,
insurance, and operational risks including,
where appropriate, limits on concentrations
andsignificantaggregationofrisks.Ourrisk
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 pension risk transfer
deal, we use our risk management framework
toassesstheriskprofileandpotential
rewards to ensure we continue to operate
within the ranges of acceptable risk taking
that we have set.
Our risk landscape
Our risk landscape comprises asset, insurance,
operational and business related risks. Our
largest risk exposures 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
inflationarealsoriskfactors.
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.
Insurance risks
Longevity, mortality and other insurance risks are transferred to us
by the customers of our pension risk transfer, annuities and protection
businesses. The period that customers continue their policies is also
importantforprofitability,asisourabilitytocontrolproductexpenses
in line with pricing assumptions.
Longevity risks arise in our pension risk transfer and retail annuity
businesses.Overtheyearswehavebuiltsignificantexpertisein
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.
Operational and business risks
Operational 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 operational risk.
Our risk management and internal control framework seeks to identify
areas of potential weakness that could otherwise lead to customer
detriment,reputationdamageorfinanciallossandensurethat
appropriate measures are in place to mitigate adverse outcomes.
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.
Our risk
management
approach
Seepage54
Legal & General Group Plc Annual Report and Accounts 2021 53
Strategic report Governance Financial statements Other information
Managing risk
We operate a three lines of defence risk
governance model:
• first,ouroperatingbusinessesare
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
forriskformpartofourfirstlinebusiness
management activity. For example, in
our pension risk transfer and annuities
businesses, we have a deep understanding
of longevity risk and the science of life
expectancy. LGIM, as one of the world’s
largest asset managers, has extensive
business expertise in managing credit risk.
Within our insurance business, as the UK’s
largest provider of individual life cover, we
have extensive knowledge of mortality and
morbidity risks.
• second, our risk oversight function under
thedirectionofourGroupChiefRiskOfficer.
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’sriskprofileandthesufficiencyofcapital
resources to sustain our business strategy over
the plan horizon. The process, which covers the
wholegroup,considershowthefinancialand
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. 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
financialmarkets,demographicsandthe
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
significanttransactions,includinglargepension
risk transfer deals.
Managing risk
continued
Our principal risks
Ourprincipalrisksanduncertaintiesreflectthosefactorsthatmaythreatenthebusinessmodel,future
performance, solvency or liquidity.
Risk appetite The documenting of the group’s overall attitude to risk and the ranges and limits
of acceptable risk-taking.
Risk taking
authorities
The formal cascade of our risk appetite to managers, empowering them to make decisions
withinclearlydefinedparameters.
Risk policies 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 Reviewandchallenge,bythegroupanddivisionalchiefriskofficerteams,ofhowwe
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 Group 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.
Risk management framework
Our risk management framework is summarised below.
Our risk landscape Principal risks and uncertainties Growth drivers
Asset risks Investment market performance and conditions in the broader economy
mayadverselyimpactearnings,profitabilityorsurpluscapital.
1, 2, 3
In dealing with issuers of debt and other types of counterparty the group
isexposedtotheriskoffinancialloss.
1, 2
Insurance risks
We fail to respond to the emerging threats from climate change for our
investment portfolios and wider businesses.
3, 6
Reserves and our assessment of capital requirements may require revision
as a result of changes in experience, regulation or legislation.
1,4
Operational and
business risks
Changes in regulation or legislation may have a detrimental effect
on our strategy.
1, 2, 4
New entrants may disrupt the markets in which we operate
1, 3, 5
A material failure in our business processes or IT security may result
inunanticipatedfinanciallossorreputationdamage.
5
The success of our operations is dependent upon the ability to attract
andretainhighlyqualifiedprofessionalpeople
5
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
Seepages10–11forfurtherdetails.
Legal & General Group Plc Annual Report and Accounts 202154 Strategic report
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.
Thisreflectsthegroup’sbusinessandinvestment
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 strategic factors detailed on pages
10 and 11, as well as 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 its viability.
Period of viability assessment
While the Board has considered adopting a
longerperiod,itbelievesthatfiveyearsisthe
most appropriate time-frame over which we
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:
• Wehavereasonableclarityoverafive-year
period, allowing an appropriate assessment
of our principal risks to be made; and
• 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 potentially evolving economic
environment and 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
considerstheprofitability,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 at 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 2021, resulting
inourcurrentfive-yearbusinessplan.
How we assessed our viability
The Board regularly considers the potential
financialandreputationalimpactofthegroup’s
principal risks (as set out on pages 56 to 59)
on our ability to deliver the business plan. We
regularlyrefreshourprincipalriskstoreflect
current market conditions and changes in our
riskprofile,andasaresultwehaveincludedthe
impact of climate change as one of our principal
risks. In its assessment of viability, not just
long-term prospects, the Board has taken into
consideration all of the group’s principal risks,
asanysignificantchangeintheriskprofileor
outlook of those principal risks, or inadequate
mitigation,couldhaveasignificantimpact
on the group’s viability over the assessment
time-frame.
Quantitativestressandscenariotestingis
undertaken to enable the Board to consider
the group’s ability to respond to a number of
plausible individual and combined shocks, both
financialandoperational,whichcouldadversely
impacttheprofits,capitalandliquidityprojections
in the group plan. For example, during 2021, the
Boardconsideredtheimpactsofhigherinflation
and interest rates, as well as a severe market
event. The severe market event was set with
reference to the Bank of England latest ‘Annually
CyclicalScenario’,butmodifiedtoreflectthe
group’sunderlyingriskprofile.Thescenariois
broadly based on the Global Financial Crisis
of 2008 for market risks exposures and 2002
experience for rating transitions (downgrades
and spreads). In addition, we have continued to
consider the potential implications of Covid-19,
and related longer-term trends, to our business
model.
The scenarios tested showed that the group
wouldcontinuetohavesufficientheadroom
tomaintainviabilityoverthefiveyearplanning
period, after taking into account mitigating
actions to manage the impacts on capital and
liquidity. This includes maintaining the group’s
current dividend policy under the late cycle
market shock scenario, but this and other
commitments would be reassessed if the
circumstances determined this to be necessary
over the longer term. In response to a potential
severe economic downturn, credible buffers
and a suite of management actions are at the
group’s disposal to maintain resilience 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/external
events causing falls in business volumes, and
severely adverse claims experience. The results
confirmedthatthegroupremainsresilient
to extreme stresses as a result of the risk
management system in place and the diverse
range of mitigating actions available, such as
the raising of capital or reduction in the payment
of dividends.
Our conclusion on viability
Following this assessment, taking into account
the group’s current position and principal risks,
theBoardcanconfirmthatithasareasonable
expectation that the group will continue in
operation and meet its liabilities, as they fall due,
overaviabilityhorizonoffiveyears.TheBoard’s
fiveyearviabilityandlonger-termprospects
assessment is based upon information
known today.
Group Board
viability statement
Legal & General Group Plc Annual Report and Accounts 2021 55
Strategic report Governance Financial statements Other information
Group Board viability statement
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
and15to17ofthefinancialstatements.
Risks and uncertainties
Link to
strategy Risk management Outlook
Investment market performance and
conditions in the broader economy may
adverselyimpactearnings,profitability
or surplus capital.
Theperformanceandliquidityoffinancial
and property markets, interest rate
movementsandinflationimpactthe
value of investments we hold in
shareholders’ funds and to meet the
obligations from insurance business; the
movement in certain investments directly
impactsprofitability.Interestrate
movementsandinflationcanalsochange
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 II balance sheet, potentially
impacting capital requirements and
surplus capital. Falls in investment values
can reduce our investment management
fee income.
1,2,3
We cannot eliminate the downside impacts
onourearnings,profitabilityorsurplus
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
toremoveinterestrateandinflationriskon
afinancialreportingbasis.
Our ORSA is integral to our risk
management approach, supporting
assessmentofthefinancialimpactsofrisks
associated with investment market volatility
and adverse economic scenarios for our
Solvency II balance sheet, capital
sufficiency,andliquidityrequirements.
Whilst global and UK economic activity is
returning to pre-pandemic levels, there
remainssignificantuncertaintyinrespectof
theimpactsofinflationonthesustainability
of the recovery, particularly should current
inflationarypressuresbecomedeepseated
or from misjudged central bank monetary
policies in response. Financial markets, as well
as being impacted by the economic outlook
also continue to be susceptible to shocks and
re-appraisal of asset values from a range of
other factors including geo-political crisis
in eastern Europe; a collapse in China’s
property sector; and the emergence of further
Covid-19 variants that may be resistant to
current vaccines. Within the UK, uncertainty
persists in certain elements of commercial
property markets, and within our construction
businesses supply chain and labour shortages
are evolving risks. Pages 178, 169 and 171
respectively provide sensitivities to interest
rates and exposures to worldwide equity
markets and currencies.
In dealing with issuers of debt and other
types of counterparty, the group is
exposedtotheriskoffinancialloss.
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 Solvency II balance sheet
surplus, despite already setting aside
significantcapitalforcreditrisk.
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.
1, 2
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 default and
movements in the value of security. We
manage our reinsurer exposures dealing
only with those with a minimum A- rating at
outset, 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 Solvency II 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.
Although the wider economy is recovering
from the effects of global lockdowns, a range
of industries have been directly impacted by
Covid-19 disease control measures including
the leisure, transport, travel and retail consumer
cyclical sectors, with the risk of downgrade
and default remaining particularly as
governments withdraw economic support
packages.Aperiodofsustainedinflationwith
increases in interest rates suppressing economic
activity in sectors reliant on discretionary
spending could compound the effects.
Covid-19 related impacts for reinsurance
counterparties also remains a risk factor, albeit
we assess strongly rated reinsurer default to
be a more remote risk.
Details of our credit portfolios are on pages
172 to 174.
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
Legal & General Group Plc Annual Report and Accounts 202156 Strategic report
Risks and Uncertainties
Link to
strategy Risk management Outlook
We fail to respond to the emerging threats
from climate change for our investment
portfolios and wider businesses.
Asasignificantinvestorinfinancial
markets, commercial real estate and
housing, we are exposed to climate-
related transition risks, particularly should
abrupt shifts in the political and
technological landscape impact the value
of those investment assets associated
with higher levels of greenhouse gas
emissions. Our interests in property
assets may also expose us to physical
climate change-related risks, including
floodrisks.Wearealsoexposedtothe
risk of adverse perceptions of the group
and climate risk related litigation should
our responses not align with environment,
social and governance rating
expectations.
3, 6
We recognise that our scale brings a
responsibility to act decisively in positioning
our balance sheet to the threats from
climate change, and as set out on pages 43
to 45, we continue to embed assessment of
climate risks in our investment process,
including in the management of real assets,
and broader risk management framework.
At the aggregate level we measure the
carbon intensity targets of our own
investment portfolios, and along with
specificinvestmentexclusionsforcarbon
intensive industries, we have set overall
reduction targets aligned with a 1.5°C
interpretation of the ‘Paris’ Agreement,
including setting near term science based
targets to support our long term emission
reduction goals. We also 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.
Following COP26, we are still encouraged
about the possibility of limiting global
temperature rises to 1.5°C. However, this will
require societal change on an unprecedented
scale over the next decade. We are dependent
on the delivery of policy actions and the
climatereductiontargetsofthefirmswe
invest in. The actions that the world is taking
will also to some extent inform the actions that
we can take.
Climate change and failure to transition to a
low-carboneconomyremainsasignificant
risk that we believe has still to be fully priced in
byfinancialmarkets,withdelaysinresponding
to the threats increasing the risk of sudden late
policy action, leading to potentially large and
unanticipated shifts in asset valuations for
impacted industries.
Reserves and our assessment of capital
requirements may require revision as
a result of changes in experience,
regulation or legislation.
The pricing of long-term business
requires the setting of assumptions
for long-term trends in factors such as
mortality, lapse rates, valuation interest
rates, expenses and credit defaults as
well as the availability of assets with
appropriate returns. Actual experience
may require recalibration of these
assumptions, increasing the level
of reserves and impacting reported
profitability.
Management estimates are also required
in the derivation of Solvency II capital
metrics. These include modelling
simplificationstoreflectthatitisnot
possible to perfectly model the external
environment.
Forced changes in reserves can also
arise from regulatory or legislative
intervention impacting capital
requirementsandprofitability.
1,4
Weundertakesignificantanalysisofthe
variables associated with writing long-term
insurance business to ensure that a suitable
premium is charged for the risks we take on,
and that reserves continue to remain
appropriate for factors including mortality,
lapse rates, valuation interest rates, and
expenses, as well as credit default in the
assets backing our insurance liabilities.
We also seek to pre-fund and warehouse
appropriate investment assets to support
the pricing of long-term business.
In seeking a comprehensive understanding
of longevity we are evaluating how Covid-19
will impact wider trends in life expectancy.
In our protection business, as part of our
continuous evolution of our underwriting
capabilities, we are seeking to ensure we
fairly assess Covid-19 as a risk factor and
that our reserves remain appropriate.
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
significantvariationsinlifeexpectancy
and mortality.
Althoughvaccineshavehadasignificant
effect in reducing mortality rates from the
most recent variant of Covid-19, uncertainty
remains to future virus mutations and their
virulence,thelong-termefficacyofvaccines
and the effects of ‘long Covid’ on morbidity.
The deferral of some non-Covid-19 medical
treatments during the course of the pandemic
may also impact mortality and morbidity rates
in our UK and US markets.
Alongside Covid-19 related matters, other
risk factors that may impact future reserving
requirements include a dramatic advance
in medical science, beyond that anticipated,
requiring adjustment to our longevity
assumptions; and the emergence of new
diseases and changes in immunology
impacting mortality and morbidity
assumptions.
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
Legal & General Group Plc Annual Report and Accounts 2021 57
Strategic report Governance Financial statements Other information
Principal risks and uncertainties
Risks and uncertainties
Link to
strategy Risk management Outlook
Changes in regulation or legislation may
have a detrimental effect on our strategy.
Legislationandgovernmentfiscalpolicy
influenceourproductdesign,theperiod
of retention of products and required
reserves for future liabilities. Regulation
definestheoverallframeworkforthe
design, marketing, taxation and
distribution of our products, and the
prudentialcapitalthatwehold.Significant
changes in legislation or regulation may
increase our cost base, reduce our future
revenuesandimpactprofitabilityor
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 re-interpretation of regulation
over time, having a retrospective effect
on in-force books of business, impacting
future cash generation.
1, 2,4
We are supportive of regulation in the
markets in which we operate where it
ensurestrustandconfidenceandcanbe
a positive force on business. We seek to
actively participate with government and
regulatory bodies to assist in the evaluation
of change so as to develop outcomes that
meet the needs of all stakeholders.
Internally, we evaluate change as part of
our formal risk assessment processes,
with material matters being considered
at the Group Risk Committee and the
Group Board.
Our internal control framework seeks to
ensure ongoing compliance with relevant
legislation and regulation. Residual risk
remains, however, that controls may fail
orthathistoricalfinancialservicesindustry
accepted practices may be reappraised by
regulators, resulting in sanctions against
the group.
Regulatorydrivenchangeremainsasignificant
risk factor across our businesses. Areas
of future change include HM Treasury’s
consultation on Solvency II and the Future
Regulatory Framework post Brexit; and the
UK’sfinancialconductregulator’sproposal
for a new Consumer Duty will place obligations
onfirmstoevidencethedeliveryofgood
customer outcomes. Regulatory focus also
continues on operational resilience, the
management of third parties and the transition
riskspresentedtothefinancialservicesector
from climate change.
We are also monitoring potential for changes
inUKfiscalpolicyarisingfromtheneedto
fund government borrowing in response to
Covid-19; and the likelihood of a global move
towards a higher tax environment (see Tax
review page 28). We also continue to prepare
in readiness for IFRS 17, which will introduce
anewsuiteoffinancialreportingmetrics.
Within our property construction businesses,
the Building Safety Bill and the Environment
Act 2021 will also introduce new operating
requirements.
New entrants 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. It is possible that
alternativedigitallyenabledfinancial
services providers emerge with lower
cost business models or innovative
service propositions and disrupt the
current competitive landscape. We are
also cognisant of competitors who may
have lower return on capital requirements
or be unconstrained by Solvency II.
1, 3, 5
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 developing our
digital platforms. On page 22 we illustrate
some of the activities underpinning the
digital transformation of our businesses.
As set out on pages 38 and 39 we have a
number of direct investments in strategically
important market segments to enhance
delivery of our core businesses including
workplacebenefits,insurtech,mortgages,
health and care and equity funding. LGIM
continue to invest in technology to achieve
the resilience and agility critical to future
success.
The need to adjust to living with Covid-19 has
seen the acceleration of a number of trends,
including greater consumer engagement in
digital business models and on-line servicing
tools. It has also seen businesses like ours
transform working practices, and we expect
to continue to invest in automation, using
roboticstoimprovebusinessefficiency.
Our businesses are well positioned for changes
in the competitive landscape that may arise
fromtherolloutofdefinedbenefit‘superfund’
consolidation schemes, pension dashboards
and ‘collective’ pension scheme arrangements.
We also continue to be supportive of the
opportunity for reform of the Solvency II
capital regime post-Brexit.
Principal risks and uncertainties
continued
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
Legal & General Group Plc Annual Report and Accounts 202158 Strategic report
Risks and uncertainties
Link to
strategy Risk management Outlook
A material failure in our business
processes or IT security may result
inunanticipatedfinanciallossor
reputational damage.
We have constructed our framework of
internal controls to minimise the risk of
unanticipatedfinanciallossordamage
to our reputation. However, no system of
internal control can completely eliminate
theriskoferror,financialloss,fraudulent
actions or reputational damage. We are
also inherently exposed to cyber threats
including the risks of data theft and fraud.
There is also strong stakeholder expectation
that our core business services are
resilient to operational disruption.
5
Our risk governance model, outlined on
page 54, seeks to ensure that business
management are actively engaged in
maintaining an appropriate control
environment, supported by risk functions
ledbytheGroupChiefRiskOfficer,with
independent assurance from group internal
audit. The work of the Group Audit Committee
in the review of the internal control system is
set out on pages 86 to 91.
Whilst we seek to maintain a control
environment commensurate with our risk
profilewerecognisethatresidualriskwill
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.
Although Covid-19 lockdowns in 2021 had some
impact for our business operations, the majority
of our business services have operated
normally, and we expect to transition in 2022
toahybridoffice:homeworkingenvironment
that will seek to maintain high standards of
customer service and internal control.
We remain alert to evolving operational risks and
continue to invest in our system capabilities,
including those for the management of cyber
risks, to ensure that our business processes
are resilient. We are also 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.
The success of our operations is
dependent on the ability to attract and
retainhighlyqualifiedprofessionalpeople.
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 data and digital skill sets with other
business sectors as well as our peers.
5
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
theactiveidentificationanddevelopment
of talent within our workforce, and by
highlighting our values and social purpose,
promotingLegal&Generalasagreatplace
to work. We also engage our people on new
ways of working under our hybrid
home:officemodelandareinvestingin
technology and upgrading our buildings
to support a range of working styles.
Competition for talent across the full range
ofcapabilitiesandqualificationsisintense
and demands that the group offers competitive
compensation arrangements as well as
opportunities for development and an attractive
work environment. People with skills in areas
such as technology and digital are particularly
sought after across many business sectors,
including those in which we operate. We also
recognise the risks posed by the outlook for
inflationinsalaryexpectationsacrossthe
wider employment market. Market-wide
approaches to hybrid working are still evolving,
and although we believe we are taking the right
steps, there remains a risk that our model
does not align with the expectations of those
we seek to attract or retain.
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
Legal & General Group Plc Annual Report and Accounts 2021 59
Strategic report Governance Financial statements Other information
Principal risks and uncertainties
60 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
Box Makers Yard is a build to rent scheme in
Bristol. There are 376 private and affordable
apartments purpose-designed and built to support
theflexiblelifestyleoftoday’srenters.Residents
havethebenefitofagym,workfromhomespace,
private dining rooms, two roof terraces and
superfast broadband.
The c.£95 million development welcomed the
firstresidentsinJanuary2021andwasfullylet
within eight months.
Governance
Board of directors 62
Executive Committee 64
Letter from the Chairman 66
Stakeholder engagement 68
Major decisions and discussions during 2021 73
Employee engagement 74
Governance report 75
Committed to the highest standards 80
Nominations and Corporate
Governance Committee report 82
Audit Committee report 86
Group Risk Committee report 92
Directors’ report on remuneration (DRR) 94
DRR quick read summary 96
Remuneration policy 100
Annual report on remuneration 102
Leading
investor in UK
build to rent
Built for rent,
designed for life
61Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Governance
Board of directors
Sir John Kingman
Chairman
Appointed October 2016
Johnbringsfinancialsector,government
and regulatory experience to the Board.
John previously served as Second
Permanent Secretary to HM Treasury,
where he had responsibility for the Treasury’s
economics ministry functions and for
policyrelatingtobusiness,financial
services and infrastructure. John was
closely involved in the UK response to the
financialcrisis,handlingtheresolutionof
Northern Rock and leading negotiations
with RBS, Lloyds and HBOS on their
£37billionrecapitalisation;hewasthefirst
Chief Executive of UK Financial Investments
Ltd(UKFI);andfrom2010–2012,John
was Global Co-Head of the Financial
Institutions Group at Rothschild. From 2016
–2021hewasthefirstChairofUKResearch
&Innovation,whichoverseesGovernment
science funding of c.£8 billion a year.
Other appointments:
• National Gallery (Deputy Chair
and Trustee)
• Tesco Bank (Chair)
Committee membership key
Audit
NominationsandCorporate
Governance
Remuneration
Risk
Technology
CommitteeChairman
Other Board members during the
year were:
Julia Wilson retired from the Board
on 31 March 2021.
Sir Nigel Wilson
Group Chief Executive Officer
Appointed CFO September 2009;
appointed CEO June 2012
Nigel brings strong leadership skills to the
Board. Nigel was knighted for services to
Finance and Regional Development in the
2022 New Year’s Honours List. Nigel was
awarded City AM’s ‘Business Personality
of the Year’ in 2014. Nigel also won the
‘Most Admired Leader’ award at Britain’s
Most Admired Companies Awards 2017.
In 2019 Nigel won ‘Change Maker of the
Year’ at the Seven Hills Change Makers
Summit. Nigel was Chairman of the
Investment Association’s review of Executive
Pay and the government’s review of Mission
LedBusiness(both2016–2017).Hewas
a member of the government’s Patient
Capital Review Industry Panel and a
Commissioner in the Resolution Foundation’s
Intergenerational Commission (both 2017
–2018).HeiscurrentlyonthePrime
Minister’s Build Back Better Council and
Levelling Up Council.
Jeff Davies
Group Chief Financial Officer
Appointed March 2017
Jeff was appointed Group Chief Financial
OfficerinMarch2017.Hebringsawealth
of insurance experience, having previously
servedasaseniorpartnerofErnst&Young
LLP (EY) and led its European risk and
actuarial insurance services. Prior to joining
EY in 2004, he held a number of senior
actuarialrolesatSwissReLife&Health.
Jeff is a Fellow of the Institute of Actuaries.
Philip Broadley
Senior Independent Director
Appointed July 2016; Senior Independent
Non-Executive Director from 31 March
2021
Philip has extensive insurance experience
having spent over 14 years in senior roles
in insurance, including as Group Finance
Director at Old Mutual plc and prior to that
as Group Finance Director of 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 the Senior
Independent Director at AstraZeneca PLC
and is a Fellow of the Institute of Chartered
Accountants in England and Wales.
Other appointments:
• AstraZeneca PLC (Senior Independent
Director)
• Eastbourne College (Chairman of
Governors)
• LondonLibrary(Treasurer&Trustee)
Henrietta Baldock
Independent Non-Executive Director
Appointed October 2018
Henrietta was appointed to the Board in
October 2018 and has been Chair of the
Group’s principal operating subsidiary,
Legal and General Assurance Society
Limited, since March 2018. She has
extensiveknowledgeofthefinancial
services and insurance sectors through her
25 years’ experience in investment banking,
most recently as Chair of the European
Financial Institutions team at Bank of
America Merrill Lynch.
Other appointments:
• Investec Plc (Non-Executive Director)
• Investec Bank Plc (Non-Executive
Director)
• InvestecWealth&InvestmentLimited
(Non-Executive Director and Chair)
• Hydro Industries Limited (Non-
Executive Director)
Nilufer von Bismarck OBE
Independent Non-Executive Director
Appointed May 2021
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
internationalfinancialinstitutions.Aswell
as a deep and extensive understanding
ofthefinancialservicessector,Niluferhas
considerable experience across a range of
other industries and sectors, including real
estate,greeninfrastructureandfintech.
Nilufer was appointed as the designated
non-executive director for climate in
January 2022 and will take on the role
of designated workforce director in
April 2022.
Other appointments:
• Into University (Trustee)
62 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
Lesley Knox
Independent Non-Executive Director
Appointed June 2016
Lesley brings a wealth of international,
strategicandfinancialservicesexperience
having spent over 18 years in senior roles in
financialservices,includingwithKleinwort
Benson and the Bank of Scotland. Lesley
previously served as Chair of Alliance Trust
PLC and as Senior Independent Director
at Hays plc. Lesley will have served as the
designated workforce director from 2018
until April 2022. Lesley was appointed as
Chair of the company’s principal subsidiary
Legal&GeneralInvestmentManagement
(Holdings) Limited in July 2019.
Other appointments:
• 3i Group plc (Senior Independent
Director)
• Dovecot Studios Limited (Non-
Executive Director)
• Genus Plc (Senior Independent
Non-Executive Director)
• Grosvenor Group Limited Pension Fund
(Trustee)
• National Galleries of Scotland
Foundation (Trustee)
George Lewis
Independent Non-Executive Director
Appointed November 2018
Georgehassignificant,broad,executive
andprofessionalexperienceinfinancial
services, with a strong focus on global
asset management. George joined the
Royal Bank of Canada in 1986, serving in
variousfinancialandwealthmanagement
roles. He was a member of RBC’s Group
ExecutiveBoard2007–2015,with
responsibility for RBC’s wealth, asset
management and insurance segments.
In addition to his current appointments,
George served on the boards (and chaired
the Audit and Risk Committees) of Ontario
Power Generation, Enbridge Income Fund
and Cenovus Energy Inc.
Other appointments:
• Ontario Teachers’ Pension Plan
(Non-Executive Director)
• AOG Group (Non-Executive Director)
Toby Strauss
Independent Non-Executive Director
Appointed January 2017
Toby was appointed to the Board in
January 2017 and brings extensive
insurance experience to the Board
following an executive career in UK
financialserviceswhichincludedroles
as Group Director of Insurance and Chief
Executive of Scottish Widows at Lloyds
Banking Group and, prior to that, Chief
Executive of Aviva UK Life.
Other appointments:
• Age UK (Chair)
• Brewin Dolphin Holdings Plc (Chair)
Ric Lewis
Independent Non-Executive Director
Appointed June 2020
Ric was appointed to the Board in June 2020
andbringssignificantinvestment
management experience with over 25 years
in the sector. Ric is the founder, Executive
ChairmanandChiefInvestmentOfficerof
Tristan Capital Partners, a pan-European
realestateinvestmentmanagementfirm
with over €13 billion in assets under
management.
Other appointments:
• Dartmouth College (USA) (Trustee)
• Royal National Children’s SpringBoard
Foundation (Director)
• The Black Heart Foundation (Trustee,
Chairman and Founder)
• Eastside Young Leaders’ Academy
(Patron)
• Black Equity Organisation (BEO) (Trustee)
• Tappit Technologies (UK) Ltd
(Non-Executive Director)
• Beam Up Ltd (Non-Executive Director)
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.
Laura Wade-Gery
Independent Non-Executive Director
Appointed January 2022
Laura was appointed to the Board in
January 2022. She 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 CEO of Tesco.com and Tesco Direct.
She was also previously an advisor to the
GovernmentDigitalService2012–2016
and a Non-Executive Director of the John
Lewis Partnership 2017.
Other appointments:
• British Land Plc (Non-Executive Director)
• NHS Digital (Chair)
• NHS England (Non-Executive Director)
Tushar Morzaria
Due to join the Board as Independent
Non-Executive Director on 27 May
2022
Tushar is currently (until 22 April 2022) the
Group Finance Director at Barclays Plc and
hasextensivefinancialservicesexperience.
Prior to his role at Barclays, he was the Chief
FinancialOfficerofGlobalInvestmentBanking
atJPMorganChase&Coandbeforethat,held
various roles at SG Warburg, Credit Suisse
and JPMorgan Chase. Tushar will retire from
his position at Barclays Plc prior to joining
Legal&General.Tusharhasextensive
knowledgeofstrategicfinancialmanagement,
investment banking and operational and
regulatory relations and a deep understanding
of equity and debt capital management.
Other appointments:
• BP plc (Non-Executive Director)
• 100 Group Main Committee (Member)
• Sterling Risk Free Reference Rates
Working Group (Chair)
Board appointment post year end
63Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Board of directors
Executive Committee
Bernie Hickman
Chief Executive Officer,
Legal & General Retail
During the reporting year, Bernie was CEO
ofLegal&GeneralInsurance,responsible
for the Insurance and Fintech businesses
in the UK and US. Since 1 January 2022,
BerniehasbeentheChiefExecutiveOfficer
ofLegal&GeneralRetail,responsiblefor
the Retail and Workplace businesses within
thegroup.BerniejoinedLegal&Generalin
1998 from Commercial Union (now Aviva).
Between 2005 and 2010 he was the
Managing Director of Retail Protection
during which time he launched the UK
Protection digital platform, OLP Connect,
which provides market-leading self-service
functionality and high levels of straight
through processing. Bernie became MD
of Retail Retirement in 2014 and the CEO
co-founderofLegal&GeneralHome
Finance in 2015, when he led the group’s
entry into the lifetime mortgage market.
He has also held the positions of Group
Financial Controller, Investor Relations
Director and Solvency II Managing Director.
Laura Mason
Chief Executive Officer,
Legal & General Capital
LaurahasbeenChiefExecutiveOfficer
ofLegal&GeneralCapitalsinceJuly2021.
ShewaspreviouslyCEOofLegal&General’s
Institutional Retirement business from
January 2018 to June 2021. Laura joined
Legal&Generalin2011andhasservedin
several roles since then, including as part of
the senior management team responsible
forsettingupLegal&GeneralCapitalover
2014–2015.Lauraisaqualifiedactuary
and spent eight years at Towers Watson
as a consultant to major UK life insurers.
Laura has a First Class Honours Degree
in Engineering Science from University of
Oxford, and a PhD in Engineering Science
(Neural Networks and Signal Processing)
also from the University of Oxford.
Andrew Kail
Chief Executive Officer,
Legal & General Retirement Institutional
During the reporting year, Andrew was
CEOofLegal&General’sRetailRetirement
business. Since 1 January 2022, Andrew
hasbeentheChiefExecutiveOfficerof
Legal&General’sInstitutionalRetirement
business.PriortojoiningLegal&General
in March 2021, Andrew was a senior partner
at PricewaterhouseCoopers (PwC). He has
30 years’ experience working with a wide
rangeoffinancialservicescompaniesin
audit, regulation, transactions and
performance improvement. Within PwC
hewastheleaderofthefinancialservices
practice and brings huge experience from
across the industry including expertise in
regulation, risk and technology. He is a
Chartered Accountant and an Economics
graduate from the University of Manchester.
Other business unit Chief Executive Officers (CEOs) and PresidentsSir Nigel Wilson
Group Chief Executive Officer
See Board of directors pages 62 to 63.
Jeff Davies
Group Chief Financial Officer
See Board of directors pages 62 to 63.
Geoffrey Timms
Group General Counsel and
Company Secretary
See Board of directors pages 62 to 63
Other Executive Committee members
during the year:
Simon Gadd stepped down as Group
ChiefRiskOfficerinMarch2021and
took on the role of Group Climate
Change Director.
Michelle Scrimgeour
Chief Executive Officer, Legal & General
Investment Management
Michelle was appointed as Chief Executive
OfficerofLegal&GeneralInvestment
Management in July 2019. Michelle has
extensive asset management experience
across investments, distribution, product,
operations, risk and control functions.
Michelle has spent her career at major
globalfirms,mostrecentlyasChief
ExecutiveOfficer,EMEA,atColumbia
Threadneedle Investments. Prior to that,
MichellewasChiefRiskOfficeratM&G
InvestmentsandDirectorofM&GGroup
Limited, joining in 2012 from BlackRock.
Michelle held a number of leadership
positions at BlackRock, and previously
at Merrill Lynch Investment Managers.
Michelle is on the Board of the Investment
Association, a member of the FCA’s
Practitioner Panel and a member of the
Asset Management Taskforce. Michelle is
co-chair of the COP26 Business Leaders
Group. Michelle holds a BA (Hons) in
FrenchfromtheUniversityofSheffield.
Kerrigan Procter
President of Asia,
Legal & General Group
Kerrigan has been President of Asia,
Legal&GeneralGroupsinceJuly2021.
HewaspreviouslyChiefExecutiveOfficer
ofLegal&GeneralCapitalfromJanuary
2018 to June 2021. He has group-wide
experience with in-depth knowledge of the
workings of the group’s business divisions
fromhisrolesasCEOoftheLegal&General
Retirementbusinessdivision2013–2017,
andHeadofSolutionsatLegal&General
InvestmentManagement2006–2012,
where he was responsible for liability-driven
investmentandfundsolutionsfordefined
benefitanddefinedcontributionpension
schemes across Europe and the US. Prior
to joining the group, he worked at RBS in
thefinancialmarketsdivisionwhereheheld
several roles. Kerrigan started his career
in 1994 with EY Corporate Finance before
moving to Mercer. He is a Fellow of the
Institute of Actuaries and has a PhD in
number theory from King’s College, London.
64 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
Chris Knight
Group Chief Risk Officer
ChrishasbeentheGroupChiefRiskOfficer
since May 2021. Chris was previously the
ChiefExecutiveOfficerofLegal&General’s
Retail Retirement business. Prior to that
hewastheChiefFinancialOfficerof
Legal&General’sRetirementdivision
where he was responsible for driving the
financialresultsofthebusiness.Chrishas
also served as the Finance Director of the
group’s UK Savings and Protection
business.Chrisisaqualifiedactuaryand
has had a 32-year career in the UK and
internationalfinancialservicesmarkets.
HejoinedLegal&Generalin2009.
John Godfrey
Group Corporate Affairs Director
John has worked in the City for more than
36 years, providing advice on corporate
affairs and communications to US,
EuropeanandJapanesefinancial
institutions.HejoinedLegal&General
as Group Communications Director in
2006, becoming Corporate Affairs Director
followingtheglobalfinancialcrisis.Since
then, his responsibilities have variously
included communications, public affairs
and policy, corporate social responsibility
andbrand.In2016,heleftLegal&General
to work in government as head of the
Prime Minister’s Downing Street Policy
Unit, returning to the Company in
September 2017. He is a Financial
Inclusion Commissioner.
Emma Hardaker-Jones
Group Human Resources Director
EmmajoinedLegal&GeneralasGroupHR
Director in 2017. Emma’s responsibilities
include Group Real Estate and Internal
Communications as well as membership
of a number of our subsidiary boards.
Emma’s previous role was as Global HR
Director and Board Director at PA
Consulting, co-leading the successful
sale of 51% of PA Consulting to The Carlyle
Group in 2015. Prior to PA Consulting,
Emma spent a number of years as Group
Head of Talent and Resourcing at BP,
driving change across the 100 countries
in which BP operates. Emma has also held
roles at Prudential and the Bank of England
and was the co-founder of a dot-com
start-up, Skillvest.com. Emma has
significantinternationalexperience
having worked in Europe, North America,
Asia and Africa.
Stephen Licence
Group Chief Internal Auditor
StephenjoinedLegal&Generalin2014
having previously been Emerging Markets
Chief Internal Auditor at RSA Insurance
where he was responsible for the internal
audit activity in the group’s businesses
across Latin America, Asia, Middle East
and Eastern Europe. His 26 years’ internal
audit experience has included life, general
and healthcare insurance in both
Legal&GeneralandtheLloyd’sofLondon
market. He was also previously an audit
consultant at the London Stock Exchange
Group. Stephen is a Chartered Member
of the Institute of Internal Auditors.
Additional Executive Committee members
The role of the Executive
Committee
The Group Executive Committee (Exco),
chaired by the Group Chief Executive,
brings together the heads of
Legal&General’sbusinessunitswith
the Executive Committee members
shown on these pages. Exco is
responsible for the day-to-day
implementation of strategy agreed
by the Board. The Exco meets regularly
to ensure continued cooperation
between the business units and the
effective adoption of our culture, a key
focus for the group. Exco also monitors
andmanagesrisk,ensuresefficient
operational management and
adherence to compliance and
addresses key issues such as diversity,
the environment and corporate social
responsibility. Exco has regular updates
from relevant external advisers and
partners to develop its knowledge and
outlook.
65
Strategic report Governance Financial statements Other information
Executive Committee Legal & General Group Plc Annual Report and Accounts 2021
proud to see Michelle Scrimgeour, Chief Executive,
Legal&GeneralInvestmentManagement,play
such a central role in COP26 as co-chair of the
COP26 Business Leaders Group.
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 this year as the business has
continued to navigate the challenges presented
by Covid-19 to ensure our business can continue
toflourish.Ourgovernanceframeworkhas
supported us well to be able to continue to make
agile and robust decisions throughout this period.
For the year ended 31 December 2021, we were
required to measure ourselves against the 2018
UK Corporate Governance Code (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, save in respect
of pensions alignment required under Code
provision 38 where we will achieve full
compliance by 31 December 2022 as further
detailed on page 103. Further details on our
compliance with the Code and how we have
applied the various principles can be found
on pages 80 to 81.
Annual General Meeting
In light of the UK Government’s Covid-19
restrictions in 2021, and with the wellbeing of
our shareholders and colleagues as our primary
concern, it was with much regret that we were
unable to hold a physical 2021 Annual General
Meeting (AGM). We were however very pleased
to be able to invite shareholders to join the AGM
virtually via an online video platform. Through
the platform, shareholders were able to view
a live video stream of our AGM and participate in
aliveQ&AsessionwiththeBoard.Iamdelighted
that a number of our shareholders were able to
join us virtually on the day to hear from myself,
Sir Nigel Wilson and our Committee Chairs
and I would like to thank those who participated
inourliveQ&Asessionorwhosubmitted
questions in advance.
The Board also recognises that the AGM
presents an important opportunity for our
shareholders to get to know newer Board
members and to understand the skills and
experience that they bring to the Board. In
the absence of a physical meeting, we made
available on our website a recorded interview
with our two newest non-executive directors,
Ric Lewis and Nilufer von Bismarck OBE.
We hope that shareholders found this useful
and informative.
The Board also took the opportunity to ask
shareholders to support a proposal to change
our articles of association to allow us to hold
hybrid AGMs in the future. A hybrid AGM allows
shareholders to attend and vote either in person
or virtually. The Board recommended the change
in order to allow our shareholders to have greater
flexibilityindecidinghowtheywishtoparticipate
in our AGMs and with a view to promoting greater
participation and engagement. We are pleased
that shareholders supported this proposal and
welookforwardtoholdingourfirsthybridAGM
this year.
Whilst last year’s arrangements were no substitute
for meeting shareholders in person, we hope
that shareholders still felt connected to, and
heard by, the Board through the steps that we
took and I would like to thank shareholders for
their understanding during this challenging period.
The 2022 AGM will be held on Thursday 26 May
2022 at 11am at the British Medical Association,
BMA House, Tavistock Square, Bloomsbury,
London WC1H 9JP with additional facilities for
shareholders to join and vote electronically. Full
details of the business to be considered at the
meeting and any special arrangements that may
be in place in light of Covid-19 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.
Letter from the Chairman
Sir John Kingman
Chairman
I am delighted to present our
2021 Governance report which
provides insight into how we,
the Board, have approached
our responsibilities during
this year.
Covid-19 has continued to affect each of us
and has had an unprecedented impact on our
customers, employees and society at large.
Throughout this crisis our business has been
very resilient and continued to provide the
products and services that our customers need.
I am proud to report that, even during another
challenging year, our colleagues have continued
to adapt and have remained professional,
committed and resilient in the face of adversity.
I would like to extend my thanks to all our valued
colleagues for their continued hard work and
commitment to doing the best for our customers.
Thestrengthofourdiversifiedbusinessmodel
meant we were able to weather the volatility of
2020andwerewellpositionedtodeliverprofitable
growth again during 2021. While the pandemic
and its effects will no doubt be with us for some
time, the Board is also looking to the future and
tothemanyopportunitiesforLegal&Generalto
make investments that are economically,
environmentally and socially valuable, in line with
our long-term commitment to delivering inclusive
capitalism and supporting the Building Back Better
and Levelling Up agendas. In particular, addressing
climatechange(oneofLegal&General’ssix
strategic growth drivers) remains at the forefront
of our minds as we face not only the biggest
challenge, but also the biggest investment
opportunity, of our lifetimes. The Board was
Finding what you need online
group.legalandgeneral.com/AGM
66 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
Stakeholder engagement
The Board has previously welcomed the changes
to the Code aimed at promoting greater
transparency around stakeholder engagement.
As a Board, we are conscious of the impact that
our business and decisions have on our
stakeholders, as well as our wider societal
impact. We keep the interests of the group’s
shareholders, customers, employees, suppliers
and our wider stakeholders at the heart of our
decision making and how we deliver our strategy
to achieve long-term, sustainable success.
Whilst Covid-19 has continued to create challenges
this year, there has never been a more important
time to stay connected with all of our stakeholders.
Further information on how we, as a Board, have
fulfilledourdutiestoourstakeholdersunder
s.172 of the Companies Act 2006, including a
case study of our engagement in practice, can
be found on pages 68 to 73.
Board changes and succession planning
Legal&Generalcontinuestobenefitfroma
high-quality Board with a diverse range and depth
of expertise and skills. During the year we have
continued to assess the composition of the
Board. In March 2021, Julia Wilson retired as
Senior Independent Director after a nine-year
tenure on the Board, in accordance with the
UK Corporate Governance Code requirement.
I would like to once again thank Julia for her
enormous contribution to the Board and the
Company and for her valued support to me
during my time as Chairman. Philip Broadley
succeeded Julia as our Senior Independent
Director and I would also like to thank him for
his support during this year.
Nilufer von Bismarck OBE joined the Board as
a Non-Executive Director on 1 May 2021. Nilufer
has spent a large part of her 34-year legal career
workingwithmajorinternationalfinancial
institutions and also has considerable experience
across a range of other industries and sectors,
including real estate, green infrastructure and
fintech.InNovember2021,weannouncedthe
appointment of Laura Wade-Gery as an
independent non-executive director with effect
from 3 January 2022. Laura’s extensive
knowledge of digital transformation and customer
experience will further bolster the Board as the
Company seeks to become a market leader in
the digital provision of insurance and other
financialsolutions.Wealsoannouncedthe
appointment of Tushar Morzaria who will join the
Board as an independent non-executive director
and will take over from Philip Broadley as Audit
Committee chair when he joins us in May 2022.
As the current Group Finance Director of
BarclaysPlcandwithextensivefinancialservices
experience,Tushariswellpositionedtofulfilthe
duties as Audit Committee chair and I look
forward to welcoming him in May. We have also
recently announced that Toby Strauss will stand
down from the Board in April 2022 following his
recent appointment as the Chair of Age UK.
I would like to thank Toby for his very
considerable contribution to the Board and
especially as Chair of the Risk Committee. I will
assume the role as the Chair of the Risk
Committee on a temporary basis pending the
appointment of Toby’s successor.
This year, the Nominations and Corporate
Governance Committee, together with the
Board, has continued to focus on succession
planning. We review both our Group Board and
Executive Committee succession plans regularly
and fully. I am pleased to report that Nilufer von
Bismarck will succeed Lesley Knox as the
designated workforce director with effect from
April 2022. Lesley has done an outstanding job
in establishing the role of the designated
workforce director since it was created in 2018 and
has discharged her role with great commitment
and rigour. Lesley has championed the voice of
our employees during Board discussions and
has ensured that the Board has received regular
and valuable insights into our employees.
I would like to thank Lesley for the dedication
she has shown to this role during her tenure.
As a Board, we consider the climate emergency
to be a real and emerging risk to our business
and the communities in which we operate.
However, we also recognise the potential
opportunities that can be created. Our commitment
to climate issues is detailed on pages 18 and 19
and also in our climate report which can be
found at group.legalandgeneral.com/reports.
We consider that it is vital that the Board remains
focused on this important topic and the Board is
therefore pleased to have appointed Nilufer von
Bismarck to the new role of designated
non-executive director for climate. The Board
agreed that Nilufer was an excellent candidate
for both this role and as successor to Lesley as
the designated workforce director, particularly as
the climate emergency is an issue which our
employees feel passionately about.
There were also a number of executive changes
during the year. Laura Mason succeeded Kerrigan
ProcterasChiefExecutive,Legal&General
Capital and Kerrigan has moved to a new role
as President of Asia to co-ordinate the group’s
expansion plans in Asia. In addition, since
1 January 2022, Andrew Kail has been appointed
asChiefExecutive,Legal&GeneralRetirement
Institutional and the Group’s Retail businesses
(Legal&GeneralInsuranceandLegal&General
Retirement Retail) have been combined under
the leadership of Bernie Hickman. We continue
to closely monitor diversity in our succession
plans to ensure that we are attracting, developing
and progressing diverse talent.
Diversity and inclusion
We stand for diversity and inclusion: for a
workplace where we all have the opportunity
to perform at our best, no matter who we are.
The Board is responsible for overseeing the
group-wide diversity and inclusion policy,
ensuringthateveryoneacrossLegal&General
understands their responsibilities in driving an
inclusive and diverse culture and the opportunities
it can bring. We continue to develop a robust
governance framework and use data and insights
to shape our actions, measure our progress and
drive accountability.
Diversity is important to us because it generates
awiderpooloftalent,reflectingthebroadest
range of human attributes, experience and
backgrounds. We are building an inclusive
culture that celebrates diversity and creates fair
opportunities for all.
Laura Mason continues in her role as executive
sponsor for diversity and inclusion, and great
progress has been made with our diversity and
inclusion initiatives across the group. See page
48 for more about these initiatives.
Subsidiary boards
AtLegal&Generalwehavebenefitedfroma
strong governance framework operating at
subsidiary level for many years now. Our framework
of guiding principles remains in place governing
the relationship between the Group Board and
the Boards of the group’s principal subsidiaries,
promoting effective interaction across all levels
of the group.
Lesley Knox and Henrietta Baldock continue
in their roles as the Chairs of our two principal
operatingsubsidiaries:Legal&General
Investment Management (Holdings) Limited
(LGIM(H)) and Legal and General Assurance
Society Limited (LGAS), respectively. Interlinking
our Group Board directors and principal subsidiary
boards allows greater interactions, information
flowsandpromotesenhancedcollaboration.
The Board welcomes the positive and
constructive working relationships we have with
oursubsidiariesandwehavebenefitedgreatly
from the addition of independent non-executive
directors to many of our subsidiary boards.
Board effectiveness
The Board conducted an internal Board review
in 2021 which was externally facilitated by the
Board evaluation specialists Independent Board
Evaluation and included a review of the
effectiveness of the Board and its Committees.
Further details of the process and outcome of
this evaluation can be found on pages 78 and 79.
Sir John Kingman
Chairman
67Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Letter from the Chairman
Stakeholder engagement
The Board recognises the
importance of considering
all stakeholders in its decision
making as set out in section
172 of the Companies
Act 2006.
The below sets out our s.172 statement which
provides details of the Board’s engagement with
our key stakeholders during the year and how
stakeholder considerations have helped shape
Board decisions and outcomes. Additional
details of our key stakeholders and why they are
important to us are set out on pages 16 to 17.
Through its engagement with key stakeholders,
the Board seeks to understand the views,
priorities and issues of each stakeholder group
so that these can be carefully considered and
balanced by the Board as part of its decision
making. Additionally, the Group Company
Secretary attends each Board meeting and
is available to provide support to the Board
inensuringthatsufficientconsiderationis
given in relation to stakeholder views during
Board discussions.
Shareholders
Overview
Our shareholders and
bondholders are vital
to the future success
of our business,
business growth and
the generation of
sustainable returns.
Engagement
Continuing engagement
• During the year the Chairman, Group CEO and Group CFO continued to meet
with multiple investors.
• Investor Relations provides regular updates to the Board and engages the
Board on shareholder-related matters. They also provide the Board with
regular feedback on investors’ views on business strategy and the market
environment.
• Each year the Group CEO and CFO meet with investors and analysts following
thereleaseofourhalf-yearandfull-yearfinancialresults.
• The AGM provides an important opportunity each year for the Board to
engage with all shareholders, particularly retail shareholders who might
otherwise have limited direct engagement with the Board. In 2021 our AGM
was held in One Coleman Street and, due to Covid-19, shareholders were not
able to attend in person but were invited to join virtually via an online video
platform. The Board was delighted to provide shareholders with the
opportunity to ask live questions during the meeting.
• We provide easy access for our shareholders to the company’s announcements,
results and investor information through a dedicated shareholder section of
our website. The website contains the Company’s London Stock Exchange
regulatory announcements and a copy of our annual reports and other
relevant publications. A webcast of half-year and full-year results presentations
for the current period is also made available via a link on the website which is
permanently available.
Additional current year engagement
• In May, the Group CFO met with several investors to gain insights on their views
at the Autonomous Insurers and Asset Wealth Manager Financials Forum.
• In September, the Chairman participated in the Goldman Sachs Chairman’s
Forum where he engaged with a range of different types of investor.
Feedback from investor meetings was shared with the wider Board
throughout the year.
• In October, we hosted a Capital Markets event for investors and analysts at
our London Headquarters. Investors also had the opportunity to join virtually.
TheeventfocusedonLegal&GeneralCapital(LGC)andconsistedof
presentations on LGC’s strategy, its approach and investment capability,
financialperformanceandambitions,andincludedaliveQ&AwiththeGroup
CEO and the LGC management team. All of the material from the event was
made available on the investors section of the group website.
Outcomes
• The Board is committed to continuing to enhance
its engagement and interaction with our shareholders.
Accordingly, the Board sought shareholder approval
to make a change to the company’s Articles of
Association to permit hybrid AGMs. The Board hopes
that this change will encourage more shareholders to
participate in our AGM. The Board is very much looking
forwardtoholdingitsfirsthybridAGMon26May2022.
• A full year dividend of 18.45 pence was approved by the
Group Board on 8 March 2022.
Engagement with our stakeholders
68 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
Suppliers
Overview
Proactive interaction with
our suppliers and treating
our suppliers fairly allows
us to drive higher
standards and reduce risk
in our supply chain whilst
benefittingfromcost
efficienciesandpositive
environmental outcomes.
Engagement
Continuing engagement
• TheLegal&GeneralResourcesLimitedBoard,ourmaincontractingentityfor
suppliers, receives a procurement update at each Board meeting, including
an update on material procurements, relationships with suppliers and
associated performance. The Group Board has sight of the minutes of each
of these Board meetings and any issues are escalated to the Group Board
where necessary.
• In accordance with the Group Board matters reserved, any expenditure
in relation to a supplier in excess of an amount determined by the group
from time to time is put to the Board for consideration and approval,
as required.
• TheGroupChiefFinancialOfficerandtheLegal&GeneralResourcesBoard
continued to receive updates regarding any supplier performance issues
associated with Covid-19, including the continued work undertaken with
suppliers to mitigate any risks.
• Lesley Knox is the Group Board sponsor for modern slavery and drives this
agenda through her membership of the Modern Slavery and Human Rights
Committee.
Additional current year engagement
• The Executive Risk Committee, Group Risk Committee and Group
Technology Committee received reports relating to cyber security and
supplier governance throughout the year.
• TheLegal&GeneralResourcesBoardandGroupEnvironmentalCommittee
were updated throughout the year on the progress of topics such as supplier
diversity and modern slavery as well as the environment.
• Outputs from a current review of potential supply chain risks due to logistics
delays, price increases and shortages will be presented to senior management
during 2022.
• Throughout the year the Modern Slavery and Humans Rights Committee has
been progressing risk assessments for the balance of our supply chain and
has incorporated these results into our Financial Watchlist for material
suppliers. See page 50 for information on our sustainable supply chain.
Outcomes
• This year we joined the Supplier Diversity Council UK
to take a lead role in progressing this important topic
and help shape the principles and toolkits needed.
The Council meets regularly with the objective of raising
awareness, sharing knowledge and looking at ways
of helping to drive greater opportunity for small and
diversefirms.
• We also enhanced our Sustainable Sourcing Principles
Statement in November 2021 to bring greater clarity and
detail in the guidance to buyers and supplier managers.
• Group Procurement is continuing to progress its
five-yeartransformationjourney.Oncefinalised,this
will include the deployment of e-sourcing and supplier
management tools which is anticipated to bring more
granular analytics as well as digital sourcing capabilities.
• Following feedback from key stakeholders, our purchase
order system continues to be utilised to drive payment
efficienciesandcostcontrols.
• Our senior management team worked in collaboration
with Stronger Together to deliver external workshops
to over 40 suppliers in relation to human rights and
spotting the signs of modern slavery. We have also
delivered extensive training to promote awareness
of this important topic. For more information on our
activities in relation to modern slavery, refer to page 51.
Regulators
Overview
We work with our
regulators proactively,
with openness and
transparency. Early and
active engagement, with
both government and our
regulators, helps to
ensure we understand
changing requirements
and can take timely
action to implement the
regulatory change
required, optimising
outcomes for our
customers and our
people, where possible.
Engagement
Continuing engagement
• Certain non-executive directors of the Group Board and subsidiary
non-executive directors attend individual meetings with both the PRA and
FCA on a frequency determined by the regulators for each supervisory cycle.
Topicscoveredincludestrategy,financialperformance,Boardeffectiveness
and wider governance, operational resilience, cyber, culture, regulatory
matters (including the review of Solvency II) and customer outcomes. The
directors share insights from these meetings at each Group Board meeting.
• At each meeting, the Group Board receives a conduct report from the Chief
RiskOfficerwhichcontainsanupdateonprudentialregulation.TheChief
RiskOfficerperiodicallyattendsGroupBoardmeetingstopresenttotheBoard.
• To mark the beginning of each two-year supervisory cycle, the FCA attends
a Group Board meeting to discuss its priorities. The PRA attends the Group
Board annually as part of the PRA’s Periodic Summary Meeting (PSM) cycle.
• Throughout 2021 we continued to hold quarterly meetings with both the
FCA and PRA on our plans to transition away from the interest rate
benchmark LIBOR.
Additional current year engagement
• At the beginning of 2021, we were still working closely with the PRA and
FCAonourresponsetoCovid-19,withinteractionsdecreasingafterthefirst
quarter 2021.
• Regular meetings continue to take place between management, our risk
function and the PRA and FCA. We continue to brief the FCA on a programme
totransformourfinancialcrimeriskmanagementframework,andonthe
progresstocloseoutaprogrammeofworkreviewinggroup-wideconflicts
of interest. Additionally, there have been regular engagement meetings
regardingthetransformationofLGIM’smiddleofficefunctionanditsmove
to a strategic target operating model.
• The Group Board values its open dialogue with the PRA and therefore invited
the PRA to attend its July Board meeting to discuss and share its views on
the 2021 PSM Letter.
Outcomes
• We have proactively engaged with our regulators this
year to feed back industry views on Solvency II reform,
includingthePRA’sQuantitativeImpactStudytotesta
range of policy options which could lead to reform of the
current solvency regulation for insurers; we hope these
interactions make a positive contribution to the work of
our regulators in achieving their statutory objectives.
We have also used these opportunities to gain insights
to requirements which have improved our own approach
to regulatory compliance.
• Following extensive scrutiny and review at the Group
Risk Committee, in May the Group Board approved the
submission of the Internal Model Major Change
application to the PRA. Our regular, transparent and
constructive dialogue with the PRA helped to ensure that
we received approval for this enhancement in December.
• In July, we actively engaged with the PRA to achieve
approval for the PRA’s non-objection to the redemption
of £300m 10% subordinated notes due in 2041 and
issued by the Company.
• Our Affordable Homes business worked closely with the
Regulator of Social Housing to achieve approval for the
creation of four newly incorporated entities within the
group that are registered providers of social housing,
to facilitate the provision of affordable housing across
England.
• TheGroupChiefFinancialOfficerjoinedtheProductive
Finance Working Group, a joint forum of the Bank of
England, Her Majesty’s Treasury and FCA, with the
objectiveoffindingsolutionstoovercomethebarriersto
investing in long term, less liquid assets, with a particular
focus on DC pension scheme investment.
Engagement with our stakeholders continued
69Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Stakeholder engagement
Communities
Overview
Contributing positively
to wider society enables
us to create stronger
communities and have
a positive environmental
impact.
Engagement
Continuing engagement
• The Board receives an annual update on the Corporate Social Responsibility
(CSR) strategy.
• The Group Environmental Committee (GEC) is responsible for providing
strategic direction for the management of environmental impact, with a
particular focus on the delivery of our strategic response to climate change.
• Jeff Davies is the Group Board sponsor of the climate report, whilst, as noted
above, Lesley Knox is Group Board sponsor for Modern Slavery. These Board
members drive the agenda in relation to the respective subject area, receive
reportsbackontargetsandplantheupcomingfive-yearstrategy.
• Our continued relationship with the Duke of Edinburgh’s Award Scheme
enables us to support young people across the UK and US, especially
important given the impacts of Covid-19 on young people’s prospects.
• Sir Nigel Wilson, our Group Chief Executive, continued as a member of the
government’s expert advisory groups on social care and life sciences, as
well as chairing the Bank of England/FCA Climate Financial Risk Forum
workstream on innovation.
• We demonstrate our continued commitment to net zero through our
membership of the Net Zero Asset Managers Initiative and the Net Zero
Asset Owner’s Alliance.
• Responding to the challenges of ageing demographics is a strategic priority
for us and we are pleased to continue to support the University of Edinburgh’s
Advanced Care Research Centre.
Additional current year engagement
• Michelle Scrimgeour, CEO of our investment management business, led our
engagement at the COP26 summit in Glasgow in November in her capacity
as co-Chair of the government’s COP26 Business Leaders Group. As part of
our engagement with COP26, we made a range of commitments in support
of our ambition to align with the 1.5°C ‘Paris’ objective. Michelle and John
Godfrey, our Group Corporate Affairs Director, delivered an update on COP26
outcomes to the GEC in November to develop the Committee’s knowledge
and outlook.
• In October, Philip Broadley, our Senior Independent Director, hosted a
business breakfast with His Royal Highness the Earl of Wessex and a number
ofhighprofilebusinessleadersatourLondonHeadquarterstodiscuss
employers’ roles in supporting young people’s prospects in employment.
• Following LGC’s launch of its residential housing arm, Suburban Build to Rent,
members of the Group Board visited one of our Build to Rent sites in Bristol
toseefirst-handtheimpactoftheinvestmentonthecommunity.TheBoard
also held a strategy event in Oxford and received a tour of the city which
highlighted the impact of our investments.
• Members of the Group Board visited The Interchange building in Cardiff
Central Square. The Interchange is a testament to our purpose of inclusive
capitalism, as we continue to invest pension money in the future of cities
and towns across the UK and develop buildings with net zero carbon targets.
Inaddition,TheInterchangewillbethenewofficeforourCardiff-based
colleagues.
Outcomes
• Page 73 provides examples of some of our recent
investments which have positively impacted
communities.
• We have established a partnership with Sir Michael
Marmot and the University College of London Institute
ofHealthEquityinordertoexplorethespecificrole
of business in addressing health inequity. An update
was delivered to the Group Board in May and the Board
were enthusiastic and supportive of the partnership,
demonstrating our continued commitment to inclusive
capitalism.
• This year represented an important milestone for our
Modular Homes business with contracts to deliver 185
Modular Homes in Bristol and 95 highly-sustainable,
energyefficientandaffordablehomesinWarminster.
Legal&GeneralModularHomesareleadingthewayin
the delivery of high-quality, affordable and sustainable
homes with each home achieving a minimum of energy
performancecertificate‘‘A’ratingbydesign.Currently
fewer than 2% of new build homes in the UK achieve this
high standard. This will help support local communities
by enabling councils and housing associations to deliver
future development and housebuilding projects in
shorter timescales. In September, the CEO of Modular
Homes hosted a site visit in Bristol for members of the
Group Board which included an overview of the Modular
Homes housing delivery programme and sustainability
benefits.TheCEOofModularHomesalsoprovidedan
update to the Group Executive Committee in September.
• In April we joined the Glasgow Financial Alliance for Net
Zero,aglobalcoalitionofleadingfinancialinstitutions
committed to accelerating the decarbonisation of the
economy.
• As we look to implement our climate change
commitments and targets, Nilufer von Bismarck
was appointed as the designated non-executive director
for climate and will act as a single point of contact for
the business and as a conduit for the Board.
• Sir Nigel Wilson became a member of the Prime
Minister and Chancellor’s Build Back Better Business
Council which brings together a broad range of business
leaders from across the whole British economy to work
in partnership with the government in an effort to unlock
investment and boost job creation.
Engagement with our stakeholders continued
Stakeholder engagement
continued
70 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
Customers
Overview
Listening to our
customers helps us to
better understand their
needs and provide
suitable and reliable
products and services.
Engagement
Continuing engagement
• The Group Board receives a Customer Champion report annually. The report
provides an update on progress made in relation to the customer journey and
a view for the year ahead.
• The Group Risk Committee receives detailed customer Management
Information (MI) at each meeting and the Customer Champion attends each
meeting to present to the Committee.
• Subsidiary Boards are also in receipt of regular updates regarding customers.
Additional current year engagement
• InApril,SirJohnKingmanvisitedourHoveofficeandundertookvariouscall
listening activities to gain a deeper understanding of the customer journey.
• In November, Nilufer von Bismarck, one of our non-executive directors, spent
a day with our Home Finance and Financial Advice team in Solihull. The team
walked through the customer journey, shared insights from customer
feedback and provided an overview of the future roadmap for developments.
Nilufer also spent time call listening with our Retail Protection team in Cardiff
in September to gain further insights into the customer journey.
• The managing director of our newly formed Retirement Solutions business
presented to the Board in July to provide insight into how customers are at
the heart of our strategy. This included an overview of the extensive customer
research that has taken place to develop our understanding of customer
needs and expectations.
• Duringthefirsthalfof2021,theGroupExecutiveCommitteereceivedregular
updates on customer performance to ensure any detrimental impacts to
customer service as a result of Covid-19 were minimised.
• The CEO of our LGI Retail Protection business shares an additional monthly
update with the Board which details the service recovery plan for customer
claims and which includes detailed customer MI.
Outcomes
• Throughout the year customer feedback has been
positive, with 80% of respondents scoring us 7 or above
in customer satisfaction ratings (65% of respondents
gave us a 9 or 10).
• Our telephony service level agreements (SLAs) have
generally been strong and improved throughout the year.
This was helped as our call centre colleagues were able
toreturntotheoffice.WhereSLAshavenotquitebeen
reached, the challenge and focus from the Board has
helped shape the recovery plans of respective
businesses.
• After reviewing the customer journey and our customer
research, we have delivered improvements that make
it easier for our customers to connect with us. The
number of customer logins to our digital portals
increased by 30% in 2021 vs 2020. We’ve also improved
our online functionality and introduced new self-service
options which has led to a reduction in a number of our
end-to-end customer journey times and increased
self-service transactions by 29%.
• A strong and persistent Board focus on our retail
protection claims experience has improved claims
timingsthroughouttheyear.InQ42021,thetimeittook
us to settle non-medical claims reduced by 19 days
comparedtoQ22021.
• Our continued focus on vulnerable customers has
meant that our teams are better placed to identify and
respond to instances of vulnerability. Some of our key
successes have emerged from relationships with
third-party organisations and charities. Across the
group, we have used their expertise to help us
understand customer needs, train our staff, improve our
documentation, and provide additional support to our
customers where appropriate.
• In January, we launched two new services in an effort
to make life simpler for our customers and address a
growingcustomerneed–a‘stand-alone’tracingservice
to help customers track down lost or forgotten pension
pots, and a consolidation solution, for those wanting
to bring their various pension savings together.
• To help our customers approaching retirement
understand their options and better manage their
financialaffairsinlaterlife,wehaveintroducedafree
online course with The Open University to equip our
customers with knowledge of retirement planning.
Engagement with our stakeholders continued
71Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Stakeholder engagement
Employees
Overview
Engaging with our people
enables us to create an
inclusive company
culture and a positive
working environment.
Engagement
Continuing engagement
• Lesley Knox continued in her role as designated workforce director and
reported to the Board at each meeting on employee-related matters.
• We continued with our Voice surveys, widening the scope to include, for
thefirsttime,employeesofCALAHomesalongsideemployeesfrom
elsewhere within our group. The surveys continue to provide us with
valuable insights on what is important to our employees. During 2021,
the Board and Group Executive Committee received periodic reports
on Voice data.
• To continue to ensure engagement with employees during Covid-19,
we continued with our efforts to update employees through our internal
communications. Dedicated business partnering teams and a central
internal communications function continued to provide updates, especially
through The Hub, our digital workspace. This allowed members of our
Group Executive Committee to communicate regularly with all employees
on a range of themes including (but not limited to) business strategy,
commercial updates, wellbeing, inclusion and climate change.
• Wecontinuedtoengagecloselywithemployeerepresentatives–
particularlythroughourpartnershipwithUnite–toensurethatouroffices
remained Covid-19 safe.
• OurD&ICouncil–chairedbyLauraMason,CEOofLGC,andcomprising
seniorleadersfromacrossthebusiness–continuedtomeet.Formore
information on our diversity and inclusivity progress and achievements,
refer to page 48.
• The Board has oversight of whistleblowing and receives an annual report
as well as more detailed periodic reports when appropriate. Philip Broadley
serves as the Group Board’s whistleblowing champion.
Additional current year engagement
• Members of the Group Board hosted a celebratory employee lunch to mark
the 25th anniversary of the group’s presence in Cardiff. This enabled the
Board members to meet with, and listen to insights from, a range of
employees from our different teams in Cardiff.
• As previously noted, members of the Group Board met with employees
fromourofficesinHove,CardiffandSolihullthisyear.TheBoardwelcomes
the invaluable opportunities site visits provide the Board in being able to
hear,firsthand,insightsandopinionsfromouremployees.
• The Group Chairman and Lesley Knox also took part in The Listening
Project,duringwhichtheyheardfirsthandfromemployeesfromarange
ofethnicbackgroundsabouttheirexperienceatLegal&Generalinafocus
group setting.
• With the shift in focus from managing the acute crisis of Covid-19 towards
planning for a post-lockdown future, we engaged with our employees
through our Future of Work surveys in March 2021.
• Building on our 2020 efforts, further virtual town hall meetings were held
during 2021, including for our full-year results. During 2021 we also
launchedanewvideoseries,YourQuestionTime,inwhichemployees
were invited to ask members of the Group Executive Committee questions
of interest.
Outcomes
• This year Lesley Knox, in her role as designated
workforce director, has attended virtual meetings across
our operating divisions, as well as in-person meetings
where possible. A report from the designated workforce
director, including details of activities throughout the
year and the output of this engagement, is provided on
page 74.
• 77% of employees took part in the fourth quarter Voice
survey, providing 27,684 individual comments. Our
employee satisfaction score fell by one point to 76
compared to October 2020, although it remained above
pre-Covid-19 levels (74 in March 2020).
• OurD&ICouncilsponsoredCountMeIn,acommunication
campaign designed to improve the quality and quantity
of diversity data we hold on our people. This led to an
improvement in the completeness of our data. For
instance, data held on ethnicity increased from 52.6%
(December 2020) to 67.9% (December 2021).
• To recognise the importance of mental and physical
wellbeingtoouremployees,ourChiefFinancialOfficer,
Jeff Davies, was named as our executive sponsor for
wellbeing. We continued to support our Mental Health
First Aider network and promote employee access to
wellbeing resources including our Employee Assistance
Programme and Unmind mobile app, as well as
introducing new wellbeing-focused training for line
managers,aconstituencyweidentifiedaskeyfor
promoting overall wellbeing. We also arranged virtual
wellbeing and mindfulness sessions for employees led
by individuals with personal experience, such as Fearne
Cotton and Roman Kemp, our Wellbeing Ambassador.
• This year we launched a new menopause policy as
a result of feedback from our employees about the
need for better provision on this topic.
• The insights and data gathered from our Future of Work
surveys, which was supplemented by stakeholder
interviews and engagement with employee
representatives, has helped inform our Group Executive
Committee’s planning for the post-Covid-19 workplace.
Engagement with our stakeholders continued
Stakeholder engagement
continued
72 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
Major decision Strategic link Key stakeholder groups impacted
Setting and approval of a capital budget for the writing
of new pension risk transfer business in 2021 in order
to ensure continued prudent balance sheet
management.
This decision demonstrates the execution of our strategic priority
to become global leaders in pension de-risking and retirement
income solutions.
Approval of changes to Articles of Association to allow
hybrid AGMs.
The change to our Articles allows our shareholders and employee
shareholdersgreaterflexibilityindecidinghowtheywishtoparticipate
in our AGM through the use of technological innovation.
Approval of the £500 million joint venture between
Legal&GeneralCapitalandNatWestPensionTrustee
Limited(thedefinedbenefitpensionschemeof
NatWest Group) to fund the development of 5,100
retirement homes across 34 schemes in England.
This transaction shows our commitment to investing in the real economy
forthebenefitofsocietyanddemonstratestheabilityofourCapital
business to attract third-party capital to its investment portfolio in an
effort to crystalise value for shareholders. In addition, this joint venture
supports our aim to address climate change through the positioning
of our own investments as the majority of the retirement homes will
be net zero.
Approval of £105 million funding for the development
of a new innovation district with the University of
Oxford, extending Oxford’s existing BegBroke Science
Park,throughLegal&GeneralCapital’sjointventure
with the University.
This transaction demonstrates our commitment to investing in
long-termassetsthatbenefitsociety;thefirstphaseofthescheme
will bring forward new teaching facilities, and future phases will seek
to develop new affordable homes and subsidised key-worker
accommodation.
Approval of Bruntwood SciTech, LGC’s joint venture
with Bruntwood, to proceed with a partnership with
the University of Manchester to deliver ID (Innovation
District) Manchester, a new £1 billion innovation
district across the city centre to accelerate the
dissemination of the world-leading research.
This transaction aims to deliver our strategic priority of investing capital
over the long-term, we aim to become leaders in direct investments
whilstbenefittingsocietythroughsociallyresponsibleinvestments.
In addition, this investment supports our technological innovation
ambitions by supporting the growth of the UK’s science and technology
infrastructure.
ApprovaltosellLegal&General’sstakeinMediaCity,
LGC’slong-standingjointventurewithPeelLand&
Property Group.
This transaction is part of our dynamic and strategic approach
torecyclingprofitsandinvestinginnewprojectswhicharereviving
town and city centres across the UK.
Stakeholder considerations are an integral part
of the Board’s decision making and we seek
to embed this in our key subsidiary boards
and decision making committees throughout
the organisation. As part of the submission
to the relevant decision-making forum, all group
and subsidiary Board papers must demonstrate
that any potential impacts to stakeholders have
been considered.
Whilst not all decisions affect every stakeholder
group, our Board and Committees endeavour
tobalancethesometimesconflictingneeds
of our stakeholders to ensure that all are treated
consistently and fairly. When making key
decisions, the Board is mindful of maintaining
a high standard of business conduct and
ensuring that decisions are taken to promote
the Company’s long-term sustainable success.
Youcanfindours.172statementonpages68
to 72.
Some of the major decisions and considerations
of key decision-making forums during 2021
include:
Major decisions and
discussions during 2021
Shareholders
Communities
RegulatorsSuppliers
Customers Employees
Risk Mitigant/Benefit
Risks associated
with a failure to
deliver the required
customer outcomes.
The impact on customers was a key consideration for the Board when
considering and implementing the sale and transition of the PI Business to
Fidelity. The LGIM team worked closely with Fidelity prior to the transaction
being signed to assess the impact of the transaction on customers and to
ensure that customer outcomes would be delivered, with a particular focus on
costs and charges, continuation of service, availability of propositional features
andfinancialstability/capital.Theimpactoncustomerscontinuedtobe
assessed by the Board through regular updates throughout the migration
process.
Risk of negative
impact on
Legal&General
employees dedicated
to the PI business.
At the time of the sale and throughout 2021, we worked closely with our trade
union, Unite, to help employees explore available opportunities within the
business and redeploy as many of the employee workforce dedicated to the PI
business as possible. Where redundancies were unavoidable, we negotiated
that employees would be paid out their notice periods rather than being required
to work and agreed to pay enhanced pro-rated bonuses for 2021, to which
employees would not generally be entitled.
Risks with regulatory
engagement.
There was proactive engagement and dialogue with the FCA throughout the sale
and migration process.
Looking at one of our major projects in more detail:
Sale of the Personal Investing Business
Following the sale of LGIM’s Personal Investing legacy
book of business (the “PI Business”) to Fidelity in
2020, this year the Board oversaw the migration
of eligible customers to Fidelity in tranches during
the course of 2021. The migration process completed
in December 2021. The PI Business comprised
approximately 280,000 customers invested in ISA,
Junior ISA and General Investment Account products,
holding LGIM Funds. Post-transfer, the migrated
customers remain invested in LGIM funds (unless they
elect to transfer their investments to alternative funds)
for which LGIM will continue to earn an investment
management fee.
Ourstakeholderimpactanalysisidentifiedthe
followingrisksandbenefitstoourkeystakeholders:
Major decisions 73Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Lesley Knox
Designated workforce director
Throughout the year, I continued to meet
employees, both virtually and in person, as part
of my plan to engage with them and represent
theirviews.Mymodelof“listen,reflectand
represent” has held good throughout this time.
The frequency of discussion about people
issues at the Board throughout the past three
yearsshowshowseriouslyLegal&General
takes understanding the views of its people.
Duringthefirsthalfof2021,thesafe
re-occupationofourofficespaceswasthekey
concern raised in meetings. Understandably,
there were health and safety questions, especially
amongstthosewhohadnotaccessedofficesat
all during lockdown. The work we did during
2020tokeepofficessafestoodusingoodstead
for 2021: safety measures were well understood,
observed very strictly, and audited by Unite and
the Health and Safety Executive.
Duringthefirsthalfoftheyearinparticular,our
employees took a keen interest in the future of
work: our way of thinking about and describing
howwewilluseofficeandhome-basedworking
in combination in future. We knew from research
carried out during the initial lockdown that
employees valued elements of home working
butmissedtheinterpersonalcontactthatoffice
working brings, as well as, in some cases, being
in far from ideal situations for working at home.
Further research carried out during March 2021,
borne out by conversations I have had with
employees, showed that the preference for the
majority of our people would be a form of hybrid
working, which is the assumption on which we
have based our future of work plans.
Employee engagement
Other issues have also come to the fore during
my engagements with employees. Some of
themhavebeenspecifictous,especiallyrelating
tothequalityofofficefacilities.Butissueslarger
thanLegal&Generalhavebeenpartofthe
dialogue too. Examples include diversity and
inclusion and wellbeing, which are all of great
interest to the Board. I was pleased to be part of
the Company’s “Listening Project”, in which the
Chair and I met employees from various ethnic
minority communities in order to understand their
viewsonlivedexperienceatLegal&Generaland
in industry more broadly. Alongside similar
sessions run for the Executive team, these were
helpful in focusing the Company’s diversity and
inclusion efforts in 2021.
As in 2019 and 2020, the mainstay of my
engagements in 2021 was through informal
and formal meetings with various groups of
employees. This ranged from attending sections
of team away days through to joining groups
such as the Hove Health and Safety Committee,
the LGC culture champions and the Modern
Slavery Committee. I also received regular
updates on the results of our employee survey,
Voice, which are presented to the Nominations
and Corporate Governance Committee as
a matter of course.
Our employees continue to give positive feedback
abouttheeffortstakenbyLegal&General
to keep them informed, through online
communications, virtual town halls and video
content, including the short videos designed
to introduce our new non-executive directors.
2021wasthefinalyearofmyroleasthe
employee representative on the Board as I hand
over to my successor Nilufer von Bismarck in
April 2022, but I will continue to be interested
in our employees and I look forward to hearing
Nilufer’s reports to the Board. I would like to
thank the employees I have spent time with over
the last three years. Their openness in talking
aboutworkingatLegal&Generalandtheir
suggestions have helped make it a better place
for everyone to work.
Covid-19 overshadowed 2020
and has also impacted 2021,
but for many employees 2021
has been a return to more
normal ways of working and
a gradual return to the office.
This meant that as the year
went on, the issues and
feedback raised by employees
with me changed too.
74 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
The UK Corporate Governance Code –
committed to the highest standards
The 2018 UK Corporate Governance Code (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 during the year. Pages 80 to
81 set out at a high level how we have complied
with each of the principles, save in respect of
pensions alignment required under Code
provision 38 where we will achieve full
compliance by 31 December 2022 as further
detailed on page 103. The information required
under Disclosure Guidance and Transparency
Rule 7.2.6 can be found in the Directors’ report
on pages 234 to 237. Each year, the Board
reviews the group’s corporate governance
framework and compliance with the Code.
The Board is committed to maintaining the
highest standards of corporate governance
across the group to support the delivery of our
strategy, positive stakeholder relationships and
the creation of long-term sustainable value for
our shareholders.
The Board
The table in the adjacent column sets out the
changes to the Board that have taken place over
the course of the year. Nilufer von Bismarck OBE
was appointed to the Board as an independent
non-executive director in May 2021, bringing to
theBoardextensiveexperienceinfinancial
services. Laura Wade-Gery was appointed to the
Board in January 2022. Laura has extensive
knowledge of digital transformation and customer
experience.Laura’sappointmentreflectsthe
Company’s commitment to technological
innovation as it seeks to become a market
leader in the digital provision of insurance and
otherfinancialsolutions.Wealsoannounced
the appointment of Tushar Morzaria who will
join the Board in May 2022 as an independent
non-executive director. Tushar will also take over
from Philip Broadley as Audit Committee chair
when he joins us. As the current Group Finance
Director of Barclays Plc and with extensive
financialservicesexperience,Tusharisverywell
positionedtofulfilthedutiesasAuditCommittee
chair. We have also recently announced that
Toby Strauss will stand down from the Board at
the end of April 2022 following his recent
appointment as the Chair of Age UK and I would
like to thank him for his very considerable
contribution to the Board and especially as Chair
of the Risk Committee. I will assume the role as
the Chair of the Risk Committee on a temporary
basis pending the appointment of Toby’s
successor.
Julia Wilson retired from the Board on 31 March
2021 following a nine-year tenure in accordance
with the Code. Philip Broadley has succeeded
Julia as Senior Independent Director.
When considering the appointment of new
directors, the Board has been mindful of the
contribution and skillset that each new appointee
will bring to the Board. The Board continues
to focus on maintaining a well-balanced and
diversifiedBoard,withtherightmixofindividuals
who can apply their wider business knowledge
and experiences to the setting and oversight of
delivery of the group’s strategy.
Changes to the Board during the year
and to the date of this report
Appointments Retirements
Nilufer von Bismarck
1 May 2021
Julia Wilson
31 March 2021
Laura Wade-Gery
3 January 2022
Toby Strauss
29 April 2022
Tushar Morzaria
27 May 2022
How the Board operates
The Board is led by the Chairman, Sir John
Kingman. The day-to-day management of the
company is led by Sir Nigel Wilson, the Group
ChiefExecutiveOfficer.Thenon-executive
directors play a key role in our governance
framework and culture, and their roles are not
limited to the boardroom. Examples of some
of the other activities they have undertaken
during the course of the year are set out on
pages 68 to 72.
The Board is accountable for the long-term
success of the Company by setting the group’s
strategic objectives and monitoring performance
against those objectives. The Board meets
formally on a regular basis and at each meeting
considers business performance, strategic
proposals, acquisitions and material transactions
in the context of the group’s strategic plans, risk
appetite, the interests of the group’s stakeholders
and our social purpose. The Board and the
boards of the group’s subsidiaries operate within
aclearlydefineddelegatedauthorityframework,
which is fully embedded across the group.
The delegated authority framework ensures that
there is an appropriate level of Board
contribution to, and oversight of, key decisions,
and that the day-to-day business is managed
effectively. The delegated authority framework
includesaclearlydefinedscheduleofmatters
reserved for the Board. The types of matters
reserved include, amongst other things, matters
relating to the group’s strategic plan, material
transactions, risk appetite, and oversight of
systems of internal control and corporate
governance policies. Those matters which
are not reserved are delegated by the Board to
group-level committees and to the Group Chief
ExecutiveOfficerwhothendelegatesdecision
making onward to the Group Capital Committee,
an executive decision-making forum, and his
direct reports.
How the Board spent its time in 2021
The Board held eight full formal Board meetings
during 2021, including two strategy events.
Board sub-committees were also constituted
on a number of occasions in order to deal with
matters arising in the ordinary course of
business outside of the formal schedule of
meetings. The Board also held a number of
Board calls between formal meetings to keep
abreast of business developments. A table of
individual Board member attendance at the
formal Board and Committee meetings is
provided on page 78. The non-executive
directors have a private meeting without the
executives present after each Board meeting
and otherwise when required. The non-executive
directors, led by the Senior Independent Director,
meet without the executive directors and the
Chairman periodically to review the Chairman’s
performance. Board members also meet
informally with the executive and senior
management on a regular basis outside of the
formal meeting schedule.
The Board agenda is set by the Chairman and
consists of the following broad discussion areas:
• an update from the Group Chief Executive
Officer,theGroupChiefFinancialOfficerand
a report from each of the key business
divisions on business performance, key
business initiatives, customer and employee
engagement, control environment and culture.
• regular updates from the Chair of each of the
Group Committees and designated workforce
director.
• discussions on strategic ambitions,
acquisitions, material transactions and other
material initiatives.
• risk and compliance matters.
• legal and governance matters.
• people and employee engagement matters
• ESG considerations.
The Board informs itself of the views of
shareholders on a regular basis through updates
fromtheGroupChiefExecutiveOfficerandGroup
ChiefFinancialOfficer,aswellasanupdatefrom
the Chairman following his annual schedule of
investor meetings. The Board also receives
regular updates from the Chairman and the
Senior Independent Director following investor
engagement.
Members of the senior management team and,
as appropriate, individuals from the relevant
business areas are invited to attend Board
meetings in relation to key items, allowing the
Board the opportunity to debate and challenge
on initiatives directly with the senior management
team along with the executive directors.
Governance report
75Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Governance report
Key areas of focus in 2021 Discussion and actions arising
Strategy • AtitsDecembermeeting,theBoardconsideredandapprovedthegroup’sfive-yearbusinessplan.Thisincludedareviewofthedivisional
strategicobjectives,initiativesandfinancialandnon-financialKeyPerformanceIndicators.
• The Board held a full-day strategy event in April which covered, among other things, the opportunities for the group to deliver value creation
through ESG and the continued focus on scaling asset origination capabilities in LGC. The Board further discussed in detail the group’s
medium-term strategy which includes scaling our alternative asset businesses and internationalising the group’s diverse businesses
in selected markets with a focus on growth in the US and Asia, leveraging existing strengths across the group.
• The Board held a further two-day offsite strategy event in November which covered areas such as our people and the retail retirement
strategy. The Board also discussed internationalisation opportunities for LGIM. The event was held in Oxford and the Board visited a number
of development sites as part of our Oxford University Development partnership.
• The Board considered strategic ambitions at its Board meetings and further considered corporate and material transactions, including
consideration of material pension risk transfer transactions, to ensure that proposed transactions were aligned with the group’s strategy
and risk appetite. The Board had early sight of pipeline initiatives.
• The Board reviews and oversees material strategic projects, including in respect of a new global operating model and IT platform for LGIM
and the group’s preparation for the implementation of IFRS 17.
Covid-19 • The Board continued to monitor and scrutinise the impact of Covid-19 on the group and the group’s response to it, including moving the
business back to a business as usual position.
• The Board received regular updates on, and had regular discussions in relation to, the group’s return to the workplace, including the
importance of preserving our collaborative culture balanced with ensuring the safety of the workforce and taking into account the
workforce’s views on hybrid ways of working.
• Discussionsandactionsfocusedonensuringthecontinuedresilienceofthegroupbothfinanciallyandoperationally,thecontinuedservicing
of the group’s customers and ensuring the safety of the group’s people, in addition to the close monitoring of the wider macro-economic
environment.
Governance and
risk management
• Following an external Board evaluation in 2020, the Board conducted an internal Board evaluation in 2021 which was externally facilitated
by Board evaluation specialists Independent Board Evaluation. An action plan was drafted and agreed by the Board following the evaluation.
• Following recommendations from the Nominations and Corporate Governance Committee, the Board approved the appointment of two new
non-executive directors to the Board.
• The Board regularly received and discussed reports from the Group General Counsel and Company Secretary on legal matters, emerging
regulation and governance changes.
• TheBoardregularlyreceivedanddiscussedreportsfromtheChiefRiskOfficeronriskandcompliancematters,includinganannualreport
onwhistleblowingandthereportonourreviewofmanagementofconflictsofInterest.
Stakeholders • During the year, the Board regularly considered the group’s relationship with various stakeholder groups. It discussed customers,
shareholder matters, employee engagement, and the group’s impact on, and relationship with, wider society and the environment.
• The Board has focused deep dives, for example sessions with the executive nominated as the Group’s Customer Champion, and it
considered these matters as part of its decision making on strategic proposals.
• Employee engagement continued to be a focus for the Board in 2021 with Lesley Knox, the designated workforce director, providing regular
updatesonengagementwiththeworkforce,theresultsoftheemployeesurveysandvisitstoanumberofLegal&Generalofficelocations.
• The Board approved a proposal to update the Company’s Articles of Association to permit hybrid AGMs to allow our shareholders to have
greaterflexibilityindecidinghowtheywishtoparticipateinourAGMsandwithaviewtopromotinggreaterparticipationandengagement.
• The Board regularly discussed furthering the group’s agenda to create a diverse and inclusive organisation, including with regard to gender
and ethnicity.
• During the year a number of Board members visited the Modular Homes and Build to Rent sites in Bristol and were also given a tour of the
newCardiffofficeandLegal&General’sregenerationofCardiffCentralSquare.BoardmembersalsometwithemployeesinCardiffto
celebrateLegal&General’s25thanniversaryofbeinginCardiff.
• BoardmembersvisitedOxfordaspartoftheiroffsitestrategyeventandmetwithmembersofthecommunitytoseefirst-handtheimpact
ofLegal&General’sinvestmentinthecity.
• Aspartofherinduction,NilufervonBismarckvisitedourSolihullofficetomeetwithcolleagues,listentoinsightsfromcustomerfeedback
and an overview of the future roadmap for developments. Nilufer also visited our Retail Protection colleagues in Cardiff and participated
in call listening exercises to learn about the customer journey.
• Board members met regularly through the year with key regulators, the Prudential Regulation Authority and Financial Conduct Authority
and feedback from the meetings was discussed at each Board meeting.
ESG • The Board regularly received updates and discussed the range of activities the group is pursuing in respect of climate change. Simon Gadd
was appointed as the Group Climate Change Director and works alongside the Board to develop the group’s thinking and planning.
• The Board appointed Nilufer von Bismarck as designated non-executive director for climate to act as a single point of contact on climate
matters for the business and to act as a conduit for the Board.
• Whilst considering new investments, the Board ensured that they aligned with the group’s macro growth drivers, such as addressing climate
change and investing in the real economy to bring societal change.
• The Board received an in-depth climate ‘stock-take’ update which set out how the group is approaching the challenges and opportunities
associatedwiththeclimatechangecrisis.TheupdatehighlightedtheimportanceofembeddingLegal&General’sresponsetoclimate
change and broader environmental impacts into the way it operates.
• Michelle Scrimgeour led the group’s engagement at the COP26 summit in Glasgow in November in her capacity as co-chair of the
government’s COP26 Business Leaders Group. As part of our engagement with COP26, we made a range of commitments in support of our
ambition to align with the 1.5°C ‘Paris’ objective. Michelle and John Godfrey, our Group Corporate Affairs Director, provided an update to the
Board on the conference and its outcomes.
• The Board received updates on the group’s housing property portfolio, including an update on our Modular Homes business which helps
councilsandhousingassociationsdeliveraffordablehomesinshorterdeliverytimescalestobenefittownsandcitiesacrosstheUK.
Governance report
continued
76 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
Ensuring our directors have the right
skills and experience to maintain an
effective Board
The Board believes that continual director training
and development is important to maximise the
effectiveness of the Board. The Chairman is
assisted by the Group Company Secretary in
providing all new directors with a comprehensive
induction programme on joining the Board. This
includes a series of meetings with members of
the Board and with the group’s operational and
functional leadership, external advisers to the
group and a programme of meetings with
employees. This ensures directors obtain a
detailed insight into the group, it’s businesses
and governance framework as well as the
regulatory macro environment in which it operates.
The key areas of the Board’s induction
programme include:
• an introduction to the group’s corporate
structure, governance framework and
guiding principles.
• a meeting with the Group Company Secretary
who provides detail on the roles and
responsibilities of the Board, delegated
authority framework, listed company
requirements and the requirements of the
UK Corporate Governance Code, and how
the group complies with its principles.
• meetings with the CEO of each business
division to receive an overview of each
business area, including information around
strategic goals, risk overview and
management,customers,andkeyfinancial
andnon-financialKPIs.
• meetings with members of the Board,
the Executive Committee and senior
management, covering areas such as:
– group risk management
– compliance
– group internal audit
– finance
– remuneration
– investor relations and corporate affairs.
• a meeting with the Group Actuary focusing
on regulatory capital and the group’s Internal
Model.
• meetings with the Chairs of the Risk,
Remuneration and Audit Committees.
• a meeting with the external auditor.
In addition, all Board members receive continuing
education and development at regular intervals
throughout the year. It is the responsibility of the
Chairman to ensure all directors have the necessary
knowledge and training. Board and Committee
meetings are used regularly to update the Board
on developments in the areas in which the group
operates,andspecifictrainingsessionsfor
directors are scheduled for key topical issues.
In the year, each director was given the
opportunity to meet with the Group HR Director
todiscussanyspecificfocusareasfortraining.
For example, in 2021 the Board received detailed
training sessions on technology risk and
governance, cyber security and IFRS 17. The
Board non-executive directors also visited our
business operations in different locations and
attendedone-to-onebriefingsessionswithkey
members of the senior management team on a
regular basis over the year.
Technology Committee
The Technology Committee was established
in January 2018 primarily to provide assurance
to the Board on the delivery of the group’s
programme to implement planned enhancements
to the group’s IT estate, and to ensure the group
was operating within it’s targeted access
management, information security and cyber
risk appetite. Following the successful delivery
of the 2018 enhancements to the IT estate and
significantimprovementsinthegroup’sIT
controls, in July 2020 the Technology Committee
decided to focus its attention on more strategic
matters. As part of this transition, two executive
committees reporting into the Technology
Committee were refocused to allow the
Technology Committee to place reliance on the
IT mechanisms and controls in place at an
executive level. In addition, the meetings were
lengthened to facilitate more comprehensive
strategic discussion. The Technology Committee
now focuses primarily on the Company’s IT,
digital and cyber strategies and their
implementation plans and strategic technology
opportunities for the group.
Its other responsibilities include:
• overseeing the control environment in place
for information technology and cyber security.
• overseeing technology aspects of major
change programmes and understanding their
strategic contribution and risks.
• reviewing risks relating to IT and cyber
security and plans for mitigation or treatment.
• reviewing and approving any proposed
technology projects and contracts within
its remit of responsibility.
• considering current capability relating to
technology, cyber and digital skills and plans
to address any gaps.
• considering the adequacy, resilience and
performance of suppliers and supply chains
for IT and cyber.
During 2021, the Committee membership
comprised the Chairman and four independent
non-executive directors, including the Senior
Independent Director and the Chairs of the Audit
Committee and Risk Committee. In addition, one
oftheGroupCEO,GroupCFO,ChiefRiskOfficer
andChiefTechnologyOfficerareexpectedto
attend all meetings; in practice, all four of these
executive members attend. The Committee is
advised by three independent cyber and IT experts.
The Committee met four times during 2021.
The group IT community was at the forefront
of the group’s Covid-19 response as the group
moved to a more agile way of working. The
Technology Committee continued to assess the
impact of Covid-19 on the group’s technology
estate and our technology suppliers throughout
2021.
In 2021 the Committee:
• received regular updates from the
Technology Executive Committee and
the Executive Security Committee.
• reviewed risks relating to cyber security
and the cyber-resilience of suppliers.
• Focused on the group’s cyber security,
information security and access
management programmes.
• reviewed and endorsed the organisation
and operating model in place for IT and
cyber security and subsequently considered
its ongoing suitability.
• maintained oversight of the overall resilience
of the group’s IT systems and reviewed and
approved divisional technology
transformation programmes.
• maintained oversight of the group’s IT, digital
and cyber strategies and the corresponding
implementation plans.
• received deep dive insights into major IT
and cyber programmes across the group.
• received updates on the technological
threats and opportunities available to
the group.
• received updates on the group’s data
capabilities and the opportunities this
could create.
• received presentations from external
speakers to provide an overview of industry
trends and potential threats in relation to
cyber security.
77Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Governance report
Board and Committee meetings attendance
during 2021
1
Director Appointment date
Committee
appointments Board (8)
Audit
Committee (5)
Nominations
and Corporate
Governance
Committee (3)
Remuneration
Committee (5)
Risk
Committee (5)
Technology
Committee (4)
Chairman and executive directors
Sir J Kingman
2
24 October 2016 8/8 3/3 4/4
Sir N D Wilson 1 September 2009 8/8
J Davies 9 March 2017 8/8
Non-executive directors
H Baldock
3
4 October 2018 8/8 1/1 3/3 5/5 5/5
N von Bismarck
4
1 May 2021 5/5 4/4 3/3 3/3 3/3
P Broadley 8 July 2016
8/8 5/5 3/3 5/5 5/5 4/4
L Knox
5
1 June 2016 8/8 1/1 3/3 5/5 5/5
G Lewis
6
1 November 2018 8/8 5/5 3/3 1/1 5/5
R Lewis7 18 June 2020
8/8 2/3 5/5 5/5
T Strauss 1 January 2017
8/8 5/5 3/3 5/5 4/4
J Wilson8 9 November 2011
2/2 1/1 1/1
1. Attendance at meetings in accordance with the formal schedule of meetings.
2. Attends all Audit, Remuneration and Risk Committee meetings as an invitee.
3. Stood down from the Audit Committee on 31 March 2021.
4. Appointed to the Board, Audit Committee, Nominations and Corporate Governance Committee
and Technology Committee on 1 May 2021 and subsequently to the Risk Committee on 1 July 2021.
5. Stood down from the Audit Committee on 31 March 2021.
6. Appointed to the Remuneration Committee on 7 October 2021.
7. Unable to attend January Nominations and Corporate Governance Committee meeting due
to a family bereavement.
8. Retired from the Board on 31 March 2021.
Board evaluation
The effectiveness of the Board is essential to
the success of the group. The Board undertakes
a formal and rigorous review of its performance
and that of it’s Committees and individual
directors each year. In accordance with the
Code, the Board commissions externally
facilitated reviews regularly. The Board conducted
an external evaluation in 2020 which was
facilitatedbyFfionHagueatIndependentBoard
Evaluation (IBE), an external Board review
specialist. IBE had not previously undertaken
a Board evaluation for the Company and has no
other connection with the Company or individual
directors. The recommendations from the 2020
evaluation were reviewed and approved by the
Board and regular updates on progress were
provided at each Board meeting throughout the
year. There is further detail on the progress the
Board has made against those recommendations
reported on the following page. In 2021 the
Board undertook an internal review which was
externally facilitated by IBE and commenced
in October 2021. In addition, the Senior
Independent Director formally appraised the
Chairman’s performance. The Board has
reviewedthefindingsandapprovedthe
associated actions. The Board is kept up
to date on the progress made against the
agreed actions.
The aim of the review was to assess the
effectiveness of the Board, both as a collective
unitary Board, and at individual Board member
level, in order to implement any actions required
to become a more effective Board. The
performance of each of the Board Committees
wasalsoassessed.Questionnaireswereissued
to every Board member, according to a set
agenda tailored for the Board, which had been
agreed in advance with the Chairman and Group
CompanySecretary.Followingthefinalreport,
recommendations were considered by the Board
and an action plan for areas of focus was agreed.
The Board review focused on, among other
things: Board accountability, focus and priorities;
Board composition, expertise, decision-making
and dynamics; succession planning; selection
and induction of new members; oversight and
implementation of strategy; communication
and relationship with stakeholders; risk
management; governance, including links with
subsidiary boards; and Board support, including
resourcing and quality and volume of papers
and presentations. The tone of the feedback
was very positive overall and indicated that the
Board is working effectively, with Board members
noting the further strengthening of the Board
in key areas with new non-executive director
appointments. The key recommendations
continuetoreflectimportantfocusareasfor
the Board, namely (i) the continued and active
oversight of Board and senior management
succession and (ii) developing newer non-
executive directors’ knowledge of the business,
including through site visits to see the business
andinvestmentsfirst-hand.Furthermore,the
Board is focused on embedding relationships
following a period where physical engagement
has been made more challenging as a result
of Covid-19. Progress to implement the
recommendations is underway and is monitored
by the Group Company Secretary and reported
to the Board at each Board meeting.
Governance report
continued
Committee membership key
Audit NominationsandCorporateGovernance
Remuneration Risk Technology CommitteeChair
78 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
A summary of the recommendations from the 2020 board evaluation and progress against them is provided below:
Recommendations from 2020 review Progress against 2020 recommendations
Ensure active and regular oversight of Board
and senior management succession, discussing
and agreeing succession options and timing for
key roles.
There was a focused session on non-executive succession planning at the Nominations and Corporate
Governance Committee meeting in May 2021. As a result of this session, and following a formal recruitment
process, new non-executive directors were appointed during the year.
Executive development and succession planning was discussed at the Nominations and Corporate
Governance Committee meeting in May and further non-executive director calls were held to discuss
succession.
Divisional CEOs are encouraged to bring members of their senior leadership team to Board meetings to
give the Board the opportunity to meet and interact with some of the Company’s valued and high potential
individuals across the business, allowing further visibility of the talent pipeline. It is also an opportunity
for these employees to meet with Board members and gain some insight into their roles and perspectives.
The Nominations and Corporate Governance Committee considered the succession plans in place for the
role of designated workforce director at its May meeting. As a result, it was agreed that Nilufer von Bismarck
will succeed Lesley Knox as the designated workforce director in April 2022.
The Board considers climate change to be a key area of focus. As a result, the Nominations and Corporate
Governance Committee appointed Nilufer von Bismarck as the Board’s designated non-executive director
for climate in January 2022.
The Nominations and Corporate Governance Committee also discussed succession planning for the chair
of our Audit Committee following Philip Broadley’s six-year tenure in the role and his appointment as the
Senior Independent Director in 2021. Tushar Morzaria will take over from Philip as Audit Committee chair
when he joins the Board in May 2022. As the current Group Finance Director of Barclays Plc and with extensive
financialservicesexperience,TushariswellpositionedtofulfilthedutiesasAuditCommitteechair.
The Board has continued to focus on contingency, medium-term and long-term succession planning for
the executive and senior management, with particular emphasis on leadership succession and capabilities
evaluation. A formal process was undertaken which included both internal and external candidates to identify
thesuccessortoLauraMasonasChiefExecutive,Legal&GeneralInstitutionalRetirement(LGRI),following
herappointmentasChiefExecutive,Legal&GeneralCapital.Attheconclusionofthatprocessandfollowing
Committee discussions, a number of changes to our executive team were announced in October 2021,
including Andrew Kail’s appointment to the role of Chief Executive, LGRI. It was further agreed that the group’s
retailandinsurancebusinesses(Legal&GeneralInsuranceandLegal&GeneralRetailRetirement)would
cometogethertoformLegal&GeneralRetailundertheleadershipofBernieHickman.Followingwell-planned
and appropriate handovers, the changes to the executive team took place in January 2022.
Develop newer non-executive directors’ knowledge
of the business.
Nilufer von Bismarck was appointed to the Board in May 2021 and has undergone a thorough induction
plan which has included meeting with all divisional Chief Executives and key senior personnel, site visits to
operational centres and call listening exercises. It was important that Nilufer’s feedback was sought on the
induction plan and she has worked closely with our Company Secretariat team to ensure she has been
provided with all the necessary induction sessions to build her knowledge and understanding of the business.
The same interactive approach will be adopted and encouraged for our further new non-executive directors.
Refresh, test and clearly articulate the group’s
medium-term strategy, especially looking beyond
the current very strong pipeline.
The group’s medium-term strategy was discussed and debated at the Board strategy day in April. It was further
considered at the Board’s two-day offsite strategy event in November 2021 where the Board focused its
discussion on our people, future opportunities for the group and overseas expansion.
Continue to enhance the support provided to the
Board in terms of training, facilities and quality
of papers.
Covid-19, coupled with the move to remote working, accelerated the Board’s digital journey. Improvements have
been made to the Board’s video conferencing facilities to allow Board meetings to operate on a hybrid basis.
Where Government restrictions have allowed, Board members have attended Board meetings in person in
a socially distanced environment.
Improving the quality of Board papers is an ongoing priority for the Company Secretariat team. In 2020, new
formats for Board reporting were introduced to reduce the number of papers and length of reports. A glossary
of acronyms was made available to Board members as a reference. A number of Executive Business Awareness
sessions have taken place throughout the year to enhance the Board’s knowledge and understanding of key
areas of the business.
Sir John Kingman
Chairman
79Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Governance report
Committed to the highest standards
Compliance with the 2018 UK Corporate
Governance Code (the ‘Code’): for the year
ended 31 December 2021, we are pleased to
report that we have applied the principles and
complied with the provisions of the Code, save
in respect of pensions alignment required
under Code provision 38, where we will achieve
full compliance by 31 December 2022 as
further detailed on page 103.
1. Board leadership and company purpose
A. Board’s role
There is a formal schedule of matters reserved
for the Board that sets out the structure under
which the Board manages its responsibilities,
providing guidance on how it discharges its
authority and manages the Board’s activities.
The schedule of matters reserved is reviewed
and approved by the Board on an annual basis.
Our governance framework means we have
a robust decision-making process and a clear
framework within which decisions can be made
and strategy can be delivered. Our delegated
authority framework ensures that decisions are
taken by the right people at the right level with
accountability up to the Board, and enables
an appropriate level of debate, challenge and
support in the decision-making process. The
Company continues to be led by an effective
and entrepreneurial Board; a yearly planner is
reviewed at each Board meeting to ensure the
most important and current topics are discussed
at meetings throughout the year. Board
members are encouraged to discuss strategic
matters with relevant executives on an ongoing
basis. The Board’s main activities throughout the
year are detailed on page 76.
B. Purpose and culture
The Board held a strategy meeting in April 2021
and met for a two day, offsite strategy event in
November 2021 to consider the group’s strategy.
The Board regularly reviews the Chief Risk
Officer’sconductreport,providinginsightinto
culture across the organisation and helping to
ensure behaviours throughout the business
align with the Company’s purpose, values and
strategy. Furthermore, the Board is responsible
for overseeing implementation of the group-
wide diversity and inclusion policy which applies
to all individuals directly employed by the group
and forms the basis of engagement with
customers and suppliers. Board members
participate in site visits enabling them to meet
with a number of our stakeholders and gain
first-handinsightintocultureinthevarious
business divisions. As part of these site visits,
Board members will set aside time to meet with
smaller groups of employees to speak directly
with them both with and without management
present. Employees are invited to ask questions
and feedback is provided to the next Board
meeting. The Chairman, Group Chief Executive
andGroupChiefFinancialOfficerhavealso
hosted virtual town hall events throughout the
year. Lesley Knox, designated non-executive
director for engagement with the workforce,
provided feedback at each Board meeting,
alongside periodic feedback from the Voice
survey and the annual performance review
process which helps directors to assess Company
culture. Lesley Knox has also met with employees
todiscussLegal&General’scultureandvalues
and has attended various team meetings and
away days to experience the culture herself.
Lesley encourages an open and transparent
question and answer session at each meeting
she joins and will progress actions arising from
these meetings. Additionally, when the Board is
considering entering a new market or business
area, culture plays a major part in discussions
and Board members remain conscious of the
need to embed the Company’s inclusive culture
in any new business. Building an inclusive
culture enables innovation, better decision
making and embodiment of our three behaviours:
straightforward, collaborative and purposeful.
Further information on the purpose of the
company is provided on page 2.
C. Resources and controls
The Board’s agenda is set by the Chairman and
deals with those matters reserved for the Board,
including matters relating to the group’s strategic
plan, risk appetite, and systems of internal
control and corporate governance policies.
Matters delegated to the Group Chief Executive
Officerincludemanagingthegroup’sbusiness
in line with the strategic plan and approved risk
appetite and responsibility for the operation of
the internal control framework. The Group Risk
Committee assists the Board in the oversight of
the risks to which the group may be exposed and
provides the Board with strategic advice in
relation to current and potential future risk
exposures. The risk management framework
supports the informed risk taking by our
businesses, setting out those rewarded risks
that we are prepared to be exposed to and the
risks that we want to avoid. Further information
on risk management can be found on pages 52
to 59.
D. Stakeholder engagement
Board members take an active role in engaging
with shareholders and wider stakeholders.
Further information on the Board’s engagement
with stakeholders can be found on pages 68 to
72. Board members receive feedback at each
Board meeting from Lesley Knox on her role
as designated workforce director and periodic
feedback from the employee Voice survey
enabling them to assess and monitor culture.
Board members were able to visit a number
ofLegal&Generalsitesthroughouttheyear
and engaged with employees and members
of the community.
E. Workforce engagement
In addition to Board members’ site visits, the
designated workforce director meets with
employees of various grades and across
business divisions throughout the year,
enabling visibility of workforce policies and
practices across the organisation and how these
align with the Company’s values and the group’s
behaviours. There is a whistleblowing hotline
available for any members of the workforce
who wish to raise any concern of wrongdoing
in the workplace. The Board has oversight of
whistleblowing and routinely receives updates
on this. Additionally, employees are encouraged
to share their views through the Voice survey
and with Lesley Knox, the designated workforce
director. Further details are available on page 74.
Details on the company’s approach to investing
in and rewarding its workforce can be found on
page 16 and page 112.
2. Division of responsibilities
F. Role of the Chairman
The Chairman sets the agendas for meetings,
manages the meeting timetable and encourages
an open and constructive dialogue during
meetings, inviting the views of all Board members.
G. Composition of the Board
In addition to the Chairman, there were two
executive directors and seven independent
non-executive directors on the Board as at
year-end. In January 2022, a further non-
executive director joined the Board bringing
the number of independent directors to eight.
The roles of the Chairman and Group Chief
Executiveareclearlydefined,andtherole
profilesarereviewedaspartoftheannual
governance review undertaken by the Board.
Sir John Kingman, the Chairman, is responsible
for leading the Board while Sir Nigel Wilson,
GroupChiefExecutiveOfficer,isresponsible
for the day-to-day management of the Company
within the parameters of the strategy set by the
Board.SirJohnKingmanwasidentifiedbythe
directors as being independent on appointment.
H. Role of the non-executive directors
The non-executive directors’ engagement
with management, constructive challenge and
contribution to Board discussion are assessed
as part of the Board’s annual effectiveness
review. The non-executive directors’ letters
of appointment set out the time commitment
expected from them. At times, this time
commitment may go beyond that set out in the
letter of appointment and is therefore reviewed
regularly. External commitments, which may
have an impact on existing time commitments,
must be agreed in advance with the Chairman
and approved by the Nominations and Corporate
Governance Committee under its delegation
from the Group Board. In addition, the policy for
theidentificationandmanagementofdirectors’
conflictsofinterestisreviewedonanannual
basis.Thesignificantcommitmentsofeach
80 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
of the directors are included in the Board
biographies on pages 62 to 63. The Chairman’s
commitments were considered as part of his
appointment and the Board agreed that he had
no commitments that were expected to have
a negative impact upon his time commitment
to the company. This is kept under review.
I. Role of the Company Secretary
Procedures are in place to ensure that Board
members receive accurate and timely information
via a secure electronic portal and all directors
have access to the advice of the Group General
Counsel and Company Secretary as well as
independent professional advice at the expense
of the Company.
3. Composition, succession
and evaluation
J. Appointments to the Board
and succession planning
The Nominations and Corporate Governance
Committee is responsible for assessing the
composition of the Board and, in making
recommendations for appointments to the
Board, the Committee considers the balance of
skills, experience and knowledge needed in order
to enhance the Board and support the company
in the execution of its strategy. The Committee
is committed to ensuring that all appointments
are made on merit having evaluated the
capabilities of all potential candidates against
the requirements of the Board, with due regard
forthebenefitsofalltypesofdiversity,including
gender. The Board Diversity and Inclusion Policy
is published externally on the Company’s
website: group.legalandgeneral.com/en/
about-us/corporate-governance/diversity
A summary can be found on page 84 to 85.
K. Skills, experience and knowledge
of the Board
In making recommendations for appointments,
the Nominations and Corporate Governance
Committee considers the balance of skills,
experience and knowledge needed in order to
enhance the Board and support the group in the
execution of its strategy. Further details of the
appointments undertaken during the year can
be found on pages 82 to 83. All directors are
subject to shareholder election or re-election at
the AGM, with the exception of those directors
who are retiring at the conclusion of the meeting.
None of the non-executive directors have
currently served over nine years on the Board.
L. Board evaluation
The Board undergoes an externally facilitated
evaluation every three years. An external Board
evaluation was undertaken during 2020. The
2021 annual report includes details of the 2021
internal review which was externally facilitated
by the Board evaluation specialists Independent
Board Evaluation and commenced in October
2021. An update on the progress made against
the recommendations from the 2020 external
review is also provided.
4. Audit, risk and internal control
M. Internal and external audit
The Audit Committee comprises four
independent non-executive directors and the
Board delegates a number of responsibilities to
the Audit Committee, including oversight of the
group’sfinancialreportingprocesses,internal
control and risk management systems and the
work undertaken by the external and internal
auditors. The Committee also supports the
Board’s consideration of the Company’s viability
statement and its ability to operate as a going
concern. The Audit Committee chair provides
regular updates to the Board on key matters
discussed by the Committee. Details of how
the Committee assesses the effectiveness and
independence of the external auditors can be
found on page 91. KPMG were appointed as
the group’s external auditors with effect from
thefinancialyearended31December2018
following a tender process in 2016.
N. Fair, balanced and understandable
assessment
The Strategic report, located on pages 2 to 59,
sets out the performance of the Company, the
business model, strategy, and the risks and
uncertainties relating to the Company’s future
prospects. When taken as a whole, the directors
consider the annual report is fair, balanced and
understandable and provides information
necessary for shareholders to assess the
Company’s performance, business model
and strategy.
O. Risk management and internal control
framework
The Board sets the Company’s risk appetite
and annually reviews the effectiveness of the
Company’s risk management and internal
control systems. A description of the principal
risks facing the Company is set out on page 56.
Page 55 sets out how the directors have
assessed the prospects of the Company, over
what period they have done so and why they
consider that period to be appropriate (the
‘viability statement’). The Group Risk Committee
considers assessments of the group’s current
riskprofileandemergingriskfactors,facilitated
bytheGroupChiefRiskOfficer.Theactivities
of the Group Audit and Risk Committees are
set out on pages 86 to 93.
5. Remuneration
P. Remuneration policies and practices
The Company aims to reward employees fairly
and its remuneration policy is designed to
promote the long-term success of the Company
whilst aligning the interests of both the executive
directors and shareholders. An updated
remuneration policy was approved by
shareholders at the 2020 Annual General
Meeting. The directors’ remuneration policy
is set out on pages 100 to 101.
Q. Executive remuneration
The Remuneration Committee is responsible for
setting the remuneration for executive directors.
No director is involved in deciding their own
remuneration outcome.
R. Remuneration outcomes and independent
judgement
Details of the composition and the work of the
RemunerationCommitteearereflectedinthe
Remuneration Committee Terms of Reference
and set out in the Directors’ report on
remuneration.
UK Corporate Governance Code
A full version of the Code can be found on
the Financial Reporting Council’s website.
Please visit: frc.org.uk
Committee terms of reference
All Committee terms of reference
can be found on our website: group.
legalandgeneral.com/committees
81Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Committed to the highest standards
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 oversee the implementation of the
Company’s strategy. The Committee has overall
responsibility for leading the process for new
appointments to the Board. It also ensures that
these appointments bring the required skills and
experience to the Board to support the Board’s
role in the development and oversight of the
group’s strategy. As part of this, the Committee
reviews the structure, size and composition
of the Board to ensure the Board is made up
of the right people with the necessary skills and
experience whilst striving to achieve a Board
composition that promotes diversity of thought
and approach.
The Committee’s key responsibilities are:
• regularly reassessing the structure, size and
composition of the Board and recommending
any suggested changes.
• considering succession planning for directors
and other senior executives. This takes into
account the promotion of diversity and
inclusion, the challenges and opportunities
facing the company, and the skills and
expertise needed by the Board in the future.
In addition, the Committee ensures the
continued ability of the company to compete
effectively for talent in the market place.
• reviewing the criteria for identifying and
nominating candidates for appointment
totheBoardbasedonthespecification
for a prospective appointment including
the required skills and capabilities.
• identifying and nominating for approval of the
Board,candidatestofillBoardvacanciesas
and when they arise, taking into account other
demands on directors’ time.
• reviewing the time commitment required
from non-executive directors and assessing
thenon-executivedirectors’othersignificant
commitments to ensure that they continue
tobeabletofulfiltheirdutieseffectively.
• overseeing and monitoring the company’s
corporate governance framework, ensuring
compliance with the UK Corporate
Governance Code while promoting the
highest standards of corporate governance
across the group.
• monitoring and assessing the group’s
commitment to diversity and inclusion across
the group.
How the Committee spent its time in 2021
Board composition and succession
Inthefirsthalfoftheyear,theCommittee
undertook a rigorous review of the Board’s
composition to support discussions on
non-executive director succession. This included
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,
as well as various other considerations including
the tenure and independence of directors, and
diversity. A key theme that emerged from the
review was that the Board’s effectiveness in
driving and monitoring technological innovation,
one of the six growth drivers of the Company’s
strategy, could be further enhanced with the
addition of a director with digital or technology
experience. A second theme, looking to
Committee composition in particular, was that
additionalaccountingandfinancialservices
experiencewouldbeabeneficialadditiontothe
Board’s knowledge and skills. The recruitment
of the two new non-executive directors, Laura
Wade-Gery, who joined the Board in January
2022, and Tushar Morzaria, who will join the
Nominations and Corporate
Governance Committee report
Sir John Kingman
Chairman
The composition of the Committee
The Committee is composed of
the Group Chairman and all the
independent non-executive directors.
The table below sets out the
Committee membership during the
year. The Group Chief Executive and
Group HR Director may be invited
to attend meetings where this may
assist the Committee in fulfilling its
responsibilities and, most notably,
in relation to executive appointments
and succession planning.
Members
Sir John Kingman (Chairman)
Henrietta Baldock
Nilufer von Bismarck (from May 2021)
Philip Broadley
Lesley Knox
George Lewis
Ric Lewis
Toby Strauss
Julia Wilson (retired March 2021)
In line with our conflicts of interest
management policy, directors are
asked to absent themselves from
any discussions relating to their
own reappointment or succession.
The Committee’s terms of reference,
which set out full details of the
Committee’s responsibilities, can be
viewed on our website:
group.legalandgeneral.com/
committees
82 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
Board in May 2022 was undertaken with these
themes as a priority, in addition to the
overarching requirement that the appointee
must be able to operate at a high level of
financialandtechnicalcomplexity,tomaintain
effectiveness in overseeing the Company’s core
strategic priorities.
The Committee engaged independent external
searchfirmSpencerStuarttoundertakeafull
search against a description of the roles, the
time commitment expected of directors and the
Board diversity policy. Spencer Stuart was
chosenforitsdeepknowledgeofthefinancial
services and other relevant industries and its
strongexperienceinfindingdiverseand
inclusive leaders. A list of potential candidates
wasidentifiedandthesecandidateswere
assessedagainsttherolespecification,merit
andwithdueregardforthebenefitsofallforms
of diversity on the Board, including diversity
of gender, ethnicity and background. A short list
of candidates was narrowed down from those
on the long list and those candidates were
invited to an interview process facilitated by the
Chairman, the Group CEO, the Group HR Director
and members of the Board. Following this
extensive search, selection and interview process,
the Committee, following discussion, recommended
Laura Wade-Gery and Tushar Morzaria’s
appointment to the Board. The Board approved
the two appointments. Laura’s appointment took
effect on 3 January 2022. Tushar Morzaria will
join the Board from 27 May 2022.
Laura and Tushar are highly experienced and
respected individuals and will add further
valuable experience and insight to the Board.
The biographies of these two new non-executive
directors are set out on pages 62 to 63 and
show the strength and depth of skills and
experience they bring to the Board.
Succession
In addition to reviewing Board composition,
and in line with the recommendations coming
out of the 2020 Board evaluation, in 2021
the Committee continued to focus on short,
medium and long-term succession planning
for the executive and senior management, with
particular emphasis on how the composition
of the executive management and senior
leadership teams can facilitate delivering
on the group’s six strategic growth drivers.
The Committee reviewed management
succession plans and debated areas for growth,
strengthening and consolidation in the context
of the Company’s strategy. Executive leadership
oftheLegal&GeneralInstitutionalRetirement
(LGRI) business was an important short-term
succession focus for the Committee in 2021
and critical for the delivery of the strategic pillar
to be a global leader in pensions de-risking and
retirement income solutions. A formal process
was undertaken which included both internal
and external candidates to identify the
successor to Laura Mason as Chief Executive,
following her appointment as Chief Executive,
Legal&GeneralCapital.Attheconclusionofthat
process and following Committee discussions,
a number of changes to our executive team were
announced in October 2021, including Andrew
Kail’s appointment to the role of Chief Executive,
LGRI. In 2021, the executive organisation
structure was reviewed to understand
opportunities to maximise effectiveness on
delivering on another strategic pillar of helping
peopletakeresponsibilityfortheirownfinancial
security through insurance, pensions and
savings. Following discussions, it was further
agreed that the group’s retail businesses
(Legal&GeneralInsuranceandLegal&General
Retail Retirement) would be combined under
the leadership of Bernie Hickman. Following
well-planned and appropriate handovers,
the changes to the executive team took place
in January 2022.
The Committee also discussed succession
planning for the chair of our Audit Committee,
following Philip Broadley’s six year tenure
in the role and his appointment as the Senior
Independent Director in 2021. Tushar Morzaria
will take over from Philip as Audit Committee
chair when he joins the Board in May 2022. As
the current Group Finance Director of Barclays
Plc, the chair of the audit committee at BP plc
andwithextensiveaccountingandfinancial
services experience, Tushar is very well positioned
tofulfilthedutiesasAuditCommitteechair.
When considering Tushar’s appointment as
Audit Committee chair, the Committee thought
carefully about the time commitment required
to undertake both this role and his other external
commitmentsandsatisfieditselfthatTushar
hassufficienttimetofullycommittotherole.
The Committee also spent time considering
the successor to Lesley Knox in her role as the
designated workforce director. This was an
important decision for the Committee as the
group’s people are its most important asset.
It therefore remains vital for the Board to ensure
that it continues to hear the voice of the group’s
employees through a variety of channels,
including the designated workforce director.
The Committee determined that Nilufer von
Bismarck OBE will be an excellent successor.
As detailed on pages 18 and 19, the group
continues to show its commitment to
addressing climate change, one of the group’s
strategic growth drivers. As part of this, and
to ensure the Board’s continued effectiveness
in overseeing the successful implementation
of the group’s strategy, the Committee was
delighted to recommend to the Board
a designated non-executive director for climate
matters across the group. The Committee
determined that Nilufer von Bismarck has the
necessary skills and experience to take on the
role as the Board’s designated non-executive
director for climate. Nilufer’s appointment will
further bolster the Board’s focus on the group’s
climate commitments.
The Committee is responsible for evaluating the
independence of all non-executive directors and
undertakes an annual review of each non-
executive director’s other interests. The Board,
on the recommendation of the Committee, is
satisfiedthateachnon-executivedirectorserving
at the end of the year remains independent and
continuestohavesufficienttimetodischarge
their responsibilities to the company.
The Committee is also responsible for
overseeing and monitoring the group’s corporate
governance framework which includes the
following activities:
• monitoring the group’s compliance with
the UK Corporate Governance Code.
• promoting the highest standards of corporate
governance across the group.
• considering and approving directors’
additional external appointments, taking into
account other demands on directors’ time.
• ensuring that on appointment to the Board
non-executive directors receive a formal letter
of appointment setting out clearly what
is expected of them in terms of time
commitment, Committee service and
involvement outside Board meetings.
• overseeing the process for ensuring that
non-executive directors have tailored
induction programmes on appointment and
ongoing development programmes, including
regular Executive Business Awareness
sessions, designed to maximise their
effectiveness.
• overseeing the process by which the Board,
each Committee and individual directors
assess their effectiveness (including the use
of an external facilitator periodically, as well
as self-assessment) and reporting to the
Boardonthefindingsandrecommendations.
Details of the group’s compliance with the UK
Corporate Governance Code have been provided
on pages 80 and 81.
83Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Nominations and Corporate Governance Committee report
Our approach to diversity and inclusion
Our ambition is to create an inclusive culture at
Legal&General,wherewecanallperformatour
best, no matter who we are. We believe not only
that this is the right thing to do, but also that this
aim is consistent with our objectives around
inclusive capitalism. There is a clear commercial
logic as well as a compelling moral case for this,
and it underpins the actions we take to improve
diversity and inclusion across the organisation.
The Committee has three key areas of focus
for the Board as part of driving diversity and
inclusion across the group.
1. Building a diverse and inclusive Board
An effective Board is one that embodies diversity
of thought and background, and one which
reflectsourpeopleaswellasthebusinesses
and communities our organisation serves.
Ensuring appropriate diversity in Board
composition with the right mix of skills and
experience has been a key focus for the
Committee during the year.
We are proud to have a Board which is diverse,
both in terms of gender and ethnicity, but also
diversity of thought and background. Our Board
currently comprises 36% women and 64% men
(thisfigurewas30%womenand70%menas
at 31 December 2021, prior to Laura Wade-Gery
joining the Board on 3 January 2022).
As at 31 December 2021, 20% of the Board was
from an ethnically diverse background, which
exceeds the target in our Board Diversity Policy
and the recommendations of the Parker Review.
2. A more diverse and inclusive Senior
Leadership Team
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. Therefore, we continue
to hold ourselves to the stretching aspirational
targets we set in 2017:
• 40% female representation at middle/senior
management level.
• 50% female representation across our total
employee base.
As of 31 December 2021, female representation
across the group stood at 44.5%, down 0.2% vs
our position at the end of 2020. At the middle/
senior management level, representation was
35.9%, up 0.3% vs our position at the end of 2020.
Our Executive Committee comprises 25%
womenand75%men,withtwoofourfive
operating businesses led by a female CEO.
Whilst we originally intended our gender targets
to be achieved by the end of 2020, we have
revised the outcome date to 2025. Our initial
targets were aspirational, and, whilst it is
disappointing to have missed them, we strongly
believe in setting stretching targets to create
focus. The new timeline remains challenging,
although we have a clear plan to deliver against it.
We are committed to increasing the ethnic
diversity of our workforce, including at our most
senior grades. We have a clear strategy and plan
to do this, which includes a focus on recruitment
and retention of minority ethnicity talent and the
creation of career development and progression
opportunities for under-represented groups.
Employee data is important to help us track
progress and identify issues and we are keen
to improve the quality of the data that we hold.
As data is disclosed on a discretionary basis
by employees, we have put our efforts into
communicating the importance of this data,
with the result that disclosure rates, for ethnicity,
have increased in the year, from 52.6% to 67.9%.
We will continue to engage our employees about
the importance of sharing diversity data in 2022.
Recognising that our ethnicity data is not complete,
as of 31 December 2021, minority ethnicity
representation across the group stood at 11.9%.
At senior management level, representation was
12.0%.
We continue to take practical and purposeful
steps towards redressing under-representation
in our workforce, including, during 2021:
• a diversity and inclusion-led audit of our
recruitment processes (early careers, core
and volume hiring) across all diversity
and inclusion dimensions including gender
and ethnicity.
• ongoing investment in development for line
managers, with around 200 line managers
takingpartineither“D&IBasics”or“Inclusive
Line Management” training.
• the introduction of anonymised CVs into
the recruitment process.
• continued investment in our employee
networksacrossthefullspectrumofD&I
themes, including gender and ethnicity: 2021
sawthelaunchofanewinternalWomen&
Tech network to connect women working
in technology and data roles and the
development of a tech and digital recruitment
campaign which cited attracting more women
into these roles as an explicit objective.
• provision of wellbeing resources including
access to a backup network for child, adult
and elder care.
• ongoing external validation and
benchmarking through the Women in Finance
Charter, the Bloomberg Gender Equality
Index, Invest in Ethnicity Matrix, Social
Mobility Employers Index and Hampton-
Alexander Review.
3. Broadening the diversity & inclusion
agenda across our organisation
Our Global Diversity and Inclusion Council
(D&ICouncil)continuedtopromoteouragenda
of creating a diverse and inclusive business. It
is chaired by Laura Mason, CEO of LGC and our
GlobalDiversityandInclusionSponsor.TheD&I
Council is tasked with developing our plans for
improving diversity and inclusion across the group.
The Board is responsible for overseeing the
implementationofourgroup-wideD&Ipolicy.
During 2021, members of the Board, including
the Chairman, participated in The Listening
Project, an exercise which involved
Legal&Generalemployeessharingtheir
perspectives on ethnic diversity and lived
experience as employees of the group.
OurD&Ipolicyappliestoeveryonedirectly
employed by the group and forms the basis
of our engagement with our clients, suppliers
and other third-party providers. Our standards
include:
• we will be fair and transparent, and treat our
people with integrity and openness. We will
be respectful of differences and we will not
tolerate behaviour that marginalises,
disadvantages or devalues others.
• wewillaimtobuildaworkforcethatreflects
the diverse communities we serve. We will
invest in our hiring processes so we can
attract a more diverse pool of people, and
we will tackle barriers that prevent us from
attracting and retaining more diverse talent.
• we will create an inclusive environment where
people feel comfortable sharing their opinions
and feel like they belong. We will encourage
our people to embrace difference, to listen
to other points of view, and work together
to achieve the best outcome.
Nominations and Corporate Governance
Committee report continued
84 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
Diversity
Gender
30% Women
70% Men
As at 31 December 2021 the Board comprised:
As at 8 March 2022: 36% Women and 64% men
Tenure
0% Over six years
75% Between three and six years
25% Between zero and three years
As at 31 December 2021 the length of
tenure of the non-executives varied:
Ethnicity
As at 31 December 2021 the Board comprised
individuals from the following ethnic groups:
10% Asian
10% Black
80% White
Finding what you need online
We have published our gender pay
gap data which can be found online
at group.legalandgeneral.com/reports
A summary is available on page 49
of this report.
• we will ensure that everyone across
Legal&Generalunderstandstheir
responsibilities in driving an inclusive
and diverse culture and the opportunities
it can bring.
FormoreinformationonourD&Iactivityduring
2021, please see page 48 of the Sustainable
Business section of this report.
The Committee recognises that being diverse
itself will help to promote diversity when considering
succession planning, assessing Board and
executive candidates and recommending
appointments to the Board. As at 8 March 2021,
the Committee comprises 44% women and 56%
men and comprises individuals from the
following ethnic groups:
• Asian–11%.
• Black–11%.
• White–78%.
The Committee only engages executive search
firmsthataresignatoriestotheVoluntaryCode
of Conduct for Executive Search Firms, which
promotes gender diversity and best practice
for corporate board searches. During the year,
the company engaged Spencer Stuart, which
isasignatorytothisCode.Thissearchfirm
has no other connection to the company or
individual directors.
TheCommitteebriefsthesearchfirmtoensure
that the pool of candidates presented includes
a diverse range of candidates with an appropriate
range of experience, knowledge and background,
and who demonstrate independence of approach
and thought. As detailed on pages 82 to 83, this
process was followed for the recruitment of our
new non-executive directors.
85Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Nominations and Corporate Governance Committee report
Audit Committee report
Letter from the Chairman
Dear Shareholder
I am pleased to present the Audit Committee
report for the year ended 31 December 2021.
The report explains the work of the Committee
during the year and meets the disclosure
requirements set out in the 2018 UK Corporate
Governance Code (the ‘Code’).
The Code requires that the Audit Committee
mustoperateeffectivelyandefficientlyand
that its members have a balance of skills and
experience to deliver its responsibilities.
The members of the Audit Committee have
a wide range of experience, including as
executivesinthefinancialservicesandother
sectors, as non-executive directors, and as
boardmembersresponsibleforfinancial
reporting. The Board considers that I meet the
requirements of the Code in having recent and
relevantfinancialexperience,asdoother
members of the Committee. The full biographies
of all Committee members can be found on
pages 62 to 63. At the end of March, Julia Wilson
retired from the Audit Committee and resigned
from her role on the Board. I would like to take
this opportunity to thank Julia for her
considerable support and wise counsel during
her time as both a member and former Chair
of the Committee.
It is worth highlighting that all members of
the Committee are also members of the Risk
Committee, which ensures that there is
appropriateidentificationandmanagementof
any issues that are relevant to both committees.
The Audit Committee meets regularly and
privately with the external auditor and the Group
Chief Internal 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 topical issues and maintain
their understanding of the group’s businesses.
During 2021, the Secretary of State for Business,
Energy and Industrial Strategy issued an
extensive and wide-ranging consultation
on “Restoring trust in audit and corporate
governance.” Members of the Committee
reviewed the consultation and considered its
implications for both the group and the Audit
Committeemorespecifically,aswellasinthe
wider context of ensuring that the UK remains an
attractive market for shareholders, investors and
broader stakeholders. We are supportive of the
early establishment and empowerment of the
Audit, Reporting and Governance Authority
(ARGA) to ensure that reforms and associated
standards are suitably embedded in relevant
professional and corporate bodies, and the
Committee will continue to keep a close focus
on any proposed legislation, changes in
corporate governance requirements and
emerging best practice to ensure that the group
continues to be seen as a strong advocate of
high quality and transparent audit and corporate
governance.
Audit Committee focus for 2021
TheAuditCommitteemetfivetimesin
accordance with its annual plan and additional
informal meetings were arranged as necessary.
In line with its purpose, the Committee’s time
over the course of the year was spent in
consideration of:
• theresilienceofoperationalandfinancial
controls in a continuing hybrid working
environment.
• theintegrityofthecompany’sfinancial
statements and Solvency II disclosures,
including consideration of the viability
statement and going concern assessments.
• keyaccounting,financialreportingand
actuarial areas of judgement, including the
impact of Covid-19, the presentation and
transparencyofthegroup’sfinancial
disclosures, including consideration of the
group’s Alternative Performance Measures.
• the adequacy of climate disclosures,
including consideration of the group’s
climate report.
• the adequacy and effectiveness of our
systems of internal control, including
whistleblowing.
• the effectiveness, performance and
objectivity of both the internal and external
audit functions including an externally
facilitated review of the Group Internal
Audit function.
• the group’s preparations for the transition to
the new accounting standard for insurance
contracts, IFRS 17.
Philip Broadley
Chairman of the Audit Committee
The composition of the Committee
The Committee is composed entirely
of independent non-executive
directors. The table below sets out its
membership during the year.
Members
Philip Broadley (Chairman)
Nilufer von Bismarck (from May 2021)
George Lewis
Toby Strauss
Henrietta Baldock (until March 2021)
Lesley Knox (until March 2021)
Julia Wilson (retired March 2021)
Other regular attendees at Committee
meetings include the following:
Group Chairman; Group Chief
Executive; Group Chief Financial
Officer; Group Chief Risk Officer;
Director of Group Finance; Group Chief
Internal Auditor; Legal & General
Retirement Finance Director; Group
Actuary; Chief Tax Officer;
Representatives of the external auditor,
KPMG LLP.
86 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
While the global outbreak of Covid-19 has
continued to have a profound impact on society,
the direct impacts on the group have lessened or
been mitigated during 2021, and this has allowed
the Committee to adjust its activities to look at
other areas of focus. One area associated with
Covid-19 where the Committee has continued to
spend a proportion of its time is in respect of the
move to a hybrid working model. While this
is recognised more and more as a ‘new normal’,
andbringswithitmanybenefitsfroman
individual employee and company perspective,
it also carries a new set of risks and it is right for
the Committee to focus on the resilience of the
control environment in light of this changed
operating model, including how it is monitored
and overseen in the future.
As the implementation date of IFRS 17 draws
closer, the Committee’s focus on the group’s
preparedness has continued to increase. While
the Committee has continued to monitor the
implementation of the systems, processes and
operating model to support the delivery of the
newfinancialreportingrequirements,timehas
also been spent in reviewing and approving
certain methodologies, policies, assumptions
and reporting metrics, supported by a number
of Board technical awareness sessions held
outside of the normal Committee meetings.
Finally, the Committee has spent time during
2021 in consideration of the scope, focus and
quality of the various sources of assurance from
which it is able to gain comfort. This has
included: working with Group Internal Audit to
incorporate timely and independent assurance
overspecificelementsoftheIFRS17
programme; monitoring the continued
development and embedding of the group’s
Model&FinancialControlFramework(MFCF),
including the receipt and review of regular
reporting on the outcome of design and
operating effectiveness testing; and a decision
to require independent limited assurance over
certain elements of the group’s climate report.
Effectiveness reviews
The Committee’s performance was externally
evalu ate d by I ndependen t Board Eval uation (IBE)
inDecember2020.TheCommitteeidentified
two actions as part of its evaluation: undertaking
a review of the Committee’s composition to
ensurethatitoperatedasefficientlyand
effectively as possible; and enhancing the
Committee’s engagement with both Group
Internal Audit and the external auditor. In
response to the evaluation, which suggested
thattheCommitteewouldbenefitfromasmaller
more technically focused membership, the
composition of the Committee was revised on 1
May 2021 and Nilufer von Bismarck was
appointed as a member of the Committee.
Feedback was also provided to the Internal Audit
Function to enhance communication and
individualbriefingsessionswithexternal
auditors were scheduled regularly.
In 2021 the Board undertook an internal
evaluation, which was externally facilitated by
IBE and included an effectiveness review of the
Board Committees, including the Audit
Committee.Committeemembersweresatisfied
with the effectiveness of the Committee and the
progress that had been made on the
Committee’s succession plans.
I am pleased to report that the Committee
continues to operate effectively. Looking ahead
to the coming year, I expect the Committee to be
focused on an ever-broadening range of topics.
IFRS 17 will inevitably require a deeper and more
concentrated focus as the group begins to
produce comparative information for the year
ending 31 December 2022, as KPMG undertakes
more detailed audit work on those comparatives,
andasthenewfinancialreportingoperating
modelgoesthroughfinalimplementationand
testing in advance of go-live in 2023. At the
same time, the Committee will continue to
consider and review wider aspects of the group’s
reporting, particularly Alternative Performance
Measures under the new accounting standards
and the increasing stakeholder focus on
non-financialmetrics,aswellasthecontinued
embedding of the MFCF to support and
demonstratetherobustnessofthefinancial
reporting control environment.
This will be my last report as Chairman of the
Audit Committee. Tushar Morzaria will join the
Board in May and will succeed me as Chairman
of the Committee upon his appointment. Tushar
has a wealth of recent and relevant expertise in
financialservicesandwillbringafreshviewto
the work of the Committee. I will remain as a
member of the Committee to provide continuity
of experience.
The information on the following pages sets out
in detail the activities of the Committee during
theyear.Ihopethatyouwillfindthisreport
useful in understanding our work and I welcome
any comments from shareholders on my report.
Philip Broadley
Chairman of the Audit Committee
The Audit Committee’s terms of
reference, which set out full details of
its responsibilities, can be viewed on
our website group.legalandgeneral.
com/committees
87Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Audit Committee report
How the Audit Committee spent its time
in 2021
The Audit Committee is a Board Committee with
governance responsibilities that include the
oversightoffinancialdisclosuresandcorporate
reporting. The Board has delegated to the Audit
Committee the principal responsibilities to assist
the Board in discharging its responsibilities with
regard to monitoring the integrity of the group’s
financialstatements,monitoringthe
effectiveness of the internal control (including
financialinternalcontrol)frameworkand
overseeing the independence and objectivity
of the internal and external auditors. The Audit
Committee is also responsible for advising the
Board on whether the annual report and
accounts, taken as a whole, are fair, balanced
and understandable and for reviewing the basis
on which the Board provides the viability
statement and going concern assessment.
The Audit Committee has an annual work plan
alignedwiththefinancialreportingcycleofthe
Company. The Audit Committee’s activities fall
into three principal areas:
• accountingandfinancialreporting.
• internal and external audit.
• internal control.
Accounting and financial reporting
The Audit Committee reviews the
appropriateness of the half year and annual
financialstatements,whichitcarriesoutwith
both management and the external auditors.
This review includes ensuring that the annual
report and accounts, taken as a whole, are fair,
balanced and understandable, as well as
covering compliance with disclosure
requirements and the material areas in which
significantjudgementshavebeenapplied.
Audit Committee report
continued
In collaboration with the Risk Committee, the
Audit Committee also reviews the disclosures
to be made in relation to internal control and risk
management, as well as the principal risks and
uncertainties the group faces.
TheCommitteecanconfirmthatthekey
judgementsandsignificantissuesconsidered
inrelationtothe2021financialstatementsare
consistent with the disclosures of key estimation
uncertainties and critical judgements as detailed
in Note 1 on page 139.
Robust year-end governance processes are
in place to support the Audit Committee’s
considerations which include:
• ensuring that all of those involved in the
preparation of the Company’s annual report
have been appropriately trained and fully
briefed on the ‘fair, balanced and
understandable’ requirements.
• internallegalverificationofallfactual
statements, and descriptions used within
the narrative.
• regular engagement with and feedback from
senior management on proposed content
and changes.
• feedback from external advisors (corporate
reporting specialists, remuneration and
strategic reporting advisors, external auditor)
to enhance the quality of our reporting.
• early opportunity for review and feedback
on our annual report by Audit Committee
members.
During the year, the Audit Committee has
continuedtokeepabreastofsignificant
and emerging accounting and reporting
developments, including consideration of
changes in disclosures arising from best
practice application and Financial Reporting
Council (FRC) publications on aspects of
UK reporting.
Percentage of time allocated
to specific agenda items
58% Actuarial, accounting and financial
reporting, including areas of judgement and
reporting developments
14% External audit
10% Internal audit
8% Internal controls
10% Other (including governance)
88 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
Issue Committee’s response
Valuation of non-participating insurance contract
liabilities – retirement:
The non-participating insurance liabilities for
retirementproductsaresignificantinsizeand
their estimation is inherently judgemental.
TheCommitteeevaluatedthesignificantjudgementsthathaveanimpactonthevaluationofnon-participating
insurance liabilities for retirement products. This included considering:
Valuationinterestrates–whichareusedtodiscounttheliabilities.Thesearesensitivetojudgementsmade,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
historic data and external market experience.
Longevityassumptions–whichestimatehowlongpolicyholdersreceivingannuitypaymentswilllive.The
challengearoundthesettingoflongevityassumptionswasaparticularlysignificantareaforreviewasthe
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.
The Committee concluded that the retirement insurance contract liabilities are appropriate for including in the
financialstatements,reflectingtheassetrisksandtheavailabledataonpolicyholderlongevity.
Valuation of complex investments:
Marktomodelinvestmentscaninvolvesignificant
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
plausiblevaluationsforfinancialinstruments(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.
Thegroupbalancesheetcarriesexposuretocomplexinvestments(typicallyclassifiedasLevel3inthefairvalue
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.
While 2020 saw increased volatility within asset markets as a result of Covid-19, we have experienced a market
recovery and greater stability during 2021, further supported by the diversity of our asset portfolio. These harder
to value assets remain a key areas of focus, however, and 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, 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
thattheyarevaluedappropriatelyforinclusioninthefinancialstatements.
Valuation of non-participating insurance liabilities
– insurance:
The non-participating insurance liabilities for
protection contracts are an important driver of the
profitabilityforthislineofbusinessandrequire
judgements to be made regarding the assumed rates
of mortality and persistency. The Company makes
extensive use of reassurance to reduce mortality risk.
The Committee has reviewed the methodology for calculating reserves including the allowance made for
payments to and from reassurance 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 2021, the Committee has continued to spend time reviewing the
findingsandjudgementsinrespectofthemortalityexperienceofourUKandUSbooksasaresultofCovid-19.
During 2021 the Committee reviewed the rationale and assumptions used to support the change in valuation
interestratemethodologyforUKprotectionliabilitiestoincorporateanilliquiditypremiumasareflectionof
availableassetstobacklaterdurationcashflowsyieldingmorethantherisk-freerate.
The Committee reviewed the assumptions and the expected level of prudence taking into account market
benchmarking, internal experience studies and the reassurance structures. The Committee considered the
effectiveness of controls in place over valuation models.
The Committee concluded that the insurance liabilities of the Insurance division are appropriate for inclusion
inthefinancialstatements.
Significantaccountingandreportingjudgementsconsideredduring2021areshownbelow:
89Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Audit Committee report
Issue Committee’s response
Alternative Performance Measures (APMs):
APMs offer investors and stakeholders additional
information on the Company’s performance and the
financialeffectof‘one-off’events,andthegroupuses
a range of these metrics to enhance understanding
of the group’s performance.
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. In this regard the Committee
has reviewed the group’s use of APMs in light of the FRC’s thematic review in October 2021.
TheCommitteehasreviewedtheapplicationofadjustedoperatingprofit,andspecificallytheinclusionofcertain
itemseitheraspartofadjustedoperatingprofitorinvestmentvariances,toensurethattheyarealignedtoboth
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.
IFRS 17:
IFRS 17 is a new accounting standard for insurance
contracts due to take effect on 1 January 2023. IFRS
17isexpectedtohaveasignificantimpactonthe
reportingofthegroup’sfinancialperformance.
As well as continuing to monitor the preparedness of the group to implement IFRS 17, the Committee has
reviewed a number of papers during 2021, covering various areas of policy, methodology and assumptions,
such as the application of the General Measurement Model.
In particular, the Committee has reviewed the methodology and assumptions to support the transition to IFRS 17,
including the decision to apply the fair value approach to calculate the contractual service margin on transition for
annuities issued prior to 2016.
The Committee has further reviewed certain demographic assumptions which will be applied as part of the
transition, as well as broader additions to the group’s Accounting Policy Manual in respect of IFRS 17.
The Committee concluded that the disclosures in respect of IFRS 17 included in Note 1 Basis of Preparation are
appropriate for inclusion in the annual report.
The Audit Committee, having completed its
review, recommended to the Board that, when
taken as a whole, the 2021 annual report is fair,
balanced and understandable, and provides the
information necessary for shareholders to
assess the company’s position and
performance, business model and strategy and
the business risks that it faces. The Audit
Committee, together with the Risk Committee,
reviewed the key assumptions and
methodologies of the risk-based capital model
as well as related Solvency II disclosures. 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
thefinancialreportinginthegroup’sfinancial
statements.
Internal control
The Board has delegated responsibility for
reviewing the effectiveness of the group’s
systems of internal control to the Audit
Committee.
The Audit Committee has the primary
responsibility for the oversight of the group’s
system of internal controls including controls
overfinancialreportingandtheworkofthe
internal audit function. The Audit Committee,
in collaboration with the Risk Committee, seeks
to ensure that the group operates within a
framework of prudent and effective controls that
allowrisktobeidentified,assessedandmanaged.
The Audit Committee has completed its review
of the effectiveness of the group’s system of
internal control policies and procedures, during
the year and up to the date this report was
approved, 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 Audit Committee did not identify any
weaknesses which were determined to be
significanttothepreparationofthefinancial
statements. Where areas for improvement were
identified,processesareinplacetoensurethat
the necessary actions are taken and progress is
monitored by the Audit Committee.
Internal Audit
The Audit Committee monitored and reviewed
the scope, extent and effectiveness of the
activity of the Group Internal Audit function.
In particular, the Audit Committee evaluates the
alignment of the internal audit plan with the
group’s key risks and strategy.
The Group Chief Internal Auditor has a standing
agenda item at each Audit Committee meeting
to update the Audit Committee on audit
activities, progress of the audit plans, the results
of any unsatisfactory audits and the action plans
to address these areas. The group has adapted
quickly to the adoption of a hybrid working
model, and Internal Audit were able to undertake
all the audits within their Internal Audit Plan,
including some additional reviews to test the
continued effectiveness of the overall control
environment as remote working continued
during the year, as approved by the Committee,
completing 115 audits in 2021. There was a
particular focus on key themes including: the
effectiveness of the control framework in a
remote working environment; cyber/data
managementandgovernance;financialcontrol
framework; digital business and regulatory
change;conductrisk;financialmanagement
and control; model and end user computer risk;
outsourcing/vendor management and
economic and political volatility.
The Audit Committee meets with the Group
Chief Internal Auditor in private throughout
the year. The Committee, in line with the
Chartered Institute of Internal Auditors Financial
Services Code of Practice, conducted an
assessmentof,andwereabletoconfirm,the
independence of the Group Chief Internal Auditor.
Audit Committee report
continued
90 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
including work on key judgement areas,
accounting policies, actuarial assumptions and
the impact of the transition to IFRS 17 on audit
approach and planning.
The Audit Committee meets the external auditor
in private throughout the year.
As in the prior year, as a result of Covid-19 much
of KPMG’s audit work has been undertaken
remotely. The Audit Committee has sought to
understand whether this has impacted KPMG’s
audit plan or their ability to undertake their work
effectively. KPMG’s regular reporting throughout
theyearhasdemonstratednosignificantor
adverse impact from remote working, and the
Committee is comfortable that there has been
no undue impact on their effectiveness.
The Audit Committee reviews and approves
the terms of engagement of the external auditor
and monitors its independence. This includes
maintaining the policy for overseeing the
engagement of the external auditor for
pre-approved audit services, audit-related
services and other non-audit work. The
non-audit services policy includes a ‘whitelist’
of permitted audit and audit-related services
along with a list of prohibited services. The
policy, the purpose of which is to ensure that
the independence of the external auditor is not
impaired, is approved by the Audit Committee
and meets the requirements of the FRC Ethical
Standard.
Ourpracticeistoapproachotherfirmsfor
significantnon-auditwork.Thegroup’spolicy
requires that all services with an anticipated cost
inexcessofaspecifiedamountaresubjectto
a full competitive tender involving at least one
other alternate party in addition to the external
auditor. If the external auditor is selected
following the tender process, the Audit
Committee is responsible for approving the
external auditors’ fees on the engagement.
For services with an anticipated cost below the
specifiedamount,theGroupChiefFinancial
Officerhasauthoritytoapprovetheengagement.
The external auditor and management are
required to report regularly to the Audit Committee
on the nature and fees relating to non-audit
services provided under this authority.
KPMG annually reports on whether and why
it deems itself to be independent. The Audit
CommitteeremainssatisfiedthatKPMG
continues to be independent.
The external auditor
The Audit Committee has the primary responsibility
for overseeing the relationship with, and
performance of, the external auditor. This includes
making recommendations for their appointment,
re-appointment, removal and remuneration.
Appointment
The Audit Committee is cognisant of the
requirements governing the appointment of an
external auditor, notably the requirements of the
Statutory Audit Services for Large Companies
Market Investigation (Mandatory Uses of
Competitive Tender Process and Audit
Committee Responsibilities) Order 2014,
includingrequirementsformandatoryauditfirm
rotation.TheCompanyconfirmsthatithas
complied with such requirements for the
financialyearunderreview.
Following a competitive tender carried out in
2016, KPMG was appointed as the group’s
externalauditorswitheffectfromthefinancial
year ended 31 December 2018. In May 2021,
KPMG was reappointed as the group’s external
auditorforthefinancialyearended31December
2021, which is their fourth year as the group’s
external auditor. Rees Aronson, who has been
the lead audit partner for KPMG since appointment,
continued in that role for the year ended
31 December 2021. Mr Aronson will retire from
KPMG during the course of 2022. The Committee
accepted KPMG’s proposal that Salim Tharani
succeeds Mr Aronson as lead audit partner for
2022. Mr Tharani has been involved as a partner
on the audit for the past four years.
Performance
The Audit Committee assesses the effectiveness
of the external auditor against the following criteria:
• provision of timely and accurate industry-
specificandtechnicalknowledge.
• maintaining a professional and open dialogue
with the Audit Committee Chair and
members at all times.
• deliveryofanefficientandeffectiveauditand
the ability to meet objectives within the
agreed timeframes.
• the quality of its judgements and audit
findings,management’sresponseand
stakeholder feedback.
The Audit Committee receives regular reports
fromtheexternalauditoronauditfindings,
significantaccountingandactuarialissues,and
internal control matters. During 2021, there has
been an increase in reporting relating to IFRS 17,
Remuneration
In 2021, the group spent £1.3 million on
non-audit services provided by KPMG. It spent
£1.3 million 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
befoundinNote31totheconsolidatedfinancial
statements. The non-audit fee represents 11% of
the total audit fee for 2021.
Analysis of current and prior-year spend
on audit, other assurance and non-
assurance services
2021 2020 2019
Audit 9.3 10.1 7.1
Audit-related required
by legislation 1.3 1.4 0.8
Other audit-related 1.2 0.6 1.1
Other assurance 0.1 0.6 0.3
Non-assurance – – 0.2
Total 11.9 12.7 9.5
Audit Committee report 91Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Group Risk Committee report
The role of the Committee is to assist the Board
in the oversight of the risks to which the group
may be exposed and to provide the Board with
strategic advice in relation to current and
potential future risk exposures. This includes
reviewingthegroup’sriskprofileandappetite
for risk and assessing the effectiveness of the
group’s risk management framework. The
group’s approach to the management of risk
is set out in more detail on pages 52 to 59.
The work of the Committee is supported by
theGroupChiefRiskOfficerandtheCompany
Secretary, who assist the Committee chair
in planning the Committee’s work and ensuring
that the Committee receives accurate and timely
information.TheCommitteemetfivetimes
during 2021.
Group Chief Risk Officer’s report
The Committee receives at each meeting a
formalreportfromtheGroupChiefRiskOfficer.
This report brings to the Committee’s attention
key factors in the operating environment of the
group’s businesses and an assessment of the
potential risks that may emerge. The review
includes analysis of risks arising from the
macro-economic outlook and conditions in
financialmarkets,togetherwithgeopolitical,
legislative and regulatory change risks that
may impact the group’s businesses, and risks
associated with the implementation of the
group’s business strategy.
AlongsidetheGroupChiefRiskOfficer’sreport
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’sexposurestofinancialandoperational
risks, including risk-based capital requirements
in relation to the core risks implicit in the group’s
businesses. The Committee also receives an
assessmentoftheoverallprofileofconduct
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
customerjourneyacrossthegroup’sfinancial
services products.
Assessing the risk impacts of Covid-19
The Committee has continued to engage with
executive and operational management during
the pandemic to consider the responses being
taken to the range of risks presented by Covid-19,
and the wider impacts for our businesses from
the global lockdown.
As well as ensuring the wellbeing of those
atLegal&General,theCommitteehas
considered the actions taken to maintain the
availability of customer facing services, and
the resilience of supporting business activities.
The Committee has also considered
assessments on the effects of the lockdown
for the global economy and our investment
portfolios, including the outlook for credit assets.
Reviews of credit exposure have included sectors
at risk from the global economic downturn and
the longer-term impacts from changes in
behaviours as a result of the pandemic. Trends
in mortality for the group’s UK and US protection
businesses, and offsetting effects with the group’s
annuity portfolios have also been evaluated.
Focused business and risk reviews
Focused ‘deep dive’ reviews of particular risk
areas are undertaken at each Committee
meeting. The purpose of these reviews is to
enable Committee members to examine the risk
profileofthecorebusinesslinesandtoconsider
the robustness of the frameworks in place
to manage the key risk exposures. Committee
members are invited to participate in setting the
agenda for these deep dive reviews, considering
both the current operating environment and
emerging risk factors. Below are examples
of some of the key reviews that took place during
2021, and the areas of focus by the Committee.
• Operational risk management within LGIM:
consideration of the operational risks implicit
in LGIM’s core institutional investment
management business, the appetite for those
risks and the control processes deployed
by management.
• Outsourcing and supply chain risks: review
of the group’s framework for oversight of
third-party supply and service arrangements,
and the group’s approach to ensuring
compliance with new regulatory standards
to be implemented in 2022.
• Financial crime risks: assessment of the
evolvingtypesoffinancialcrimerisktowhich
the group may be exposed, and the evolution
of the group’s risk management framework
in response.
Toby Strauss
Chairman of the Group
Risk Committee
The composition of the Committee
The Committee is composed entirely
of independent non-executive
directors. The table below sets out
its membership during the year.
Members
Toby Strauss (Chairman)
Henrietta Baldock
Nilufer von Bismarck (from July 2021)
Philip Broadley
Lesley Knox
George Lewis
Ric Lewis
Julia Wilson (retired March 2021)
Other attendees at Committee
meetings include the following:
Group Chairman; Group Chief
Executive; Group Chief Financial
Officer; Group Chief Risk Officer; Group
Chief Internal Auditor; Representatives
of the external auditor, KPMG LLP.
92 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
• LGC risk appetite: the approach,
measurement and metrics used to assess
risk within the different asset classes in which
LGC invests and the approach to ongoing
monitoring of investment risks.
• Construction and building safety risks:
a review of the group’s approach to managing
safety risks within property construction and
house building businesses and the group’s
response to ensuring compliance with
regulatory developments.
• Reinsurance risk management: a review of
the group’s approach to setting reinsurance
exposure limits and broader reinsurance
strategies for the group’s PRT and protection
businesses.
• Operational resilience: a review of the group’s
capabilities to ensure continuity of business
operations and the availability of important
business services.
• RiskprofileofWorkplaceSavings:areview
of the end-to-end customer journey within
the Workplace Savings business, the key
risks, and the controls to ensure good
customer outcomes.
• Liquidity risk management: the group’s
approach to managing the different liquidity
risks to which we may be exposed, and the
forecasting, monitoring and reporting on
related liquidity requirements.
• Property risk: a review of the different types
of property investment-related assets held
byLegal&Generalandthereturnandrisk
characteristics of those assets.
• People risk: review of the dynamics of
people-related risks, including emerging
risk factors from new ways of working
and the long-term trends in the UK
employment market.
• Transition from IBOR: monitoring the group’s
preparations for the transition to SONIA
in 2022.
The Committee also takes an active role in the
group’s recovery and resolution planning, which
have been put in place in line with the UK
regulatory requirements relating to systemically
important insurers.
Risk appetite
At its July meeting, the Committee undertook
a detailed review of the operation of the group’s
risk appetite framework and the key measures
and tolerances used to determine acceptable
risktaking,recommendingsomerefinements
to the Board, including the addition of measures
for climate-related risk exposures. In December,
theCommitteeconsideredtheriskprofileofthe
group’s strategic plan and its alignment with
the group’s overall risk appetite.
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. As well as reviewing and using the output
of the model in its understanding of the group’s
riskprofile,theCommitteeisthefocalpointfor
modelgovernancewithspecificconsideration
of the:
• 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
itreflectsthebusinesslinesandriskprofile
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.
Own Risk and Solvency Assessment
(ORSA)
The ORSA is an ongoing assessment of the risks
towhichLegal&Generalisexposedandan
evaluationofthesufficiencyofcapitalresources
to sustain the business strategy over the plan
horizon. Over the course of the year, the Committee
considered different aspects of the group’s ORSA
process. This included the review of proposed
stress tests and scenarios to be used in the
evaluationofcapitaladequacy,theprofileof
risks within the group’s strategic plan and how
they may change over the planning period, and
the group’s overall capacity to bear the risks
identified.AformalORSAreportissubjectto
annual review by the Committee prior to formal
approval by the Group Board.
Risk governance
Sound frameworks of risk management and
internal control are essential in the management
of risks. During the year, the Committee has
received updates on the continued development
of the risk governance framework.
Risk-based remuneration
The Committee advises the Remuneration
Committee on risk matters to be considered
in reviewing bonus pools.
This will be my last report as Chairman of the
Risk Committee. I will be standing down from
the Board at the end of April 2022 and Sir John
Kingman will succeed me on a temporary basis
as interim Chairman of the Committee.
Toby Strauss
Chairman of the Group Risk Committee
93Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Group Risk Committee report
Our remuneration report is organised
into the following sections
Letter from the Chairman of the
Remuneration Committee 94
Quickreadsummary 96
Remuneration policy (summary) 100
Annual report on remuneration 102
The directors’ remuneration policy was subject
to a binding vote in 2020, and applies for three
years from the 2020 AGM. The annual report
on remuneration together with the Chairman’s
Statement will be subject to an advisory
shareholder vote at the 2022 AGM.
Letter from the Chairman
Dear Shareholder
In this Remuneration Committee’s report
for 2021, I am pleased to describe our
considerations and decisions, and the
remuneration outcomes in respect of the year.
The Committee is mindful of the UK Corporate
Governance Code’s six principles in relation to
remuneration (clarity, simplicity, risk, predictability,
proportionality and alignment to culture) when it
considers remuneration. The Committee’s view
isthattheremunerationframeworkatL&Gis
aligned with these areas and it will ensure that
the new remuneration policy tabled in 2023
continues to be so aligned.
Link between pay and performance
Against a challenging global backdrop,
Legal&General’sresilienceandsound
business model has enabled the company to
returntogrowthwithposttaxprofitsexceeding
£2billionforthefirsttime,earningspershare
(EPS) up 19% on 2019 and ROE of 20.5%.
Annual Variable Pay (AVP)
For executive directors, 70% of the bonus
opportunityisdeterminedbygroupfinancial
performance, measured against pre-determined
targets. The outcome for all of the group
financialKPIsin2020wasbelowthreshold,due
to Covid-19 disruption, and this resulted in no
bonus payments for executive directors in 2020
basedongroupfinancialperformance.
2021 targets were set based off the group
business plan and also recognised that there
remained considerable uncertainty regarding
the impact of Covid-19. As the year progressed,
it became clearer that the impact on 2021 would
be less than 2020 and accordingly the Committee
debated whether to revise the targets mid-year,
but decided to review the outcome at the end of
the full year. The outcome for 2021, was a 12%
increase in net release from operations, an 11%
increaseinadjustedoperatingprofit,anda72%
increase in earnings per share (with the 2020
EPS comparator excluding the one-off mortality
reserve release of £153 million and the
£271 million gain on the Mature Savings
disposal in 2020 with no equivalent in 2021).
This performance was then considered in the
light of the levels to which targets might have
been revised in mid-2021 and also the performance
in 2020 and 2019. The Committee considered
the outcome of maximum bonuses for the
financialperformanceachievedwasappropriate.
The targets are shown in this report on page 104.
Strategic objectives determine the other 30% of
bonus opportunity, including customer, culture
and environment, social and governance (ESG)
metrics, as described in more detail on page 105
and in our 2021 climate report. The environmental
performance measures for 2021 are aligned to
the key commitments in our 2020 Task Force on
Climate-related Financial Disclosures (TCFD)
report, and progress against these environmental
commitments will continue to be a feature of the
bonus plan.
As noted above and consistent with previous
years, the Committee chose to exclude the
beneficialimpactofmortalityassumption
changesfromthefinancialresultswhen
determining bonus awards. Even excluding
theseitems,2021performancesignificantly
exceeded that for 2020 and 2019, resulting in
bonus outcomes of 94.5% and 92.2% of
maximum for the executive directors. Targets
andoutcomesaresummarisedinthe‘Quick
read’ section on page 99 and in further detail
on page 104.
Lesley Knox
Chairman of the Remuneration Committee
Remuneration Committee members
The composition of the Committee
The Committee is composed entirely of independent
non-executive directors. The table below sets out its
membership during the year.
Members
Lesley Knox (Chairman)
Henrietta Baldock
Philip Broadley
George Lewis (from 7 October 2021)
Ric Lewis
Other regular attendees at the meeting include
the following:
Group Chairman; Group Chief Executive Officer;
Director of Group Finance; Group HR Director; Group
Reward Director; Head of Executive Compensation;
Representative of the independent adviser, PwC.
Directors’
report on
remuneration
94 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
Performance Share Plan (PSP)
The long-term incentive (PSP) awards granted
in 2019 were subject to EPS growth and total
shareholder return (TSR) out-performance over
the three-year period ended 31 December 2021.
EPS grew by 41.9% over the period (12.4% per
annum), and TSR grew by 46.3%, out-performing
the median of the FTSE-100 and also the bespoke
comparator group. This resulted in 82.9% of the
2019 PSP award vesting with the remaining
17.1% forfeited.
In accordance with the remuneration policy, the
Committee assessed the formulaic outcome,
considering overall performance, risk management,
progress against our environmental 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 2024. The PSP performance
targets and outcomes are summarised in the
‘Quickread’sectiononpage99.
PSP awards are normally granted each year,
subject to performance. As reported last year,
the awards granted in 2020 are subject to an
additional provision enabling the Committee to
reduce the number of shares at vesting and/or
impose further conditions to neutralise any
‘windfall gain’ that might arise as a result of a
rebound in the share price after grant. The 2020
awards were granted at an average share price
of £229.26p and are scheduled to vest in 2023.
The Committee will determine at that time whether
any “windfall” adjustment should be made.
International Financial Reporting Standard 17
(IFRS17),relatingtoprofitabilityrecognition
for insurance contracts, will replace the current
reporting standard (IFRS 4) with effect from
1January2023.Forthe2022year,keyfinancial
results will be disclosed under IFRS 4 and
subsequently under IFRS 17 in 2023. This will be
the only accounting period where the results
under both IFRS 4 and IFRS 17 will be presented.
The current PSP performance metrics use EPS
growth over a three-year period to determine
50% of the PSP award. The change in accounting
reporting standard during a performance period
prevents EPS from being measured on the same
basis from the start to the end of that period.
The Committee has considered this issue, to
determine the fairest way to measure EPS
growth for performance periods spanning the
change in accounting reporting standard. This
issue will be considered in more detail during
2022, and the methodology adopted will be
disclosed in the Remuneration Committee’s
report for 2023.
Base pay
As reported in our annual report last year, base
pay increases for executive directors were
paused in 2021 due to the economic uncertainty
caused by Covid-19. With that uncertainty now
diminishing, the Committee considered the
broader market and overall business performance,
and reviewed pay and conditions across the
group to determine any base pay increase for
executive directors in 2022. The average base
pay increase for UK employees was 2.2% in
2021 and will be 5.2% in 2022, and within the
context of the total increase received by other
employees in 2021 and 2022, the Committee
has determined to increase base pay for Nigel
Wilson (Group Chief Executive) by 5.0% and Jeff
Davies(GroupChiefFinancialOfficer)by7.1%
with effect from 1 March 2022.
As previously indicated, pension contributions
for executive directors will reduce to 10% of base
pay in December 2022, to align with that
available to the majority of the UK workforce.
Consideration of the wider workforce
The Committee has regard for the remuneration
of all employees across the group, and perform
this responsibility in the knowledge that
Legal&GeneralareanaccreditedLivingWage
employercertifiedbytheLivingWageFoundation.
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.
During both 2020 and 2021, it remained important
to protect employees against the effects of
Covid-19, with work-from-home and protected
officefacilitiesmadeavailable.AllUKemployees
have access to private medical insurance and a
24/7/365 employee assistance helpline.
Wellbeing support is also available to employees
and their family members, including childcare
and eldercare support, healthcare apps, and
preferentialborrow/save/advancefinance
facilities through our partner organisation,
Salary Finance. UK employees also have the
opportunity to invest their own money and
becomeshareholdersinLegal&General
through the Employee Share Purchase and
ShareSave plans. More than two-thirds of
employees now participate in these plans.
The average annual base pay increase for UK
employees was around 5.2% in 2022, in
recognition of the labour market and rising costs
for many employees. Most employees are
eligible to be considered for a bonus payment
based on group, divisional, individual and/or
otherspecificperformancemetrics,with
bonuses for 2021 paid shortly after the year end,
at the same time as bonuses are paid to
executive directors.
As the group’s designated workforce director,
I have had the opportunity to meet with a
broad range of employees during the year,
in-person and remotely, to ensure their views
are appropriately represented in the Boardroom,
including when considering Remuneration
Committee matters. My report on page 74
provides details of some of those activities,
including our continuing work on employee
engagement, diversity and inclusion, and
achieving a further narrowing of the gender
pay gap.
2022 and beyond
At the AGM in 2023, we shall submit a new
directors’ remuneration policy for approval by
shareholders, being the maximum three years
since our current remuneration policy was
approved in 2020. During 2022, the Committee
will closely examine our remuneration principles
and policies to ensure that they remain
appropriate to support future business strategy
andreflectevolvingbestpractice.Ilookforward
to engaging with shareholders and representative
bodies to seek input to this process and reporting
back to you with our proposals next year.
Again this year, to improve the transparency
and clarity of our remuneration report, we have
includeda‘Quickread’sectionsummarising
our current remuneration policy and its
implementation in 2021, showing graphically
the outcomes against the various performance
targets and the remuneration received by
executive directors. Full details continue to be
disclosed on pages 102 to 117 in accordance
with the remuneration reporting regulations.
Ihopethatyouwillfindthisreportaclear
account of the Committee’s considerations
and decisions, and the remuneration outcomes
for the year.
Lesley Knox
Chairman of the Remuneration Committee
95Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Directors’ report on remuneration
Remuneration policy summary and 2021 implementation
Remuneration element
and time horizon Policy summary 2021 implementation
Base pay
2021 2022 2023 2024 2025
Operation
Reviewed annually, with any increases effective 1 March.
Opportunity
No maximum, but any increases will normally be in line with the
rangeforotherUKemployees.Inspecificcircumstances,the
Committee may award increases above this level.
Performance
Personal performance will be taken into consideration in determining
any increase.
Effective
1 March
2021
Effective
1 March 2022
%
increase
Sir Nigel Wilson £979,500 £1,028,500 5.0%
Jeff Davies £590,000 £632,000 7.1%
Employees below the Board (average) 5.2%
Pension
contributions
2021 2022 2023 2024 2025
Operation
Definedcontributionpensionplanoracashallowanceinlieu.
Base pay is the only element of pensionable remuneration.
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 are currently aligned with the
contributions for other senior managers in the UK, but will be
aligned with the majority of the UK workforce by 2022.
Performance
No performance conditions.
Pension contributions during 2021 (as % of base pay):
Sir Nigel Wilson
*
15%
Jeff Davies
*
13.2%
Majority of UK workforce 10%
Other senior managers in the UK 15%
*
From 2022 pension contributions will be 10% of base pay
in line with the majority of the UK workforce.
Benefits
2021 2022 2023 2024 2025
Operation
Inlinewithbenefitsprovidedtootheremployeesandsenior
managers in the UK.
Opportunity
Maximumamountisthecostofprovidingbenefits,subject
tothelimitsofthebenefitsplansandHMRCrules.
Performance
No performance conditions.
Benefits during 2021 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
96 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
Remuneration policy summary and 2021 implementation
Remuneration element
and time horizon Policy summary 2021 implementation
Annual variable pay
(AVP)
2021
50% cash
50% deferred for 3 years
2022 2023 2024 2025
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 Chief
FinancialOfficer.Nobonusispayableforthresholdperformance
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.
Bonus for 2021
(as % of base pay):
At
target
At
max.
Actual 2021
(as %
of max.)
Sir Nigel Wilson 75% 150% 94.5%
Jeff Davies 75% 150% 92.2%
Performance Share
Plan (PSP)
2021
Performance
2022 2023 2024 2025
Deferred
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
releasedbeforefiveyearsfromgrant.Performancetargetsareset
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 (although the
normal award opportunity is 250% 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.
PSP grants in 2021
(as % of base pay): Maximum
2021
grant
Vesting
period end
2021
(% of grant)
Sir Nigel Wilson 300% 250% 82.9%
Jeff Davies 300% 250% 82.9%
70% Financial performance
30% Strategic and personal performance
50% EPS
25% TSR (vs FTSE 100)
25% TSR (vs comparator group)
97Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Quickreadsummary
Shareholding requirements
Executive directors’
share ownership
Employment + 2 years
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.
The shareholding requirement is 325% of base pay for all
executive directors.
Share ownership at 31 December 2021
Jeff Davies
Sir Nigel Wilson
1,111%
Target met
125%
325%
CEO pay ratio
Total remuneration
ThechartoppositeshowstheratiobetweentheCEOsinglefiguretotal
remuneration (as disclosed on page 113) in comparison with the total
remuneration of UK employees at lower, median, and upper quartiles.
For2021,theCEOpayratiohasincreased,reflectingthehigherbonus
and higher level of vesting of PSP awards in respect of 2021 compared
to 2020.
Lower quartile
UK employee
Median
UK employee
Upper quartile
UK employee
2017 20192018 20212020
132
83
49
129
86
50
61
105
167
26
48
81
137
89
52
Quick read summary
continued
98 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
Alignment with strategy and 2021 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 26 to 27 and further details of performance
measures and outcomes are provided on pages 104 to 107.
Overarching drivers
of the business Group KPIs
Incentive plans
(weightings) 2021 performance targets and outcomes
AVP PSP
Threshold Target Maximum Actual
Profitability
Net release from
operations (NRO)
20%
£1,47 7m
£1,688m
£1,529m£1,374m
Adjustedoperatingprofit 25%
£2,018m
£2,262m
£2,081m£1,893m
Earnings per share (EPS)
1 year growth
12.5%
26.1p 29.7p22.4p
34.2p
Return on Equity (ROE) 12.5%
15.8%
20.5%
17.0%14.5%
Earnings per share (EPS)
3 year average annual growth
50%
12.4%
12.0%5.0%
Shareholder
value creation
TSR vs FTSE 100
(rank out of 94)
25%
36.6
Top 20thMedian
19.046.5
TSR vs comparator group
(rank out of 24)
25%
Top 20thMedian
6.2
5.012.5
Strategic priorities (see page 105): 30%
100% 100%
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
2020
Maximum remuneration
1,388 1,981 4,520
2021
1,151
1,469 2,389
5,009
2021
1,151
346 602
2,092
1,144
Key
Fixed (base pay, benefits and pension contributions)
Annual Variable Pay (AVP)
Performance Share Plan (PSP)
Jeff Davies
Actual remuneration
2020
Maximum remuneration
1,162 2,669
2021
691
885 2,978
2021
691
816
331
1,228
684
213
1,402
Thevaluesforthe2018PSP,whichvestedin2020,inthechartsabovehavebeenadjustedtoreflectthesharepriceatvestingon11March2021,which
was not known at the publication date of the 2020 report. Further details can be found on page 102.
99Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Quickreadsummary
Fixed pay
Base pay Pension contributions Benefits Annual Variable Pay (AVP) Performance Share Plan (PSP) Non-executive directors’ fees Shareholding requirements
Purpose and
link to
strategy
Providesafixedlevelof
earnings, appropriate to the
market and requirements of
the role.
Provides a basis for savings
to provide an income in
retirement.
Providesbenefitsand
allowances appropriate to
the market, and to assist
employeesinefficiently
carrying out their duties.
Incentivises and rewards the achievement of annual
financialperformanceanddeliveryofstrategicpriorities.
50% of any AVP award is deferred into shares, reinforcing
retention and alignment with shareholders by
encouraging long-term focus and risk alignment.
Purpose and
link to
strategy
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.
Provides alignment with
shareholder returns and
ensures the impact on
directors’ shareholdings moves
inlinewithLegal&General’s
share price.
Operation Reviewed annually with effect
from 1 March, taking into
account:
• the individual’s skills,
experience and
performance;
• scope of the role;
• external market data,
including other FTSE 100
companies and other
financialandnon-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.
In line with other employees
in the UK, executive
directors may:
• Participateinadefined
contribution pension plan;
or
• Receive a cash allowance
in lieu; or
• 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.
In line with other employees in
theUK,benefitscurrently
include:
• Private medical insurance;
• Life insurance;
• Income protection; and
• All-employee (ShareSave
and Share Purchase) plans.
Executive directors may
participate in voluntary
benefitsandchoosetoacquire
Legal&Generalproducts
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
benefitsmaybeprovided
(including healthcare and
assistance for housing, school
fees, home travel, relocation
costs and tax compliance
advice) for a period not
exceeding two years.
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.
Targets normally equate 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.
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.
• Subject to a holding period such that no awards are released before
fiveyearsfromthedateofgrant.
• 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 in the period following
the end of the performance period until vesting and release; and
• Malus and clawback apply.
Exceptionally, the Committee may adjust and amend the PSP awards
in accordance with the rules, including:
• Lengthen the performance period and/or the holding period for
future awards.
• Reduce (but not increase) the level of vesting dependent upon the
performance of the group.
Fees for the Chairman and non-executive
directors are set at an appropriate level to
reflect:
• Timecommitmentrequiredtofulfilltherole
• Responsibilities and duties of the positions;
and
• Typical competitor practice in the FTSE 100
andotherfinancialservicesinstitutions.
Fees comprise a base fee for membership of
the Board, plus (where applicable) additional
fees for:
• Senior Independent Director (SID).
• Committee chairmanship; and
• Committee membership (not including the
Nominations and Corporate Governance
Committee).
Additional fees for membership of
Committee, or chairmanship or membership
ofsubsidiaryboards,orotherfixedfeesmay
applyifjustifiedbytimeorcommitment.
The Chairman receives an inclusive fee for
the role. The Chairman’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.
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
notmakingsufficientprogress
towards their shareholding
requirement.
Non-executive directors may
elect to receive a proportion
of their fees (normally 50%)
inLegal&Generalsharesuntil
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 or ill health.
Opportunity There is no set maximum
base pay, but any increases
will normally be in line with the
range of increases for other
UKemployees.Inspecific
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; or
• Therehasbeenasignificant
increase in the size or scope
of an executive director’s
role or responsibilities; or
• Thereisasignificant
change in the regulatory
environment.
For new executive directors,
pension contributions are
aligned to that available to
the majority of the workforce
(currently up to 10% of base
pay).
Pension contributions for
executive directors appointed
before 2019 are currently
aligned with the contributions
for other senior managers in
theUKdefinedcontribution
pension plan (currently up to
15% of base pay).
Pension contributions will be
aligned between the majority
of the UK workforce and all
executive directors by 2022.
The maximum amount paid in
respectofbenefitswillbethe
actual cost of providing those
benefitswhich,particularlyin
thecaseofinsuredbenefits,
may vary from year to year,
although the Committee is
mindful of achieving the best
valuefrombenefitproviders.
The maximum opportunity
for participation in the
all-employee share plans is
the same for all employees
and takes into account
prevailing HMRC rules.
Themaximumopportunityinrespectofanyfinancial
year is:
• 150% of base pay for the Group Chief Executive and
ChiefFinancialOfficer.
• 175% of base pay for other executive directors.
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
inthecontextofarangeoffactors(notjustthespecific
performance measures) including risk management,
behaviours, culture, capital generation, Solvency II
coverageratioandsustainablefinancialperformance,
and may apply a ‘moderator’ to reduce (but not increase)
an AVP award if there are factors that warrant such
a reduction.
Opportunity
or
requirement
The maximum opportunity for an executive director in respect of any
financialyearis300%ofbasepay(althoughtheCommittee’scurrent
intention is that the normal award opportunity will be 250% 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
(from 2021) ESG.
Fees are subject to the aggregate limit in
the company’s Articles of Association. Any
changes in this limit would be subject to
shareholder approval.
The Chairman and non-executive directors
arenoteligibletoparticipateinanybenefit,
pension or incentive plan. However, additional
benefitsmaybeprovidediftheBoardfeels
thisisjustified,suchastaxcompliance
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.
Shares owned outright
equivalent to:
• 325% of base pay for
executive directors; and
• 100% of base fee for
non-executive directors.
Performance Personal performance will be
taken into consideration in
determining any base pay
increase.
There are no performance
conditions.
There are no performance
conditions.
A combination of:
• Financial performance (primary measure with at least
70%weighting)–toensuregrowthandreturnto
shareholders; and
• Strategicandpersonalperformance–tosafeguard
the future, with the development of future income
streams, and focus on key metrics including
customers, culture and (from 2021) ESG.
Performance An appropriate mix (normally an equal weighting) of:
• Earningsperformance–toincentivisegrowthinearnings;and
• Shareholderreturn–todeliveracompetitivereturnforshareholders.
No performance conditions. Not applicable.
Remuneration policy (summary)
The directors’ remuneration policy was approved by shareholders by way of a binding
vote at the 2020 AGM on 21 May 2020 and applies for three years from the 2020 AGM.
The policy table, which contains key aspects of the approved policy, is set out below.
A copy of the full remuneration policy, including accompanying disclosure, can be
found in the 2019 annual report, and on the company’s website.
100 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
Fixed pay
Base pay Pension contributions Benefits Annual Variable Pay (AVP)
Performance Share Plan (PSP) Non-executive directors’ fees Shareholding requirements
Purpose and
link to
strategy
Providesafixedlevelof
earnings, appropriate to the
market and requirements of
the role.
Provides a basis for savings
to provide an income in
retirement.
Providesbenefitsand
allowances appropriate to
the market, and to assist
employeesinefficiently
carrying out their duties.
Incentivises and rewards the achievement of annual
financialperformanceanddeliveryofstrategicpriorities.
50% of any AVP award is deferred into shares, reinforcing
retention and alignment with shareholders by
encouraging long-term focus and risk alignment.
Purpose and
link to
strategy
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.
Provides alignment with
shareholder returns and
ensures the impact on
directors’ shareholdings moves
inlinewithLegal&General’s
share price.
Operation Reviewed annually with effect
from 1 March, taking into
account:
• the individual’s skills,
experience and
performance;
• scope of the role;
• external market data,
including other FTSE 100
companies and other
financialandnon-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.
In line with other employees
in the UK, executive
directors may:
• Participateinadefined
contribution pension plan;
or
• Receive a cash allowance
in lieu; or
• 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.
In line with other employees in
theUK,benefitscurrently
include:
• Private medical insurance;
• Life insurance;
• Income protection; and
• All-employee (ShareSave
and Share Purchase) plans.
Executive directors may
participate in voluntary
benefitsandchoosetoacquire
Legal&Generalproducts
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
benefitsmaybeprovided
(including healthcare and
assistance for housing, school
fees, home travel, relocation
costs and tax compliance
advice) for a period not
exceeding two years.
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.
Targets normally equate 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.
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.
• Subject to a holding period such that no awards are released before
fiveyearsfromthedateofgrant.
• 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 in the period following
the end of the performance period until vesting and release; and
• Malus and clawback apply.
Exceptionally, the Committee may adjust and amend the PSP awards
in accordance with the rules, including:
• Lengthen the performance period and/or the holding period for
future awards.
• Reduce (but not increase) the level of vesting dependent upon the
performance of the group.
Fees for the Chairman and non-executive
directors are set at an appropriate level to
reflect:
• Timecommitmentrequiredtofulfilltherole
• Responsibilities and duties of the positions;
and
• Typical competitor practice in the FTSE 100
andotherfinancialservicesinstitutions.
Fees comprise a base fee for membership of
the Board, plus (where applicable) additional
fees for:
• Senior Independent Director (SID).
• Committee chairmanship; and
• Committee membership (not including the
Nominations and Corporate Governance
Committee).
Additional fees for membership of
Committee, or chairmanship or membership
ofsubsidiaryboards,orotherfixedfeesmay
applyifjustifiedbytimeorcommitment.
The Chairman receives an inclusive fee for
the role. The Chairman’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.
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
notmakingsufficientprogress
towards their shareholding
requirement.
Non-executive directors may
elect to receive a proportion
of their fees (normally 50%)
inLegal&Generalsharesuntil
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 or ill health.
Opportunity There is no set maximum
base pay, but any increases
will normally be in line with the
range of increases for other
UKemployees.Inspecific
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; or
• Therehasbeenasignificant
increase in the size or scope
of an executive director’s
role or responsibilities; or
• Thereisasignificant
change in the regulatory
environment.
For new executive directors,
pension contributions are
aligned to that available to
the majority of the workforce
(currently up to 10% of base
pay).
Pension contributions for
executive directors appointed
before 2019 are currently
aligned with the contributions
for other senior managers in
theUKdefinedcontribution
pension plan (currently up to
15% of base pay).
Pension contributions will be
aligned between the majority
of the UK workforce and all
executive directors by 2022.
The maximum amount paid in
respectofbenefitswillbethe
actual cost of providing those
benefitswhich,particularlyin
thecaseofinsuredbenefits,
may vary from year to year,
although the Committee is
mindful of achieving the best
valuefrombenefitproviders.
The maximum opportunity
for participation in the
all-employee share plans is
the same for all employees
and takes into account
prevailing HMRC rules.
Themaximumopportunityinrespectofanyfinancial
year is:
• 150% of base pay for the Group Chief Executive and
ChiefFinancialOfficer.
• 175% of base pay for other executive directors.
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
inthecontextofarangeoffactors(notjustthespecific
performance measures) including risk management,
behaviours, culture, capital generation, Solvency II
coverageratioandsustainablefinancialperformance,
and may apply a ‘moderator’ to reduce (but not increase)
an AVP award if there are factors that warrant such
a reduction.
Opportunity
or
requirement
The maximum opportunity for an executive director in respect of any
financialyearis300%ofbasepay(althoughtheCommittee’scurrent
intention is that the normal award opportunity will be 250% 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
(from 2021) ESG.
Fees are subject to the aggregate limit in
the company’s Articles of Association. Any
changes in this limit would be subject to
shareholder approval.
The Chairman and non-executive directors
arenoteligibletoparticipateinanybenefit,
pension or incentive plan. However, additional
benefitsmaybeprovidediftheBoardfeels
thisisjustified,suchastaxcompliance
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.
Shares owned outright
equivalent to:
• 325% of base pay for
executive directors; and
• 100% of base fee for
non-executive directors.
Performance Personal performance will be
taken into consideration in
determining any base pay
increase.
There are no performance
conditions.
There are no performance
conditions.
A combination of:
• Financial performance (primary measure with at least
70%weighting)–toensuregrowthandreturnto
shareholders; and
• Strategicandpersonalperformance–tosafeguard
the future, with the development of future income
streams, and focus on key metrics including
customers, culture and (from 2021) ESG.
Performance An appropriate mix (normally an equal weighting) of:
• Earningsperformance–toincentivisegrowthinearnings;and
• Shareholderreturn–todeliveracompetitivereturnforshareholders.
No performance conditions. Not applicable.
101Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Remuneration policy
Audited information
Content contained within a grey outline box indicates that all the information
in the panel is audited.
Planned implementation for 2022
Content contained within a black outline box indicates that all the information
in the panel is planned for implementation in 2022.
‘Single figure’ of remuneration – executive directors
Thefollowingtableshowsasingletotalfigureofremunerationforeachexecutivedirectorinrespectofqualifyingservicesforthe2021financialyear,
togetherwithacomparativefigurefor2020.
Single figure table
Fixed Variable
PSP
Executive director
Base pay
£’000
Benefits
£’000
Pensions
£’000
Total
fixed
£’000
AVP
£’000
Face value
£’000
Share price
appreciation
£’000
Total
variable
£’000
Total
£’000
2021
Sir Nigel Wilson 980 24 147 1,151 1,388 1,960 21 3,369 4,520
Jeff Davies 590 23 78 691 816 1,150 12 1,978 2,669
2020
Sir Nigel Wilson 974 24 146 1,14 4 346 561
1
41 948 2,092
Jeff Davies 584 23 77 684 213 309
1
22 544 1,228
1. Reporting of the 2018 PSP in the 2020 annual report
The vesting date of the 2018 PSP award occurred after the 2020 results announcement. As a result, the PSP figures recognised in the 2020 annual report were based on a three-month
average share price to 31 December 2020. The 2018 PSP figures reported in the 2020 single figure table above now reflect the share price at vesting on 11 March 2021, at 286.7p per
share. The figures in the 2020 report were £479,323 (Sir Nigel Wilson) and £263,705 (Jeff Davies).
Base pay
Executive director
Annual base pay as at
1 January 2021
Annual base pay effective
1 March 2021
Total base pay
paid in 2021
Annual base pay effective
1 March 2022
%
increase
Sir Nigel Wilson 979,500 979,500 979,500 1,028,500 5.0%
Jeff Davies 590,000 590,000 590,000 632,000 7.1%
Annual report on remuneration
102 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
Benefits
Benefitsincludetheelementsshowninthetablebelow.
Executive director
Car allowance,
insurances and
taxable expenses
£’000
Dividends
£’000
Discount
SAYE and SIP
matching shares
£’000
Total
benefits
£’000
2021
Sir Nigel Wilson 19 4 1 24
Jeff Davies 20 1 2 23
2020
Sir Nigel Wilson 19 4 1 24
Jeff Davies 20 1 2 23
The Share Incentive Plan (SIP) 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. Save As You Earn (SAYE) is calculated based on the value of the discount on SAYE share options exercised in
the year.
Benefits for 2022
Benefitsfor2022remaininlinewithpolicy.
Pension
Sir Nigel Wilson received a cash allowance in lieu of pension contributions equal to 15% of base pay. Jeff Davies received a cash allowance of 13.2%
of base pay. All cash allowances are subject to normal payroll deductions for income tax and national insurance.
Pension for 2022
From December 2022, Sir Nigel Wilson 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. Prior to this change the cash allowance will remain at the current level.
103Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Annual report on remuneration
2021 Annual Variable Pay (AVP) awards
The2021AVPawardsarebasedonperformancefortheyearended31December2021.70%ofthebonusopportunityisdeterminedbyfinancial
performance and 30% is based upon the achievement of strategic objectives.
Thefiguresbelowrepresentthetotal2021AVPawardstobepaid,incorporatingtheamountpayableincashin2022(50%),andamountdeferred
into restricted shares for a further three years to be released in 2025 (50%) subject to continued employment with malus and clawback provisions.
2021 performance targets and outcome
AVP award
(% of maximum)
Performance measure
Threshold
(0% max)
Target
(50% max)
Maximum
(100% max) Actual
Outcome
(% of max) Weighting
Sir Nigel
Wilson Jeff Davies
Net release from operations
(NRO) £1,374m £1,477m £1,529m £1,688m 100% x 20% = 20% 20%
Adjustedoperatingprofit £1,893m £2,018m £2,081m £2,262m 100% x 25% = 25% 25%
Earnings per share (EPS) 22.4p 26.1p 29.7p 34.2p 100% x 12.5% = 12.5% 12.5%
Return on Equity (ROE) 14.5% 15.8% 17.0% 20.5% 100% x 12.5% = 12.5% 12.5%
Strategic–SirNigelWilson See table below 81.7%
30% =
24.5%
Strategic–JeffDavies See table below 74.0% 22.2%
Total (% of maximum) 100% 94.5% 92.2%
x x
Maximum bonus opportunity (% of base pay) 150% 150%
x x
Base pay £979,500 £590,000
= =
2021 AVP award £1,388,400 £815,900
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
continued
104 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
Keyfocusareasareidentifiedatthebeginningofeachyear,andstrategicobjectivesmaybesetindividuallyforeachexecutivedirectororassessed
as their individual contribution to joint objectives. Normally, 10% of the total bonus opportunity is allocated to each category encompassing:
• Operational performance and risk management: determined by the Committee and supported by analysis from the Director of Group Finance
andChiefRiskOfficer,usingquantitativeandqualitativemetrics,includingdivisionalandgroupoperationalperformance,capitalmanagement,
prudential risk, IT and cyber risk, and internal audit.
• Customer and culture assessment: based on a range of metrics including customer performance scores and feedback, employee
engagement scores, and progress of gender and other diversity goals.
• Other strategic objectives: focus on safeguarding the future and developing future income streams. For 2021, this includes progress of key
environmental commitments as referenced in our 2020 climate report, prepared in line with the recommendations of the Task Force on
Climate-related Financial Disclosures (TCFD).
Some strategic objectives may be commercially sensitive and accordingly they will not be disclosed in this year’s report or any future report until
such time as they are considered no longer commercially sensitive.
A list of the key focus areas and outcomes for 2021 is set out below.
Assessment
(out of 30%)
Focus areas Sir Nigel Wilson Jeff Davies
Operational performance and risk management:
• Strong performance against Solvency II operational surplus goals (£3.1 billion at the end of 2021) and against ambition
forSolvencyIInetsurplusgenerationtocumulativelyexceeddividendspaidover2020–2024(£0.3billionaccruedto
the end of 2021)
• Strong operational performance across all divisions including:
• Building 4,364 new homes in 2021 (an increase from 3,374 in 2020)
• Supporting PodPoint to scale up at pace and deliver a successful IPO in Nov. 2021
• £611 million of investments in start ups during 2021
• Continued development of Fintech solutions
24.5/30 22.2/30
Customer and culture:
• Positivecustomerfeedbackwith80%ofcustomersscoringLegal&General7outof10orhigherforcustomer
satisfaction
• Net promoter score of +73 within our institutional retirement division
• Reductioninclaimstimingsforretailprotectionclients(reductionof19daysfornon-medicalclaimsfromQ2
toQ42021
• Continued positive employee feedback with employee satisfaction index at 76% (higher than pre-Covid 19 levels)
• Progressive narrowing of gender pay gap (median gap falling from 26.6% in 2020 to 24.1% in 2021)
Other strategic:
• Portfolio carbon emission intensity reduced by half by 2030, with 2021 reduction of at least 2% (actual reduction
of 17.0% compared to 2020).
• Provisional science-based targets (SBTs) developed for key group businesses and on track for submission within
2 year deadline
• Operationalfootprint(occupiedofficesandbusinesstravel)netzerocarbonemissionsfrom2030,withinitialreduction
pathway mapped during 2021 to align with science-based targets (SBTs) (2021: achieved)
• Otherspecificstrategictargets(notdisclosed).
Inaddition,theCommitteeconsiderstheSolvencyIIcoverageratio(2021:187%)andsustainablefinancialperformance,andmayapply
a ‘moderator’ to reduce (but not increase) an AVP award if there are factors that warrant such a reduction. For 2021, it was determined that
no adjustment was necessary to the calculated AVP awards.
105Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Annual report on remuneration
Risk consideration
TheCommitteereviewedacomprehensivereportfromtheChiefRiskOfficertoascertainthattheexecutivedirectors’objectiveshadbeenfulfilled
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
arecommendationthatmalusshouldbeapplied.TheCommitteewassatisfiedthattheAVPawardsshouldbepaid.
Deferral policy
In line with the remuneration policy, 50% of all 2021 AVP awards have been deferred for three years into restricted shares, subject to continued
employment and with malus and clawback provisions.
AVP potential 2022
In line with the remuneration policy, for 2022 the target and maximum AVP opportunities for our executive directors will be:
Executive director
Target opportunity
(% of base pay)
Maximum opportunity
(% of base pay)
Sir Nigel Wilson 75% 150%
Jeff Davies 75% 150%
Performancewillbebasedongroupfinancialperformancetargetsalignedtothegroup’skeyperformanceindicators,aswellasstrategic
(including environmental, social and governance measures) and personal measures. The percentage weightings will be the same as in 2021.
Groupfinancialtargetswillbedisclosedinthe2022annualreport.Somestrategicandpersonaltargetsareconsideredconfidentialandwill
not be disclosed in any future report.
In line with the remuneration policy, 50% of all 2022 AVP awards will be deferred for three years into restricted shares, subject to continued
employment, with malus and clawback provisions.
Details of how the 2019 PSP award vested
The 2019 PSP award vested at 82.9% of maximum in March 2022 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 2021.
Perfo rmance measure Weighting Outcome (% of maximum)
TSR vs FTSE 100 25% 45.5%
TSR vs bespoke comparator group 25% 86.0%
EPS growth (% p.a.) 50% 100%
Total (% of maximum) 100% 82.9%
The bespoke comparator group comprises:
Abrdn, Aegon, Ageas, Allianz, Ameriprise Financial, Assicurazioni Generali, Aviva, AXA, CNP Assurances, Gjensidige Forsikring, Hannover Rueck.,
ING Groep, Lincoln National, Mapfre, Metlife, Muenchener Ruck., Phoenix Group Holdings, Principal Financial Group, Prudential, Prudential Financial,
Sampo, 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-termenvironmental,socialandgovernance(ESG)objectives.TheCommitteewassatisfiedthatthePSPawardsshouldvestinaccordancewiththe
TSR and EPS growth outcomes.
Annual report on remuneration
continued
106 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
The results are shown below:
Grant date
Performance
period
Comparator
group
Legal &
General’s
TSR
1
Median rank
80th
percentile
rank
Legal & General’s
rank
Outcome
(% of maximum)
16 April 2019 1 January 2019
to 31 December
2021
FTSE 100
46.3%
46.5 19.0 36.6 45.5%
Bespoke
comparator
group 12.5 5.0 6.2 86.0%
Performance target
Performance condition Threshold Maximum Actual performance
Outcome
(% of maximum)
EPS growth (% p.a.) 5.0% 12.0% 12.4% 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.
ThePSPawardwillveston11March2022.Asthesharepriceatthedateofvestingwasnotknownasofthedateofthisreport,thevalueincludedinthe‘singlefigure’
of remuneration on page 102 has been calculated based on the number of shares vesting multiplied by the average share price over the quarter ended 31 December
2021 (288.5p). The actual share price and value at vesting will be reported in the 2022 annual report.
Executive director Shares granted in 2019
Vesting outcome
(% of maximum)
Shares vesting
in March 2022
Estimated value of
shares on vesting (£)
Sir Nigel Wilson 828,107 82.9% 686,501 1,980,555
Jeff Davies 486,091 82.9% 402,969 1,162,567
Performance Share Plan (PSP) 2022 awards: Sir Nigel Wilson and Jeff Davies will each be granted an award with a face value of 250% of base pay.
For the 2022 award, the following performance measures will be used:
• TSR performance relative to the FTSE 100 (25% of award)
• TSR performance relative to a bespoke comparator group of companies (25% of award).
• EPS growth (50% of award).
Vesting of awards will be subject to an assessment of performance against Solvency II objectives and progress against long-term ESG objectives.
Having considered the business plan over the next three years and market expectations of performance, and given the level of stretch within the
TSR performance conditions, the Committee considered it appropriate for vesting to be based on performance as set out in the table below:
Below Threshold Threshold Maximum
Vesting 0% 15% 100%
TSR performance Below median Median 80th percentile
EPS growth <5% p.a. 5% p.a. 12% p.a.
Performance below threshold results in nil vesting, and performance between threshold and maximum vests on a straight line basis between 15%
and 100% of maximum.
107Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Annual report on remuneration
Other remuneration information
Total shareholder return (TSR)
The chart shows the value, as at 31 December 2021, of £100 invested in
Legal&Generalshareson31December2011,comparedto£100invested
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.
Dec 11 Dec 12 Dec 13 Dec 14 Dec 16Dec 15 Dec 17 Dec 18 Dec 19 Dec 20 Dec 21
FTSE 100 Legal & General
As at 31 December 2021
200%
300%
400%
500%
100%
-100%
0%
Group Chief Executive – historic remuneration information
The table below shows the remuneration of the Group Chief Executive in place at the time over the same period.
Year Name
Group Chief Executive
single figure of
total remuneration
(£’000)
Annual variable
element against
maximum
opportunity
PSP vesting rates
against
maximum
opportunity
2021 Sir Nigel Wilson 4,520 94.5% 82.9%
2020 Sir Nigel Wilson 2,092 23.5% 24.2%
2019 Sir Nigel Wilson 4,592 91.1% 86.9%
2018 Sir Nigel Wilson 3,398 80.4% 48.7%
2017 Sir Nigel Wilson 3,439 85.3% 59.9%
2016 Sir Nigel Wilson 5,417 87. 8 % 76.6%
2015 Sir Nigel Wilson 5,497 86.3% 100%
2014 Sir Nigel Wilson 4,213 90.7% 100%
2013 Sir Nigel Wilson 4,072 93.1% 100%
2012 SirNigelWilson–appointed30June2012 898 96.0% 0%
1
TimBreedon–retired30June2012 3,280 84.8% 100%
2
1. The 2009 PSP vested in full in 2012. However, no PSP is shown in the figure for Sir Nigel Wilson as, while he received the PSP, it vested during the time he was Chief Financial Officer.
2. The 2009 PSP vested in full in 2012. The PSP figure that vested for Tim Breedon is shown in his figure as it vested during the time he was Group Chief Executive.
DuetothetimingofthevestingofPSPawards,initiallyPSPfigureswithinthesinglefigureofremunerationarecalculatedbasedontheaverageshare
priceforthethreemonthsended31Decemberintherespectiveyear.Asnotedunderthesinglefigureofremunerationtableonpage102,thefiguresare
restatedinthefollowingyear’sreporttoreflecttheactualsharepriceonthevestingdate.Thefiguresinthetableabovehavebeenrestatedtoreflectthe
actualsharepriceonvestingfortheyears2015–2020.
Annual report on remuneration
continued
108 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
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 2021.
Executive director Reason for award Award type Awards granted in 2021
Grant price
£
Face value at grant price
£
Sir Nigel Wilson PSP Nil-cost option 832,341 2.9420 2,448,747
Deferred AVP Restricted shares 58,520 2.9537 172,851
Jeff Davies PSP Nil-cost options 501,359 2.9420 1,474,998
Deferred AVP Restricted shares 36,039 2.9537 106,448
Performance conditions for PSP awards granted in 2021
The PSP awards were granted on 13 April 2021. 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,
CNPAssurances,GjensidigeForsikring,HannoverRueck.,LincolnNational,M&G,Mapfre,Metlife,MuenchenerRuck.,NNGroup,PhoenixGroup,
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:
Below threshold Threshold Maximum
Vesting 0% 15% 100%
TSR performance Below median Median 80th percentile
EPS growth <5% p.a. 5% p.a. 12% 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 2021, the Committee will assess whether the formulaic vesting outcome is
justifiedbylookingatanumberoffactorsincluding:whethertheresultisreflectiveofoverallperformanceandhasbeenachievedwithintheCompany’s
risk appetite, the Solvency II coverage ratio, the quality of earnings, nature of any changes in leverage or key assumptions and progress against long-term
ESGobjectives.Ifsuchconsiderationsmeanthattheformulaicoutcomeofthevestingisnotconsideredtobejustified,theCommitteecanamendthe
vesting downwards (but not increase the level of vesting). The Remuneration Committee may also consider reducing the number of shares vesting and/
or impose further conditions on the award to neutralise any ‘windfall gain’ that may have arisen.
Payments for loss of office and to past directors
Therewerenopaymentstodirectorsforlossofofficeandnopaymentstopastdirectorsduring2021.
Statement of directors’ shareholding and share interests
Total shareholding of executive directors:
Type
Owned outright/
vested shares
Subject to deferral/
holding period
Total vested and
unvested shares
(excludes any
shares with
performance
conditions)
Subject to
performance
conditions
Shares sold or acquired during the period
1 January 2022 and 8 March 2022
Owned outright/
vested shares
Subject to deferral/
holding period
Sir Nigel Wilson Shares 3,637,332 530,996 4,168,328 – – –
ESP 19,324 5,295 24,619 – 132 73
Options – 475,161 475,161 2,728,558 – –
Jeff Davies Shares 244,739 311,031 555,770 – – –
ESP 3,476 1,282 4,758 – 132 73
Options – 269,933 269,933 1,630,824 – –
109Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Annual report on remuneration
Shareholding requirement – executive directors
The shareholding requirement for all executive directors is 325% of base pay.
Actual share
ownership as % of 2021
base salary:
vested shares
1
Shareholding
requirement met
Shares owned at
1 January 2021
Shares owned at
31 December 2021
Shares sold or acquired
during the period
1 January 2022 and
8 March 2022
Sir Nigel Wilson 1,111% Yes 3,316,706 3,656,656 205
Jeff Davies 125% No 81,610 248,215 205
1. Closing share price as at 31 December 2021: £2.975
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
trustwheretheexecutivedirectorisnotatrustee.Theyincludevestedshareswheretheexecutivedirectorhasbeneficialownership,sharesindependentlyacquiredinthemarketand
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
arenotmakingsufficientprogresstowardstheirshareholdingrequirement.Onceshareholdingrequirementshavebeenmet,executivedirectors
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 2021
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 scheme. Where such share awards have been exercised during 2021 they are shown below:
Executive director Date of grant Shares exercised Exercise date
Share price at
date of exercise
£
Gain
£
Sir Nigel Wilson 21/04/2016 171,349 12/04/2021 2.962 507,536
Sir Nigel Wilson 18/04/2017 287,5 60 12/04/2021 2.962 851,753
Jeff Davies 18/04/2017 158,174 15/03/2021 2.870 453,959
Jeff Davies 06/04/2018 2,037 01/06/2021 2.843 1,473
Non-executive directors’ remuneration – 2021
Non-executive directors’ fees
The fees for the Chairman and non-executive directors were reviewed during 2021 and with effect from 1 August 2021 the fee for the Chairman was
increased from £523,000 to £550,000. From 1 August 2021 the additional fee for chairing a Board committee was increased from £30,000 to £40,000
and the committee membership fee was increased from £10,000 to £15,000 for the Audit, Remuneration and Risk committees. No fee was paid for
membership of the Nominations and Corporate Governance or Technology committees. The current limit for base fees paid to non-executive directors
is an aggregate of £1,500,000 per annum. The table below sets out the current fees.
Annual fees
Current fee
£
Chairman 550,000
Base fee 75,000
Additional fees:
Senior Independent Director 30,000
Committee Chairmanship fee (Audit, Remuneration and Group Risk Committees) 40,000
Committee membership fee (Audit, Remuneration and Group Risk Committees) 15,000
Annual report on remuneration
continued
110 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
The table below shows the actual fees paid to our non-executive directors in 2021 and 2020.
Non-executive
director
Fees
for 2021
Benefits
for 2021
3
Total
remuneration
for 2021
Fees
for 2020
Benefits
for 2020
Total
remuneration
for 2020
Sir John Kingman Chairman T N 534,250 64 534,314 512,500 – 512,500
Henrietta Baldock
1
N R Ri 200,833 – 200,833 199,167 – 199,167
Nilufer von Bismarck ATNRi–appointed1May2021 67,770 – 67,770 – – –
Philip Broadley A T N R Ri 155,833 1,521 157,354 119,167 3,053 122,220
Lesley Knox
2
N R Ri 223,750 3,263 227,013 219,167 1,628 220,795
George Lewis A N R Ri 102,917 – 102,917 71,458 21,227 92,685
Ric Lewis N R Ri 99,167 – 99,167 49,532 – 49,532
Toby Strauss A T N Ri 121,250 – 121,250 115,000 444 115,444
Julia Wilson 31,250 – 31,250 119,167 89 119,256
Key:
NED Committee membership: N = Nominations and Corporate Governance Ri = Risk
A = Audit R = Remuneration T = Technology
1. HenriettaBaldockisalsoChairoftheLegal&GeneralAssuranceSocietyBoardforwhichshereceivesaseparatefeetothatpaidtoherasanon-executivedirectoroftheCompany.
The actual fees in the table above include her total fees for both roles. Henrietta was also a member of the Audit Committee until 31 March 2021.
2. LesleyKnoxisalsoChairoftheLegal&GeneralInvestmentManagement(Holdings)LimitedBoardforwhichshereceivesaseparatefeetothatpaidtoherasanon-executive
director of the Company. The actual fees in the table above include her fees for both roles. Lesley was also a member of the Audit Committee until 31 March 2021.
3. TheChairmanandnon-executivedirectorsarenoteligibletoparticipateinanybenefits,pensionorincentiveplan.Theamountsdisclosedinthebenefitssectionaboverelate
to taxable travel and accommodation expenses incurred while undertaking their roles as non-executive directors for 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 4 January 2022, taking into account share purchases in relation to December 2021 fees.
Name
Shareholding as at
4 January 2022
Shareholding as a % of
base fee Guideline met
Shares purchased
from 5 January 2022
to 8 March 2022
Sir John Kingman 274,303 148% Met 1,723
Henrietta Baldock 37,73 2 150% Met 2,380
NilufervonBismarck–appointed1May2021 13,933 55% On target
1
5,967
Philip Broadley 92,260 366% Met –
Lesley Knox 77,60 0 308% Met –
George Lewis 41,407 164% Met 2,977
Ric Lewis 19,711 78% On target
1
3,270
Toby Strauss 71,045 282% Met 3,224
JuliaWilson–retiredfromtheBoardon31March2021 51,823 206% Met –
1. Director’s are on track to meet the shareholding requirement within 3 years based on the proportion of their fee received in shares.
Non-executive directors’ terms of employment
Current letter of
appointment start date
Current letter of
appointment end date
Sir John Kingman 24 October 2021 24 October 2025
Henrietta Baldock 04 October 2021 04 October 2024
Nilufer von Bismarck 01 May 2021 01 May 2024
Philip Broadley 08 July 2019 08 July 2022
Lesley Knox 01 June 2019 01 June 2022
George Lewis 01 November 2021 01 November 2024
Ric Lewis 18 June 2020 18 June 2023
Toby Strauss 01 January 2020 01 January 2023
Laura Wade-Gery 03 January 2022 03 January 2025
JuliaWilsonsteppeddownfromtheBoardon31March2021.Thestandardtermfornon-executivedirectorsisthreeyearsandfortheChairmanisfive
years. All non-executive directors are subject to annual re-election by shareholders.
111Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Annual report on remuneration
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.
Wedefinecoreremunerationasbasepay,annualbonusandotherbenefitssuchaspension.Keyemployeesarealsoeligibletoparticipateinthe
performance share plan (PSP).
Summary of the remuneration structure for employees below the Board
Element Policy
Fixed
Base pay 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 2021 the approach adopted was for the lowest paid employees (less than £30,000) to receive, on average, the highest
increases (generally 3% of base pay). For 2022, the average increases will be around 5.2%.
Benefits 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
confidentialmentalhealthapp),childcareandelderlycaresupport.
Pension All employees are given the opportunity to participate in a Group Pension Scheme. The pension opportunity offered to the
majority of the UK workforce is 10% of base pay.
Variable
Annual bonus 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 with the deferral amount increasing with the size of the bonus.
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 Code staff as deemed necessary to comply with regulatory
requirements.
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
influentialrolethattheyholdintermsofdrivingcompanyperformance,aswellastheirindividualcontribution.Participation
in the plan for one year does not guarantee participation in future years.
PSP awards were made to around 92 employees during 2021.
Where appropriate, grants under the PSP may also be made for new employees who join the company during the year in key roles.
Other
Other share plans
and long-term incentives
The Company operates a Share Bonus Plan (SBP) which provides the vehicle for deferral of annual bonuses in the majority
of cases and also allows for a limited number of awards of shares to high potential individuals and those with critical skills.
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.
Annual report on remuneration
continued
112 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
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 its gender pay report for 2021. Further details can also be found on page 49 of the annual report.
Pay ratio in relation to the Group Chief Executive Officer
Since2016wehavevoluntarilydiscloseddetailsofthepayratioinrelationtotheGroupChiefExecutiveOfficerandthewiderUKemployeepopulation.
From 2018 we made some amendments to how we report the information in order to align with the reporting requirements set out by BEIS, which came
intoeffectforfinancialyearsstarting1January2019.
ThetablesbelowprovidetheratiobetweenthebasepayandsinglefiguretotalremunerationoftheGroupChiefExecutiveOfficerandthebasepayand
total remuneration of UK employees at the upper quartile (75th percentile), median (50th percentile) and lower quartile (25th percentile).
Total remuneration
Pay ratio All UK employees £
Year Method 75th percentile Median 25th percentile 75th percentile Median 25th percentile
2021 B 50 86 129 90,039 52,466 34,974
2020 A 26 48 81 78,989 43,726 25,839
2019 A 61 105 167 70,892 40,982 25,814
2018 A 49 83 132 69,923 40,814 25,730
2017
A 52 89 137 66,572 38,802 25,023
Base pay
Pay ratio All UK employees £
Year Method 75th percentile Median 25th percentile 75th percentile Median 25th percentile
2021 B 14 22 34 68,832 43,579 28,500
2020 A 15 26 42 65,101 37,677 23,232
2019 A 16 27 42 60,000 35,000 22,550
2018 A 16 27 41 57,853 34,475 22,781
2017 A 16 27 42 58,020 33,649 22,148
Pay ratio commentary
Between 2020 and 2021 the ratio of total remuneration for the Group CEO compared to UK employees has increased. The increase is the result of the
higher bonus award and vesting level of the 2019 PSP compared with the PSP awards in the previous year.
Methodology
The Companies (Miscellaneous Reporting) Regulations 2018 permit different options for calculating the pay ratio. We have chosen option B as our
methodforcalculatingthepayratiofor2021,consistentwiththemethodologyforgenderpayreporting.ThetotalremunerationfiguresfortheUK
employees are based on salaries at 1 December 2021. Bonus amounts for 2021 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 2021 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 2021 based on the option A method in the 2022 report. We do not believe that this will result in pay ratio
figuresthataremateriallydifferenttothe2021figuresdisclosedabove.
Gender pay gap report
Our 2021 gender pay gap report is
available on our group website. See:
group.legalandgeneral.com/reports
113Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Annual report on remuneration
Percentage change in directors’ 2021 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 2021 Year ended 31 December 2020
Base pay/ fees
(% change)
Benefits
(% change)
AVP
(% change)
Base pay/ fees
(% change)
Benefits
(% change)
AVP
(% change)
Executive directors
Sir Nigel Wilson 0.0% 3.3% 301.6% 3.4% 3.4% (73.2)%
Jeff Davies 0.0% 0.7% 282.2% 6.6% 6.3% (72.1)%
Chairman and Non Executive Directors
1
Sir John Kingman 4.2% n/a n/a 3.3% n/a n/a
Henrietta Baldock 0.8% n/a n/a 4.5% n/a n/a
NilufervonBismarck–appointed1May2021 n/a n/a n/a n/a n/a n/a
Philip Broadley 28.7% n/a n/a 3.6% n/a n/a
Lesley Knox 2.8% n/a n/a 1.9% n/a n/a
George Lewis 11.0% n/a n/a 4.9% n/a n/a
Ric Lewis 7.8% n/a n/a n/a n/a n/a
Toby Strauss 5.0% n/a n/a 0.0% n/a n/a
Julia Wilson 4.8% n/a n/a 3.6% n/a n/a
Average for UK employees 2.4% 2.4% 19.6% 3.5% 3.5% 2.7%
1. Theincreaseinfeesfornon-executivedirectorsoftheCompanyreflectsthechangesinthefeestructureinrelationtochairingacommitteeandmembershipofacommitteeaswell
as changes to the membership of the committees. The base fee for non-executive directors has not changed since 2019.
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
crosssectionofthegroup’semployees.Theincreaseinbenefitsfortheemployeecomparatorgrouprelatestotheimpactofbasepayincreases.
Relative importance of spend on pay
The chart opposite shows the relative importance of expenditure on pay
comparedtosharedividends,adjustedoperatingprofitandtaxforthe
year.Adjustedoperatingprofithasbeenshownbecauseitisakey
performance indicator of the business. No share buybacks were made
in 2020 or 2021.
0
250
750
1,250
2,500
2,000
2,250
1,000
500
1,750
1,500
2020 2021
(£m)
1% increase
2% increase
105% increase
3% increase
Share dividends Operating profit Tax Expenditure on pay
Annual report on remuneration
continued
114 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
Remuneration Committee
The table below shows the members and attendees of the Remuneration Committee during 2021.
Committee members, attendees and advice
Meetings in 2021
During2021,theCommitteemetfivetimesandinadditionhadongoingdialogueviaemailandothertelecommunications.AnoutlineoftheCommittee
undertakings in each quarter during 2021 is shown in the table below. During 2021 the Remuneration Committee comprised the following non-executive
directors:
Year
Number of Remuneration
Committee meetings
attended during 2021
Lesley Knox 5/5
Henrietta Baldock 5/5
Philip Broadley 5/5
George Lewis (from 7 October 2021) 1/1
Ric Lewis 5/5
Committee undertakings
Quarter Governance Performance Remuneration policy Regulatory
First • Reviewedfindingsofthe
independent Board evaluation
• ReviewedfindingsoftheCRO
report and group-wide culture
review.
• Approved the 2020/21 annual
pay review and executive pay
awards.
• Approved vesting of the 2018
PSP, LGIM and CALA LTIPs.
• Approved the 2021 AVP
performance measures.
• Approved 2021 PSP awards.
• Approved the 2021 ShareSave
invitation.
Third • Reviewed outcomes of AGM. • Financial update and indicative
variable pay update for
executive teams.
• Debated adjustments to 2021
AVP targets
• Approved pension plan
arrangements for LGIM Japan.
• Reviewed proposals for new
business unit LTIP.
Fourth • Reviewed and approved
Committee terms of reference.
• Reviewed report on the
activities of the Group Reward
Steering Committee in 2021.
• Reviewed the base pay increase
budget proposals for 2022.
• Considered incentive out-turns
in respect of 2021.
• Reviewed AVP and PSP
performance measures and
targets for 2022.
• Reviewedfindingsofinternal
audit of remuneration.
• Reviewed Code staff lists.
• Approved remuneration policy
statements for FCA and PRA.
• Reviewed IFPR requirements
and impact on remuneration.
At the invitation of the Remuneration Committee, the Group Chairman attends Committee meetings. Where appropriate, the Group Chief Executive, the
GroupHRDirector,GroupRewardDirector,HeadofExecutiveCompensation,DirectorofGroupFinanceandGroupChiefRiskOfficeralsoattend
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 2021,
PwCprincipallyadvisedtheCommitteeonexternaldevelopmentsaffectingremunerationaswellasspecificmattersraisedbytheRemuneration
Committee.PwCwereappointedbytheCommittee.TheCommitteereflectsonthequalityofadviceprovidedandwhetheritproperlyaddressesthe
issuesunderconsiderationaspartofitsnormaldeliberations.TheCommitteeissatisfiedthattheadvicereceivedfromthePwCengagementteamis
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 2021 were £131,650 (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
adviser 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.
115Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Annual report on remuneration
Terms of reference
The Committee’s terms of reference are available on the Company’s website. The remit of the Committee includes the remuneration strategy and policy
framework for the group as well as for the executive directors.
The Committee particularly focuses on:
• Determining the individual remuneration for executive directors and for other designated individuals or for those who are discharging a head of control
function role.
• Undertaking direct oversight on the remuneration of other high earners in the group.
• Oversight of the remuneration of Code staff and employees in the control and oversight functions.
• Oversight of remuneration policies and structures for all employees.
Considering risk
The Reward Steering Committee (RSC) and the Group Regulatory Risk and Compliance Function make a key contribution to the process of designing
rewardstructuresandevaluatingwhetherachievementofobjectivesandanypaymentfromplanshavetakenintoaccounttheoverallriskprofileofthe
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 HR
Director,GroupChiefRiskOfficer,GroupConductRiskDirector,RegulatoryRiskDirector,LGIMChiefComplianceOfficer,theDirectorofGroupFinance,
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 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).
TheGroupChiefRiskOfficeralsospecificallylooksattheoverallriskprofileofthegroupandwhetherexecutivedirectorshaveachievedobjectiveswithin
the group’s accepted risk appetite, and the CRO also reviews the executive directors’ objectives for the forthcoming year to ensure they are in line with the
risk parameters.
SincetheimplementationofanewSolvencyIIremunerationpolicyin2016,thescopeoftheGroupChiefRiskOfficer’sreporthasbeenextended
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 2019, 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 2020
AGM in May 2020.
During 2022 the Committee will 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, prior to presenting the remuneration policy for shareholder approval at the 2023 AGM.
We engaged regularly with our workforce throughout 2021, 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 2022, including in relation to our new
remuneration policy.
Annual report on remuneration
continued
116 GovernanceLegal & General Group Plc Annual Report and Accounts 2021
Statement of voting at the Annual General Meeting (AGM) 2021
The table below shows the voting outcomes on the directors’ remuneration policy at the 2020 AGM in May 2020 and the directors’ remuneration report
at the last AGM in May 2021.
Item For Against Abstain number
Remuneration policy 95.71% 4.29%
4,089,839,555 197,291,047 19,465,659
Remuneration report 97.17% 2.83%
3,858,805,163 112,466,802 510,910
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 2021, the company had 4.92% of share capital available under the 5% in 10 years limit and 9.60% of share capital under the 10%
in 10 years limit.
Asat31December2021,40,331,837shareswereheldbytheEmployeeBenefitTrustinrespectofoutstandingawardsof71,133,543sharesforthePSP
and SBP.
Other information relating to directors’ remuneration
External appointments
During 2021 the executive directors held no external appointments.
Any 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.
117Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Annual report on remuneration
118 Financial statementsLegal & General Group Plc Annual Report and Accounts 2021
Right
first time
Throughout 2021, our protection team
championed the customer, using digital
innovation and education to make sure that
however the customer chooses to interact with
us,wegetitrightfirsttime.Thishasinvolved
expanding our capabilities when our customers
choose to interact online; strengthening the
telephony experience when customers call us;
and improving advisor support to enable a
quicker process. We saw 50% fewer customers
failedtofindtherightcustomerservice
consultantfirsttime;wearestreamliningthe
customer journey.
Financial
statements
Groupconsolidatedfinancialstatements 120
Primary statements and performance 130
Balance sheet management 148
Additionalfinancialinformation 197
Companyfinancialstatements 226
Natasha Davies,
Retail Customer
Services Consultant
We are
streamlining the
customer journey.”
Strategic report Governance Financial statements Other information
Financial statements 119Legal & General Group Plc Annual Report and Accounts 2021
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
tounderstandingourfinancialperformance.
• The Balance sheet managementsection,whichprovidesfurtherdetailsonourfinancialpositionandapproachtoriskmanagement.
• The Additional financial information section, which includes disclosures required to be compliant with accounting standards or the Companies Act.
Weviewthisinformationasimportant,butlesssignificantinunderstandingourbusinessandperformance.
Contents
Group consolidated financial statements
Independent auditor’s report to the members
ofLegal&GeneralGroupPlc 121
Primary statements and performance
Consolidated Income Statement 130
Consolidated Statement of Comprehensive Income 131
Consolidated Balance Sheet 132
Consolidated Statement of Changes in Equity 133
Consolidated Statement of Cash Flows 135
1. Basis of preparation 136
2. Supplementary adjusted operating
profitinformation 142
3. Other expenses 146
4. Dividends 146
5. Earnings per share 147
Balance sheet management
6. Principal products 148
7. Asset risk 150
8. Assets analysis 153
9. Other intangible assets 154
10. Financial investments and investment property 156
11. IFRS 9 ‘Financial Instruments’ deferral 164
12. Derivative assets and liabilities 165
13. Receivables and other assets 168
14. Cash and cash equivalents 169
15. Market risk 169
16. Credit risk 172
17. Insurance risk 175
18. Long-term insurance valuation assumptions 176
19. IFRS sensitivity analysis 178
20. Insurance contract liabilities 179
21. Investment contract liabilities 181
22. Borrowings 182
23. Provisions 187
24. Payablesandotherfinancialliabilities 192
25. Leases 193
26. Management of capital resources 194
27. Disposals 196
Additional financial information
28. Segmental analysis 197
29. Investment return 201
30. Tax 202
31. Auditor’s remuneration 206
32. Employee information 206
33. Share-based payments 207
34. Share capital, share premium and
employee scheme treasury shares 209
35. Restricted Tier 1 convertible notes 210
36. Non-controlling interests 210
37. Other liabilities 210
38. Reconciliation of assets under management
to Consolidated Balance Sheet 210
39. Related party transactions 211
40. Contingent liabilities, guarantees
and indemnities 211
41. Commitments 212
42. Subsidiaries 212
43. Associates and joint ventures 222
44. Interests in structured entities 224
Company financial statements 226
Legal & General Group Plc Annual Report and Accounts 2021120 Financial statements
Group consolidated financial statements
Independent auditor’s report to the members of Legal & General Group Plc
1 Our opinion is unmodified
WehaveauditedthefinancialstatementsofLegal&GeneralGroupPlc(“thecompany”)fortheyearended31December2021whichcomprisethe
Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement of Changes
in Equity, Consolidated Statement of Cash Flows, Company Balance Sheet, Company Statement of Changes in Equity and the related notes, including the
accounting policies in Note 1.
In our opinion:
• thefinancialstatementsgiveatrueandfairviewofthestateofthegroup’sandoftheparentcompany’saffairsasat31December2021andofthe
group’sprofitfortheyearthenended;
• thegroupfinancialstatementshavebeenproperlypreparedinaccordancewithUK-adoptedinternationalaccountingstandards;
• theparentcompanyfinancialstatementshavebeenproperlypreparedinaccordancewithUKaccountingstandards,includingFRS101Reduced
Disclosure Framework; and
• thefinancialstatementshavebeenpreparedinaccordancewiththerequirementsoftheCompaniesAct2006.
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.Webelievethattheauditevidencewehaveobtainedisasufficientandappropriatebasisforouropinion.Ourauditopinionisconsistentwithour
report to the Audit Committee.
Wewerefirstappointedasauditorbytheshareholderson17May2018.Theperiodoftotaluninterruptedengagementisforthefourfinancialyears
ended31December2021.Wehavefulfilledourethicalresponsibilitiesunder,andweremainindependentofthegroupinaccordancewith,UKethical
requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by that standard
were provided.
Overview
Materiality: groupfinancial
statements as a whole
£107.0 million (2020: £108.0 million)
4.73%(2020:4.95%)ofnormalisedprofitbeforetaxfromcontinuingoperations
Coverage 98.9%(2020:92.5%)ofgroupprofitbeforetax
Key audit matters vs 2020
Recurring risks Valuation of UK annuity policyholder liabilities
Valuation of hard to value (Level 3) investments
Parent company risk: Recoverability of parent company’s investment in subsidiaries
Legal & General Group Plc Annual Report and Accounts 2021 121
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Groupconsolidatedfinancialstatements
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2 Key audit matters: our assessment of risks of material misstatement
Keyauditmattersarethosemattersthat,inourprofessionaljudgement,wereofmostsignificanceintheauditofthefinancialstatementsandinclude
themostsignificantassessedrisksofmaterialmisstatement(whetherornotduetofraud)identifiedbyus,includingthosewhichhadthegreatesteffect
on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below the key
auditmatters(unchangedfrom2020),indecreasingorderofauditsignificance,inarrivingatourauditopinionabove,togetherwithourkeyauditprocedures
to address those matters and, as required for public interest entities, our results from those procedures. These matters were addressed, and our results
arebasedonproceduresundertaken,inthecontextof,andsolelyforthepurposeof,ourauditofthefinancialstatementsasawhole,andinformingour
opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.
Valuation of UK annuity policyholder liabilities
UK annuity policyholder liabilities included within non-participating insurance contract liabilities of £89,755 million; (2020: £88,958 million)
Refertopage89(AuditCommitteeReport),page140(accountingpolicy)andpage179(financialdisclosures).
The risk Our response
Subjective valuation:
The valuation of the UK annuity liabilities is an inherently subjective area, requiring
management judgement in the setting of key assumptions. The longevity, expense
and credit risk assumptions involve the greatest level of subjectivity. A small change
intheseassumptionscanhaveasignificantimpactontheliabilities.Weconsider
the risk remains increased in the current year due to the higher degree of estimation
uncertainty resulting from changes in demographic and economic conditions
caused by the Coronavirus pandemic (Covid-19).
Longevity assumptions
Longevity assumptions have two main components which include mortality base
assumptions and the rate of mortality improvements. Changing trends in longevity
and emerging medical trends means that there is a high level of uncertainty in the
assumptions. This uncertainty remains heightened in the current year due to the
potential longer-term impacts of Covid-19 on trends in longevity. There is also a
high degree of reliance on Continuous Mortality Investigations (‘CMI’) models, and
convergence across the industry on its parameterisation. Hence there is a risk that
other mortality and health data sources are not appropriately considered under the
assumption setting methodology.
Credit assumptions
The valuation discount rate (Valuation Interest Rate, ‘VIR’) is derived from the yield
on the assets backing the annuity liabilities. In setting the VIR, an explicit allowance
forcreditriskisdeductedfromtheyieldondebtandotherfixedincomesecurities.
Theassumptionssurroundingthisdeductionrequiresignificantjudgementand
there is a risk that changes in investment yields, market spreads, current actual
defaultexperienceandanticipatedtrendsarenotappropriatelyreflected.
Expense assumptions
Management judgement is required in setting the maintenance expense
assumption which is based on the directors’ long-term view of the expected future
costs of administering the underlying policies.
Data capture:
There is a risk that incomplete and inaccurate data is used in the calculation of
liabilities resulting from inaccurate transfer or conversion of aggregate data from
thepolicyadministrationsystemsintomodelpointfilesusedtovaluetheliabilities
in the actuarial models. In addition there is a risk that incomplete or inaccurate asset
data is used to calculate the default adjustment applied to the VIR.
Calculation error:
The group uses actuarial models to calculate policyholder liabilities. There is a risk
that unauthorised or erroneous changes to the models may occur.
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
materialityforthefinancialstatementsasawhole,andpossiblymanytimesthat
amount.Thefinancialstatementsdisclosethesensitivities(Note19)estimated
by the group.
Our procedures included:
– Control design and operation: testing of reconciliation controls to assess
completenessofdataflowsfrompolicyadministrationsystemstotheactuarial
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
the historical data input into the actuarial valuation model by comparing the data
used for reporting as at 31 December 2021 to the data used for reporting as at
31 December 2020 in relation to policies that were still 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 VIR to the assets used to back the insurance liabilities; and
– Test of detail: For a sample of assets, validating the accuracy of the asset data
usedtoprojectthecashflowsusedinthecalculationoftheVIRand,withthe
assistanceofourvaluationspecialists,re-projectingthesecashflows.
We used our own actuarial specialists to assist us in performing our procedures in
this area, including:
– 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 Covid-19 on policyholder mortality and credit risk.
For longevity assumptions, this includes consideration of the cause of death
modelling performed by the group and other non-CMI sources alongside the CMI
modelling used across the industry.
– 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; assessing the credit default assumptions by comparing to the
historical performance of the asset portfolio; and assessing whether the expense
assumptionsreflecttheexpectedfuturecostsofadministeringtheunderlying
policies by analysing the allocations of the forecast 2022 costs to maintenance
expenses, with reference to historical allocations and planned actions.
– Test of detail: testing that changes to the actuarial model from the prior year
have been appropriately approved within the group; and evaluating the
appropriatenessofthefinancialimpactofthechangesmadetothemodelduring
the year.
– Assessing transparency: considering whether the disclosures in relation to the
assumptions used in the calculation of valuation of UK annuity policyholder
liabilities are compliant with the relevant accounting requirements and
appropriately represent the sensitivities of these assumptions to alternative
scenarios and inputs.
Our results
– We found the resulting estimate of the valuation of UK annuity policyholder
liabilities within non-participating insurance contract liabilities to be acceptable
(2020 result: acceptable).
Legal & General Group Plc Annual Report and Accounts 2021122 Financial statements
Group consolidated financial statements continued
Valuation of hard to value (Level 3) investments
Lifetime mortgages of £6,857m (2020: £6,036m), private credit portfolios of £16,304m (2020: £14,357m), investment property of £10,150m (2020: £8,475m) and
income strips of £1,626m (2020: £1,449m).
Refertopage89(AuditCommitteeReport),page140(accountingpolicy)andpage161(financialdisclosures).
The risk Our response
Subjective valuation:
6.7%(2020:6.0%)oftheinvestmentportfolioisclassifiedasLevel3assets,of
which we consider the valuation of lifetime mortgages, private credit, investment
property and income strips involve the greatest level of subjectivity. The
subjectivity due to Covid-19 on asset valuations remains heightened. However, we
consider the subjectivity to have decreased from the prior year, driven by actual
experiencetodateandsignificantdevelopmentsmadeintheUKandUSwithits
response to Covid-19.
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 the
group in the valuations adopted is required.
The key assumptions underlying the valuations are:
– Lifetimemortgages:propertypriceatvaluationdate,propertypriceinflation,
property index volatility, voluntary early redemption rate and the illiquidity
premium added to the risk-free rate;
– Private credit: yields of selected comparator securities and credit ratings derived
from credit rating models; and
– Investment property and income strips: estimated rental value and yield of the
property.
Data capture:
Lifetime mortgages
There is a risk that incomplete data is used in the calculation of lifetime mortgages
because data does not transfer appropriately from the policyholder system to the
actuarial models.
Calculation error:
Lifetime mortgages
The group uses a complex actuarial model to calculate the valuation of lifetime
mortgages. There is a risk that unauthorised or erroneous changes to the model
may occur.
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
ourmaterialityforthefinancialstatementsasawhole,andpossiblymanytimes
thatamount.Thefinancialstatements(Note10)disclosethesensitivityestimated
by the group.
Our procedures included:
– Control design and operation: testing of the design, and implementation of key
controls over the valuation process for the hard to value (Level 3) investments,
including the testing of operating effectiveness of key controls relating to the
valuation of private credit assets and lifetime mortgages.
– Our valuation expertise:
– using our own valuation specialists to assess the suitability of the valuation
and credit rating methodologies; to independently revalue a sample of the
private credit investments and assess the suitability of comparator securities
utilised in the valuation on a sample basis;
– using our own valuation specialists to assess the suitability of the valuation
methodologies used by the group; and
– using our own actuarial specialists to evaluate the appropriateness of the
assumptions used in the valuation of lifetime mortgages with reference to
market data and industry benchmarks.
– Assessing valuers’ credentials: assessing the objectivity, professional
qualificationsandcompetenceofexternalvaluersofprivatecreditandinvestment
property investments used by the group and reconciling the valuations provided
bythemtothevaluationsrecordedinthefinancialstatements.
– Methodology choice: assessing the appropriateness of the pricing
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 and investment property
investments were based, including consideration of the impacts of the Covid-19
pandemic, 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.
– Test of detail:
– Testing that changes to the actuarial model for lifetime mortgages from the
prior year have been appropriately approved within the group; and evaluating
theappropriatenessofthefinancialimpactofthechangesmadetothemodel
during the year; and
– Testing the completeness of data used in the valuation of lifetime mortgages
by reconciling the data from the policy administration system to the data used
in the actuarial valuation models.
– Assessing transparency: assessing whether the disclosures in relation to the
valuation of hard to value (Level 3) investments are compliant with the relevant
financialreportingrequirementsandappropriatelypresentthesensitivitiesofthe
valuations to alternative assumptions.
Our results
– We found the resulting estimate of the valuation of hard to value (Level 3)
investments to be acceptable (2020 result: acceptable).
Parent company risk: Recoverability of parent company’s investment in subsidiaries
(£9,522 million; 2020: £9,204 million)
Refertopage228(accountingpolicy)andpage231(financialdisclosures).
The risk Our response
Low risk, high value:
The carrying amount of the parent company’s investments in subsidiaries
represents 78.0% (2020: 74.2%) of the parent company’s total assets. Their carrying
amountisnotatahighriskofsignificantmisstatementorsubjecttosignificant
judgement. However, due to their materiality in the context of the parent company
financialstatements,thisisconsideredtobetheareathathadthegreatesteffecton
our overall parent company audit.
We performed the tests below rather than seeking to rely on any of the group’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:
– Independent re-performance: comparing the carrying amount of the parent
company’sinvestments,withthesubsidiaries’financialinformationtoidentify
whether their net assets, being an approximation of their minimum recoverable
amount, were in excess of their carrying amount and assessing whether those
subsidiarieshavehistoricallybeenprofit-making.
Our results
– We found the parent company’s conclusion that there is no impairment of its
investment in subsidiaries to be acceptable (2020 result: acceptable).
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3 Our application of materiality and an overview of the scope of our audit
Materialityforthegroupfinancialstatementsasawholewassetat£107.0m(2020:£108.0m),determinedwithreferencetoabenchmarkofprofitbefore
tax from continuing operations (PBTCO), normalised to exclude this year’s investment and other variances and losses attributable to non-controlling
interestsasdisclosedinNote2ofthefinancialstatements,ofwhichitrepresents4.73%(2020:4.95%).
Materialityfortheparentcompanyfinancialstatementsasawholewas
set at £28.0m (2020: £29.0m). This is lower than the materiality we would
otherwisehavedeterminedbyreferencetototalassetstoreflectthatthe
parent company is a component of the group, and represents 0.23% of
the parent company’s total assets (2020: 0.23%).
In line with our audit methodology, 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
adduptoamaterialamountacrossthefinancialstatementsasawhole.
Performance materiality for the group and parent company was set at
65%(2020:65%)ofmaterialityforthefinancialstatementsasawhole,
which equates to £69.6 million (2020: £70.0 million) and £18.2 million
(2020: £18.9 million) respectively.
We applied this percentage in our determination of performance
materialitybasedonthelevelofidentifiedimmaterialunadjusted
differencesandcontroldeficienciesnotedduringpriorperiods.
We agreed to report to the Audit Committee any corrected or uncorrected
identifiedmisstatementsexceeding£4.8million(2020:£5.4million),in
additiontootheridentifiedmisstatementsthatwarrantedreportingon
qualitative grounds.
In addition, we applied materiality of £4.4 billion (2020: £4.2 billion) to
theclassificationofunitlinkedassetsandliabilitiesintheconsolidated
balance sheet and related notes, determined with reference to a
benchmarkoftotalunitlinkedfinancialinvestmentsandinvestment
property, of which it represents 1.0% (2020: 1.0%). This materiality was
applied solely for our work on matters for which a misstatement is likely
onlytoleadtoareclassificationbetweenlineitemswithinassetsand
liabilities, in accordance with FRC Practice Note 20 The Audit of Insurers
in the United Kingdom.
We agreed to report to the Audit Committee any corrected or uncorrected
classificationmisstatementsinunitlinkedassetsandliabilitiesexceeding
£197 million (2020: £208 million).
Of the group’s audit components, we subjected 8 (2020: 7), which are
comprised of 18 reporting packs (2020: 13), to full scope audits for group
purposes and 8 (2020: 4), which are comprised of 11 reporting packs
(2020:7),tospecifiedrisk-focusedauditproceduresoverfinancial
investments,investmentproperty,cashandcashequivalents,defined
benefitobligations,andotherexpenses.Thecomponentsforwhich
weperformedspecifiedrisk-focusedprocedureswerenotindividually
financiallysignificantenoughtorequireanauditforgroupreporting
purposes,butdidpresentspecificindividualrisksthatneededto
be addressed.
The components within the scope of our work accounted for the percentages above.
Fortheresidualcomponents,weperformedanalysisatanaggregatedgroupleveltore-examineourassessmentthattherewerenosignificantrisks
ofmaterialmisstatementwithinthese.Thegroupteamperformedproceduresontheitemsexcludedfromnormalisedprofitbeforetaxfrom
continuing operations.
PBTCO
PBTCO
Materiality
(normalised) £2,262m
(2020: £2,184m)
Group Materiality
£107.0m
(2020: £108.0m)
£107.0m (2020: £108.0m)
Whole financial
statements materiality
£69.6m (2020: £70.0m)
Whole financial statements
performance materiality
£4.8m (2020: £5.4m)
Misstatements reported to the
Audit Committee
£70.0m (2019: £70.0m)
Range of materiality at
16 components (£6.0m-£70.0m)
(2020: £5.4m-£70.0m)
Group revenue
Group total assets
Group profit before tax
98.9%
(2020: 91.2%)
97.3%
(2020: 95.7%)
86.7%
(2020: 94.9%)
Full scope for group audit purposes 2021
Specified risk-focused audit procedures 2021
Full scope for group audit purposes 2020
Specified risk-focused audit procedures 2020
Residual components
Legal & General Group Plc Annual Report and Accounts 2021124 Financial statements
Group consolidated financial statements continued
Thegroupteaminstructedcomponentauditorsastothesignificantareastobecovered,includingtherelevantrisksdetailedaboveandtheinformation
to be reported back. The group team approved the component materialities, which ranged from £6.0 million to £70.0 million (2020: £5.4 million to
£70.0million),havingregardtothemixofsizeandriskprofileofthegroupacrossthecomponents.
Whilst the ability to perform site visits was limited in 2021 due to the restrictions imposed as a result of the Coronavirus pandemic, the group team
held video and telephone conference meetings with 10 (2020: 11) component locations in the United Kingdom, Republic of Ireland and the United States
(2020:UnitedKingdom,RepublicofIrelandandtheUnitedStates),toassesstheauditriskandstrategy.Atthesemeetings,thefindingsreportedtothe
group team were discussed in more detail, and any further work required by the group team was then performed by the component auditor.
The work on 10 of the 16 components (2020: 9 of the 11 components) was performed by component auditors and the rest, including the audit of the
parent company, was performed by the group team.
Wewereabletorelyuponthegroup’sinternalcontroloverfinancialreportinginseveralareasofouraudit,whereourcontrolstestingsupportedthis
approach, which enabled us to reduce the scope of our substantive audit work; in the other areas the scope of the audit work performed was
fully substantive.
4 The impact of climate change on our audit
Inplanningouraudit,wehaveconsideredthepotentialimpactofclimatechangeonthegroup’sbusinessanditsfinancialstatements.
Climatechange,andtheassociatedinitiativesandcommitments,impactthegroupinavarietyofwaysincludingthepotentialfinancialriskswhichcould
arise from the associated physical and transitional risks and the greater narrative and disclosure of the impact of climate change risk that is incorporated
into the annual report. 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 33.
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
financialstatements,includinghowclimateisconsideredaspartoftheinvestmentmakingandmonitoringprocesses,andthegroup’spreparedness
forthis.Wehaveperformedariskassessmentofhowtheimpactofclimatechangemayaffectthefinancialstatementsandouraudit.Thisincluded
evaluating the impact of management’s stress test scenarios and holding discussions with our own climate change professionals to challenge our
risk assessment.
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,weconcludedthat,whileclimatechangemayposearisktothedeterminationofassetvalues,theriskwasnotsignificantinthecurrentyear.
Asaresult,therewasnosignificantimpactfromclimatechangeonourkeyauditmatters.
We have also read the disclosures of climate related information in the Strategic Report as set out on pages 43 to 45 and considered consistency with
thefinancialstatementsandourauditknowledge.Wehavenotbeenengagedtoprovideassuranceovertheaccuracyofthesedisclosures.
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5 Going concern
Thedirectorshavepreparedthefinancialstatementsonthegoingconcernbasisastheydonotintendtoliquidatethegrouportheparentcompanyor
toceasetheiroperations,andastheyhaveconcludedthatthegroup’sandtheparentcompany’sfinancialpositionmeansthatthisisrealistic.Theyhave
alsoconcludedthattherearenomaterialuncertaintiesthatcouldhavecastsignificantdoubtovertheirabilitytocontinueasagoingconcernforatleast
ayearfromthedateofapprovalofthefinancialstatements(“thegoingconcernperiod”).
We used our knowledge of the group and parent company, its industry, and the general economic environment in which it operates to identify the
inherentriskstoitsbusinessmodelandanalysedhowthoserisksmightaffectthegroupandparentcompany’sfinancialresourcesorabilitytocontinue
operations over the going concern period. The risks that were considered most likely to adversely affect the group’s and parent company’s available
financialresourcesoverthisperiodwere:
• Adverseimpactsarisingfromfluctuationsornegativetrendsintheeconomicenvironmentincluding,butnotlimitedto,widercreditspreadsand
defaults which affect regulatory capital solvency coverage ratios, liquidity ratios, the valuations of the group’s investments and valuation of
policyholder liabilities; and
• Severely adverse policyholder lapse or claims experience.
We also considered less predictable but realistic second order impacts, such as the failure of counterparties who have transactions with the group
(suchasbanksandreinsurers),whichcouldresultinarapidreductionofavailablefinancialresources.
We considered whether these risks could plausibly affect the liquidity in the going concern period by comparing severe, but plausible downside scenarios
thatcouldarisefromtheserisksindividuallyandcollectivelyagainstthelevelofavailablefinancialresourcesbythegroup’sfinancialforecasts.
WeconsideredwhetherthegoingconcerndisclosureinNote1(ii)tothefinancialstatementsgivesafullandaccuratedescriptionofthedirectors’
assessmentofgoingconcern,includingtheidentifiedrisksandrelatedsensitivities.
Our conclusions based on this work:
• weconsiderthatthedirectors’useofthegoingconcernbasisofaccountinginthepreparationofthefinancialstatementsisappropriate;
• wehavenotidentified,andconcurwiththedirectors’assessmentthatthereisnot,amaterialuncertaintyrelatedtoeventsorconditionsthat,
individuallyorcollectively,maycastsignificantdoubtonthegroup’sorparentcompany’sabilitytocontinueasagoingconcernforthegoingconcern
period;
• wehavenothingmaterialtoaddordrawattentiontoinrelationtothedirectors’statementinNote1(ii)tothefinancialstatementsontheuseofthe
goingconcernbasisofaccountingwithnomaterialuncertaintiesthatmaycastsignificantdoubtoverthegroupandparentcompany’suseofthat
basis for the going concern period, and we found the going concern disclosure in Note 1 (ii) to be acceptable; and
• therelatedstatementundertheListingRulessetoutonpage237ismateriallyconsistentwiththefinancialstatementsandourauditknowledge.
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.
6 Fraud and breaches of laws and regulations – ability to detect
Identifying and responding to risks of material misstatement due to fraud
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 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”, as well as
whether they have knowledge of any actual, suspected or alleged fraud;
• reading Board, Audit Committee and Risk Committee meeting minutes;
• considering remuneration incentive schemes and performance targets for management; and
• consulting with professionals with forensic knowledge to assist us in identifying fraud risks based on discussions of the circumstances of the group.
Wecommunicatedidentifiedfraudrisksthroughouttheauditteamandremainedalerttoanyindicationsoffraudthroughouttheaudit.Thisincluded
communicationfromthegroupauditteamtocomponentauditteamsofrelevantfraudrisksidentifiedatthegrouplevelandrequesttofullscope
component audit teams to report to the group audit team any instances of fraud that could give rise to a material misstatement at group.
Asrequiredbyauditingstandardsandtakingintoaccountpossiblepressurestomeetprofittargets,weperformprocedurestoaddresstheriskof
management override of controls, in particular the risk that group and component management may be in a position to make inappropriate accounting
entries and the risk of bias in accounting estimates and judgements such as the valuation of UK annuity policyholder liabilities and the valuation of hard
to value (Level 3) investments.
Legal & General Group Plc Annual Report and Accounts 2021126 Financial statements
Group consolidated financial statements continued
On this audit we do not believe there is a fraud risk related to revenue recognition because there is limited management judgement involved in the
recognition of and measurement of the transaction price for all material revenue streams.
WealsoidentifiedfraudrisksrelatedtothevaluationofUKannuitypolicyholderliabilitiesandvaluationofhardtovalue(Level3)investmentsinresponse
topossiblepressurestomeetprofittargets.
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 key
audit matters disclosures in section 2 of this report.
We also performed procedures including:
• identifyingjournalentriestotestforfull-scopecomponents,basedonriskcriteriaandcomparingtheidentifiedentriestosupportingdocumentation.
Theseincluded,butwerenotlimitedto,journalsimpactingcashbalancesthatwereidentifiedasunusualorunexpectedinourriskassessment
procedures;
• evaluatingthebusinesspurposeofsignificantunusualtransactions;and
• assessingsignificantaccountingestimatesforbias.
Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations
Weidentifiedareasoflawsandregulationsthatcouldreasonablybeexpectedtohaveamaterialeffectonthefinancialstatementsfromourgeneral
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.
Wecommunicatedidentifiedlawsandregulationsthroughoutourteamandremainedalerttoanyindicationsofnon-compliancethroughouttheaudit.
Thisincludedcommunicationfromthegroupauditteamtofullscopecomponentauditteamsofrelevantlawsandregulationsidentifiedatthegroup
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 group.
Thepotentialeffectoftheselawsandregulationsonthefinancialstatementsvariesconsiderably.
Firstly,thegroupissubjecttolawsandregulationsthatdirectlyaffectthefinancialstatementsincludingfinancialreportinglegislation(includingrelated
companieslegislation),distributableprofitslegislation,taxationlegislation,andpensionlegislationandweassessedtheextentofcompliancewiththese
lawsandregulationsaspartofourproceduresontherelatedfinancialstatementitems.
Secondly, the group is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts
ordisclosuresinthefinancialstatements,forinstancethroughtheimpositionoffinesorlitigationorthelossofthegroup’slicensetooperate.Weidentified
the following areas as those most likely to have such an effect: Listing Rules, Disclosure Guidance and Transparency Rules, regulatory capital and liquidity
requirementsandcertainaspectsofcompanylegislationrecognisingthefinancialandregulatednatureofthegroup’sactivitiesandcertainregulated
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 of the ability of the audit to detect fraud or breaches of law or regulation
Owingtotheinherentlimitationsofanaudit,thereisanunavoidableriskthatwemaynothavedetectedsomematerialmisstatementsinthefinancial
statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed
non-compliancewithlawsandregulationsisfromtheeventsandtransactionsreflectedinthefinancialstatements,thelesslikelytheinherentlylimited
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 these 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.
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Independent auditor’s report to the members of Legal & General Group Plc continued
7 We have nothing to report on the other information in the Annual Report
ThedirectorsareresponsiblefortheotherinformationpresentedintheAnnualReporttogetherwiththefinancialstatements.Ouropiniononthefinancial
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.
Ourresponsibilityistoreadtheotherinformationand,indoingso,considerwhether,basedonourfinancialstatementsauditwork,theinformation
thereinismateriallymisstatedorinconsistentwiththefinancialstatementsorourauditknowledge.Basedsolelyonthatworkwehavenotidentified
material misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the other information:
• wehavenotidentifiedmaterialmisstatementsinthestrategicreportandthedirectors’report;
• inouropiniontheinformationgiveninthosereportsforthefinancialyearisconsistentwiththefinancialstatements;and
• in our opinion those reports have been prepared in accordance with the Companies Act 2006.
Directors’ Remuneration Report
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.
Disclosures of emerging and principal risks and longer-term viability
We are required to perform procedures to identify whether there is a material inconsistency between the directors’ disclosures in respect of emerging
andprincipalrisksandtheviabilitystatement,andthefinancialstatementsandourauditknowledge.
Based on those procedures, we have nothing material to add or draw attention to in relation to:
• thedirectors’confirmationwithinthestatementonpage56thattheyhavecarriedoutarobustassessmentoftheemergingandprincipalrisksfacing
the group, including those that would threaten its business model, future performance, solvency and liquidity;
• thePrincipalRisksanduncertaintiesdisclosuresdescribingtheserisksandhowemergingrisksareidentified,andexplaininghowtheyarebeing
managed and mitigated; and
• the directors’ explanation in the Group Board 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
drawingattentiontoanynecessaryqualificationsorassumptions.
We are also required to review the Group Board viability statement, set out on page 55 under the Listing Rules. Based on the above procedures, we have
concludedthattheabovedisclosuresaremateriallyconsistentwiththefinancialstatementsandourauditknowledge.
Ourworkislimitedtoassessingthesemattersinthecontextofonlytheknowledgeacquiredduringourfinancialstatementsaudit.Aswecannotpredict
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.
Corporate governance disclosures
We are required to perform procedures to identify whether there is a material inconsistency between the directors’ corporate governance disclosures and
thefinancialstatementsandourauditknowledge.
Basedonthoseprocedures,wehaveconcludedthateachofthefollowingismateriallyconsistentwiththefinancialstatementsandourauditknowledge:
• thedirectors’statementthattheyconsiderthattheannualreportandfinancialstatementstakenasawholeisfair,balancedandunderstandable,
and provides the information necessary for shareholders to assess the group’s position and performance, business model and strategy;
• thesectionoftheannualreportdescribingtheworkoftheAuditCommittee,includingthesignificantissuesthattheAuditCommitteeconsidered
inrelationtothefinancialstatements,andhowtheseissueswereaddressed;and
• the section of the annual report that describes the review of the effectiveness of the group’s risk management and internal control systems.
We are required to review the part of the Corporate Governance Statement relating to the group’s compliance with the provisions of the UK Corporate
GovernanceCodespecifiedbytheListingRulesforourreview,andtoreporttoyouifacorporategovernancestatementhasnotbeenpreparedbythe
company. We have nothing to report in these respects.
Based solely on our work on the other information described above with respect to the Corporate Governance Statement disclosures about internal
controlandriskmanagementsystemsinrelationtofinancialreportingprocessesandaboutsharecapitalstructures:
• wehavenotidentifiedmaterialmisstatementstherein;and
• theinformationthereinisconsistentwiththefinancialstatements;and
• in our opinion, the Corporate Governance Statement has been prepared in accordance with relevant rules of the Disclosure Guidance and
Transparency Rules of the Financial Conduct Authority.
Legal & General Group Plc Annual Report and Accounts 2021128 Financial statements
Group consolidated financial statements continued
8 We have nothing to report on the other matters on which we are required to report by exception
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
• theparentcompanyfinancialstatementsandthepartoftheDirectors’RemunerationReporttobeauditedarenotinagreementwiththeaccounting
records and returns; or
• certaindisclosuresofdirectors’remunerationspecifiedbylawarenotmade;or
• we have not received all the information and explanations we require for our audit.
We have nothing to report in these respects.
9 Respective responsibilities
Directors’ responsibilities
Asexplainedmorefullyintheirstatementsetoutonpages236and237,thedirectorsareresponsiblefor:thepreparationofthefinancialstatements
includingbeingsatisfiedthattheygiveatrueandfairview;suchinternalcontrolastheydetermineisnecessarytoenablethepreparationoffinancial
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
Ourobjectivesaretoobtainreasonableassuranceaboutwhetherthefinancialstatementsasawholearefreefrommaterialmisstatement,whetherdue
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
consideredmaterialif,individuallyorinaggregate,theycouldreasonablybeexpectedtoinfluencetheeconomicdecisionsofuserstakenonthebasis
ofthefinancialstatements.
A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
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.
Rees Aronson (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square,
London, E14 5GL
8 March 2022
Legal & General Group Plc Annual Report and Accounts 2021 129
Strategic report Governance Financial statements Other information
Groupconsolidatedfinancialstatements
Consolidated Income Statement
For the year ended 31 December 2021
Notes
2021
£m
2020
£m
Income
Gross written premiums 28 10 , 37 5 12 , 5 4 5
Outward reinsurance premiums (3 ,4 4 6 ) (3 ,18 7 )
Net change in provision for unearned premiums 42 12
Net premiums earned 6,9 71 9, 37 0
Fees from fund management and investment contracts 28 959 873
Investment return 29 3 5,92 7 3 9 ,16 8
Other operational income 1, 59 3 820
Total income 28 45,450 50 ,231
Expenses
Claims and change in insurance contract liabilities 7, 3 5 3 17, 7 6 8
Reinsurance recoveries (2 ,96 8 ) (3 , 6 0 1 )
Net claims and change in insurance contract liabilities 4,385 14 ,16 7
Change in investment contract liabilities 21 34,206 3 1, 410
Acquisition costs 825 617
Finance costs 22 294 3 05
Other expenses 3 3 ,10 8 2,233
Total expenses 42 , 818 4 8,7 32
Profit before tax 2,6 32 1, 4 9 9
Tax expense attributable to policyholder returns 30 (14 4 ) (6 9 )
Profit before tax attributable to equity holders 2,488 1, 4 3 0
Total tax expense 30 (5 89 ) (218 )
Tax expense attributable to policyholder returns 30 14 4 69
Tax expense attributable to equity holders 30 (4 4 5 ) (149 )
Profitaftertaxfromcontinuingoperations 28 2,04 3 1, 2 81
Profitaftertaxfromdiscontinuedoperations¹ – 290
Profit for the year 2,04 3 1, 5 7 1
Attributable to:
Non-controlling interests (7 ) (3 6 )
Equity holders 2,050 1, 6 0 7
Dividend distributions to equity holders during the year 4 1, 0 6 3 1, 0 4 8
Dividend distributions to equity holders proposed after the year end 4 79 0 75 4
p
p
Total basic earnings per share² 5 3 4 .19 2 7. 0 0
Total diluted earnings per share² 5 32.57 25.6 0
Basic earnings per share derived from continuing operations
2
5 3 4 .19 2 2 .11
Diluted earnings per share derived from continuing operations
2
5 32.57 2 0.9 8
1. In 2020, discontinued operations included the results of the Mature Savings division, the sale of which completed on 7 September 2020.
2. Allearningspersharecalculationsarebasedonprofitattributabletoequityholdersofthecompany.
Legal & General Group Plc Annual Report and Accounts 2021130 Financial statements
Primary statements and performance
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2021
Note
2021
£m
2020
£m
Profit for the year 2,04 3 1, 5 7 1
Items that will not be reclassified subsequently to profit or loss
Actuarialremeasurementsondefinedbenefitpensionschemes 23 53 (16 8 )
Tax(expense)/creditonactuarialremeasurementsondefinedbenefitpensionschemes (7 ) 48
Total items that will not be reclassified subsequently to profit or loss 46 (12 0 )
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations (11 ) 2
Movement in cross-currency hedge 20 7
Tax expense on movement in cross-currency hedge (7 ) (4 )
Movementinfinancialinvestmentsdesignatedasavailable-for-sale (3 ) 2
Total items that may be reclassified subsequently to profit or loss (1 ) 7
Other comprehensive income/(expense) after tax 45 (11 3 )
Total comprehensive income for the year 2 ,088 1, 4 5 8
Total comprehensive income for the year attributable to:
Continuing operations 2,088 1,16 8
Discontinued operations – 290
Total comprehensive income/(expense) for the year attributable to:
Non-controlling interests (7 ) (3 6 )
Equity holders 2,0 95 1,4 9 4
Legal & General Group Plc Annual Report and Accounts 2021 131
Strategic report Governance Financial statements Other information
Primary statements and performance
Consolidated Balance Sheet
As at 31 December 2021
Notes
2021
£m
2020
£m
Assets
Goodwill 68 68
Other intangible assets 9 365 329
Deferred acquisition costs 26 47
Investment in associates and joint ventures accounted for using the equity method 375 28 8
Property, plant and equipment 316 2 74
Investment property 10 1 0 ,15 0 8, 475
Financial investments 10 5 3 8 , 3 74 526,057
Reinsurers’ share of contract liabilities 20,21 7,1 8 0 6 ,93 9
Deferred tax assets 30 2 5
Current tax assets 30 670 634
Receivables and other assets 13 8,625 9,42 9
Cash and cash equivalents 14 16 , 4 87 18 , 0 2 0
Total assets 582,6 38 5 70,5 65
Equity
Share capital 34 14 9 14 9
Share premium 34 1 ,0 12 1, 0 0 6
Employee scheme treasury shares 34 (99 ) (75 )
Capital redemption and other reserves 19 6 19 8
Retained earnings 9, 22 8 8,224
Attributable to owners of the parent 10, 4 8 6 9, 50 2
Restricted Tier 1 convertible notes 35 495 495
Non-controlling interests 36 (38 ) (3 1 )
Total equity 10, 94 3 9,9 66
Liabilities
Non-participating insurance contract liabilities 20 89, 82 5 8 9,0 29
Non-participating investment contract liabilities 21 37 2,9 54 343, 543
Core borrowings 22 4, 256 4,55 8
Operational borrowings 22 932 1, 05 5
Provisions 23 1, 2 3 8 1, 28 8
Deferred tax liabilities 30 251 2 07
Current tax liabilities 30 84 61
Payablesandotherfinancialliabilities 24 74 , 2 6 4 91, 9 42
Other liabilities 37 925 75 6
Net asset value attributable to unit holders 26 ,966 2 8 ,16 0
Total liabilities 5 71, 69 5 560,599
Total equity and liabilities 582,6 38 5 70,5 65
Thenotesonpages136to225formanintegralpartofthesefinancialstatements.
Thefinancialstatementsonpages130to225wereapprovedbytheboardofdirectorson8March2022andweresignedontheirbehalfby:
Sir John Kingman
Chairman
Sir Nigel Wilson
GroupChiefExecutiveOfficer
Stuart Jeffrey Davies
GroupChiefFinancialOfficer
Legal & General Group Plc Annual Report and Accounts 2021132 Financial statements
Primary statements and performance continued
Consolidated Statement of Changes in Equity
For the year ended 31 December 2021
Share
capital
£m
Share
premium
£m
Employee
scheme
treasury
shares
£m
Capital
redemption
and other
reserves
1
£m
Retained
earnings
£m
Equity
attributable
to owners
of the
parent
£m
Restricted
Tier 1
convertible
notes
£m
Non-
controlling
interests
£m
Total
equity
£m
As at 1 January 2021 14 9 1, 0 0 6 (75 ) 19 8 8,224 9,502 495 (3 1 ) 9,96 6
Profitfortheyear – – – – 2,050 2 ,050 – (7 ) 2 ,043
Exchange differences on translation
of overseas operations – – – (11 ) – (11 ) – – (11 )
Net movement in cross-currency hedge – – – 13 – 13 – – 13
Netactuarialremeasurementsondefined
benefitpensionschemes – – – – 46 46 – – 46
Netmovementinfinancialinvestments
designated as available-for-sale – – – (3 ) – (3 ) – – (3 )
Total comprehensive income for the year – – – (1 ) 2 ,096 2 ,095 – (7 ) 2,088
Options exercised under share option schemes – 6 – – – 6 – – 6
Shares purchased – – (3 4 ) – – (34 ) – – (3 4 )
Shares vested – – 10 (4 8 ) – (3 8 ) – – (3 8 )
Employee scheme treasury shares:
–Valueofemployeeservices – – – 33 – 33 – – 33
Share scheme transfers to retained earnings – – – – 8 8 – – 8
Dividends – – – – (1, 0 63 ) (1, 06 3 ) – – (1, 06 3 )
Coupon payable in respect of restricted Tier 1
convertible notes net of tax relief – – – – (2 3 ) (2 3 ) – – (2 3 )
Currency translation differences – – – 14 (14 ) – – – –
As at 31 December 2021 14 9 1, 0 12 (99 ) 19 6 9, 22 8 10 , 48 6 495 (3 8 ) 10,9 4 3
1. Capital redemption and other reserves as at 31 December 2021 include share-based payments £86 m, foreign exchange £4 6 m, capital redemption £17 m, hedging £4 8 m and available-for-sale
reserves £(1 )m.
Legal & General Group Plc Annual Report and Accounts 2021 133
Strategic report Governance Financial statements Other information
Primary statements and performance
Consolidated Statement of Changes in Equity continued
For the year ended 31 December 2020
Share
capital
£m
Share
premium
£m
Employee
scheme
treasury
shares
£m
Capital
redemption
and other
reserves¹
£m
Retained
earnings
£m
Equity
attributable
to owners
of the
parent
£m
Restricted
Tier 1
convertible
notes
£m
Non-
controlling
interests
£m
Total
equity
£m
As at 1 January 2020 14 9 1 ,000 (65 ) 205 7, 7 4 9 9 ,038 – 55 9, 09 3
Profitfortheyear – – – – 1, 6 0 7 1, 6 07 – (36 ) 1, 5 7 1
Exchange differences on translation
of overseas operations – – – 2 – 2 – – 2
Net movement in cross-currency hedge – – – 3 – 3 – – 3
Netactuarialremeasurementsondefined
benefitpensionschemes – – – – (12 0 ) (12 0 ) – – (12 0 )
Netmovementinfinancialinvestments
designated as available-for-sale – – – 2 – 2 – – 2
Total comprehensive income for the year – – – 7 1, 4 8 7 1, 4 9 4 – (3 6 ) 1, 4 5 8
Options exercised under share option schemes – 6 – – – 6 – – 6
Shares purchased – – (23 ) – – (2 3 ) – – (23 )
Shares vested – – 13 (27 ) – (14 ) – – (14 )
Employee scheme treasury shares:
–Valueofemployeeservices – – – 43 – 43 – – 43
Share scheme transfers to retained earnings – – – – 12 12 – – 12
Dividends – – – – (1, 0 4 8 ) (1, 0 4 8 ) – – (1, 0 4 8 )
Restricted Tier 1 convertible notes – – – – – – 495 – 495
Coupon payable in respect of restricted Tier 1
convertible notes net of tax relief – – – – (6 ) (6 ) – – (6 )
Movement in third party interests – – – – – – – (5 0 ) (5 0 )
Currency translation differences – – – (3 0 ) 30 – – – –
As at 31 December 2020 149 1, 0 0 6 (75 ) 19 8 8,224 9,5 0 2 495 (3 1 ) 9,9 66
1. Capital redemption and other reserves as at 31 December 2020 include share-based payments £1 01 m, foreign exchange £4 3 m, capital redemption £1 7 m, hedging £35 m and available-for-sale
reserves £2 m.
Legal & General Group Plc Annual Report and Accounts 2021134 Financial statements
Primary statements and performance continued
Consolidated Statement of Cash Flows
For the year ended 31 December 2021 Notes
2021
£m
2020
£m
Cash flows from operating activities
Profit for the year 2,04 3 1, 5 7 1
Adjustments for non cash movements in net profit for the year
Netgainsonfinancialinvestmentsandinvestmentproperty (26 ,0 62 ) (2 8, 5 30 )
Investment income (9, 86 5 ) (9, 7 61 )
Interest expense 294 337
Tax expense 30 589 14 4
Other adjustments 13 7 (12 )
Net decrease/(increase) in operational assets
Investmentsheldfortradingordesignatedasfairvaluethroughprofitorloss 4, 61 6 6 , 5 19
Investments designated as available-for-sale (2 1 ) 1, 0 72
Other assets 13 9 (2,4 45 )
Net increase/(decrease) in operational liabilities
Insurance contracts 726 11, 6 0 7
Investment contracts 2 9,4 09 20,855
Other liabilities (11,1 61 ) (5 ,90 0 )
Cash utilised in operations (9 ,15 6 ) (4 , 5 4 3 )
Interest paid (3 0 1 ) (3 0 1 )
Interest received 5,060 5 ,19 0
Rent received 373 384
Tax paid
1
(56 4 ) (5 54 )
Dividends received 4 , 419 4 ,12 5
Net cash flows from operations (16 9 ) 4 ,301
Cash flows from investing activities
Acquisition of plant, equipment, intangibles and other assets (2 05 ) (19 8 )
Disposal of plant, equipment, intangibles and other assets – 34
Acquisition of operations, net of cash acquired – 1
Disposal of subsidiaries and other operations, net of cash transferred 217 (27 8 )
Investment in joint ventures and associates (56 ) (16 )
Disposal of joint ventures and associates 17 7 –
Net cash flows generated/(utilised) from investing activities 13 3 (4 5 7 )
Cash flows from financing activities
Dividend distributions to ordinary equity holders during the year 4 (1,0 6 3 ) (1, 0 4 8 )
Coupon payment in respect of restricted Tier 1 convertible notes, gross of tax 35 (2 8 ) (7 )
Options exercised under share option schemes 34 6 6
Treasury shares purchased for employee share schemes 34 (3 4 ) (23 )
Payment of lease liabilities (3 7 ) (37 )
Proceeds from borrowings 22 4 49 1, 0 8 6
Repayment of borrowings 22 (79 8 ) (5 0 1 )
Proceeds from issuance of restricted Tier 1 convertible notes, net of associated expenses – 4 95
Net cash flows utilised in financing activities (1 ,505 ) (2 9 )
Net (decrease)/increase in cash and cash equivalents (1, 5 41 ) 3 , 8 15
Exchange gains/(losses) on cash and cash equivalents 8 (2 8 )
Cash and cash equivalents at 1 January (before reallocation of held for sale cash) 18, 0 20 1 4,2 33
Total cash and cash equivalents at 31 December 14 16 , 4 8 7 18 , 0 2 0
1. Tax paid comprises UK corporation tax of £36 8 m (2020: £417 m), withholding tax of £188 m (2020: £1 37 m) and overseas corporate tax of £8 m (2020: £nil).
Legal & General Group Plc Annual Report and Accounts 2021 135
Strategic report Governance Financial statements Other information
Primary statements and performance
1 Basis of preparation
Legal&GeneralGroupPlc,ap ublicli mitedco mpanyEnglandandWale s
of retirement, investment management, capital investment and insurance through its subsidiaries and associates in the United Kingdom (UK), the
United States and other countries throughout the world.
(i) Significant accounting policies
ThegroupfinancialstatementshavebeenpreparedinaccordancewithUK-adoptedinternationalaccountingstandards,comprisingInternational
Accounting Standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), and
relatedinterpretationsissuedbytheIFRSInterpretationsCommittee.EndorsementisgrantedbytheUKEndorsementBoard(UKEB).Thegroupfinancial
statementshavebeenpreparedunderthehistoricalcostconvention,asmodifiedbytherevaluationofinvestmentproperty,available-for-salefinancial
assets,andcertainfinancialassetsandfinancialliabilities(includingderivativeinstruments)atfairvaluethroughprofitorloss.
Thegrouphasselectedaccountingpolicieswhichstatefairlyitsfinancialposition,financialperformanceandcashflowsforareportingperiod.
Theaccountingpolicieshavebeenconsistentlyappliedtoallyearspresentedunlessotherwisestated.Accountingpoliciesthatrelatespecifically
to a balance or transaction are presented above the relevant numerical disclosure.
FinancialassetsandfinancialliabilitiesaredisclosedgrossintheConsolidatedBalanceSheetunlessalegallyenforceablerightofoffsetexistsandthere
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
environmentaresetoutinthisAnnualReport&Accounts.Thefinancialpositionofthegroup,itscashflows,liquiditypositionandborrowingfacilitiesare
describedintheseconsolidatedfinancialstatements.Principalrisksanduncertaintiesaredetailedonpages56to59.
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,
butnotlimitedto,12monthsfromthedateofapprovaloftheseconsolidatedfinancialstatements,whichtakesaccountofthecurrentandfutureimpact
oftheCovid-19pandemic,usingtheinformationavailableuptothedateofissueofthisAnnualReport&Accounts.
The group manages and monitors its capital and liquidity, and various stresses are applied 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 is disclosed in section 5.01 of the Full year
results 2021 Press Release
1
. These stresses, including additional considerations relating to Covid-19, 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
resourcestomanageitsbusinessriskssuccessfullyandthatitremainsfinanciallystrongandwelldiversified.
Havingreassessedtheprincipalrisksanduncertainties(bothfinancialandoperational)inlightofthecurrenteconomicenvironment,asdetailedon
pages56to59,thedirectorsareconfidentthatthegroupandCompanywillhavesufficientfundstocontinuetomeetitsliabilitiesastheyfallduefora
periodof,butnotlimitedto,12monthsfromthedateofapprovalofthefinancialstatementsandthereforehaveconsidereditappropriatetoadoptthe
goingconcernbasisofaccountingwhenpreparingthefinancialstatements.
(iii) New standards, interpretations and amendments to published standards that have been adopted by the group
Thegrouphasappliedthefollowingstandardsandamendmentsforthefirsttimeinitsannualreportingperiodcommencing1January2021.
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 – Interest Rate Benchmark Reform Phase 2
Theseamendments,issuedinAugust2020,addressissuesthatmightaffectfinancialreportingafterthereformofaninterestratebenchmark,including
itsreplacementwithalternativebenchmarkrates.Inparticular,theyofferpracticalexpedients,undercertainconditions,whenafinancialcontractis
modifiedduetoachangeresultingdirectlyfromIBORreform.Theyalsoallowaseriesofexemptionsfromthecurrentrulesaroundhedgeaccounting.
The amendments will be considered as new interest rate benchmarks are introduced.
New disclosure requirements have also been introduced as part of Phase 2, and in line with these the group has provided the below details around the
natureandextentofriskstowhichitisexposedarisingfromfinancialinstrumentssubjecttoIBORreform,howsuchrisksaremanagedandthegroup’s
progress in completing its transition to alternative benchmark rates.
In the UK, GBP LIBOR has been replaced by SONIA from the end of 2021, and USD LIBOR is expected to be replaced by mid-2023. Euribor will remain but
will be administered by EMMI (Euro Money Markets Institute).
The key challenges for the group arose in the following areas:
• AllfinancialcontractsthatreferenceLIBORneededtobeamended;
• Derivatives and assets on balance sheet that were exposed to changes in market value when the reference rate changes needed to be considered;
• Discount rates that were based on risk free curves, if the risk free curves were based on LIBOR changed. This primarily affected the Solvency II
balance sheet, but the resulting impact was small;
• Customers of the group needed to understand the implications for their products and agree the necessary changes.
1. Section 5.01 of the Full year results 2021 Press Release is unaudited.
Legal & General Group Plc Annual Report and Accounts 2021136 Financial statements
Primary statements and performance continued
To deal with these risks and to manage the groupwide conversion, the group initiated a project in 2019 to transition away from LIBOR by 31 December 2021.
LGIM is the reportable segment whose operations were most impacted regarding investments linked to LIBOR. Business as usual processes were
enhancedtoincludeincreasedmarketsurveillanceonLIBORtrading,addedrecord-keepingspecifictoLIBORtrades,increasedclientcommunications
and additional complaints monitoring processes.
The largest shareholder exposures related to LIBOR-linked derivatives that are used for hedging the annuity business. In 2021, the group stopped trading
assets referenced to LIBOR (except in some very limited circumstances) and initiated a programme of replacing legacy assets denominated in LIBOR
with new SONIA based positions.
For GBP LIBOR, in the third quarter of 2021 it was decided to allow remaining cross-currency positions maturing in March 2022 to roll off rather than
activelytransitiontoanewrisk-freerate.Aresidualamountoffloating-ratenotesremainswhichwillreferencea‘synthetic’LIBORaspermitted,andthis
will be reviewed annually.
Trading out of USD LIBOR has been more gradual as a result of the transition date moving to 23 June 2023, however this has now accelerated following
guidance by US regulatory authorities that no new USD LIBOR investments should be made from 1 January 2022.
ThefollowingtablecontainsdetailsofallthefinancialinstrumentscurrentlysubjecttotheIBORreformthatthegroupholdsonitsbalancesheetat
31December2021whichhavenotyettransitionedtoSONIAoranalternativeinterestratebenchmark.Theamountsofnon-derivativefinancialassets
are shown at their carrying amounts and derivatives are shown at their notional amounts.
GBP LIBOR
2021
£m
USD LIBOR
2021
£m
Total
2021
£m
Non-derivative financial assets
Debt securities 229 55 284
Derivatives 743 59,356 60,099
(iv) Standards, interpretations and amendments to published standards which are not yet effective
Certain standards, amendments and interpretations to existing standards have been published which are mandatory for the group’s accounting periods
beginning on or after 1 January 2022 or later periods and which the group has not adopted early, as disclosed below.
IFRS 17 – Insurance Contracts
IFRS 17, ‘Insurance Contracts’ was originally issued in May 2017 by the IASB, and subsequent amendments were issued in June 2020. The standard is
expected to be effective for annual periods beginning on or after 1 January 2023 but remains subject to endorsement for use in the UK. The standard will
be applied retrospectively, subject to the transitional options provided for in the standard and provides a comprehensive approach for accounting for
insurance contracts including their measurement, income statement presentation and disclosure.
IFRS17isanaccountingchangeandthereforewhileitwillhaveanimpactonthetimingandprofileofprofitrecognition,weexpecttheunderlying
economicsandcashgenerationofthegroup’sbusinesseswillremainthesame.Whilethegroupisstillrefiningitsmethodologyandcompletingthe
development of models and operational capabilities, it is not possible to provide a reliable estimate of the impact on adopting IFRS 17, nor of the ongoing
impactonthegroup’sfinancialresults.
In terms of key accounting policies and approaches, the group is able to set out the following at this time:
• The group will be applying the General Measurement Model to all business measured under IFRS 17.
• OntransitiontoIFRS17,thegroupwillapplythefullyretrospectiveapproachunlessimpracticable.Insomeinstances,thiswillleadtothemodified
retrospectiveandfairvalueapproachesbeingusedforspecificgroupsofinsurancecontracts.
• Forannuitybusinesstheselectionofarateatwhichtodiscountfuturecashflowsforgroupsofinsurancecontractsisakeydeterminantinthe
valuation of the insurance liability. We intend to apply a top down discount rate to such groups, starting from an appropriate asset portfolio with
economic deductions.
• IFRS17requiresanaccountingpolicydecisionastowhethertorecogniseallfinanceincomeorexpenseintheprofitandlossorwhetherto
disaggregatetheincomeorexpensethatrelatestochangesinfinancialassumptionsintoothercomprehensiveincome.Allfinanceincomeand
expensewillbeincludedinprofitorlossexceptforprotectionbusinesswhereweintendtodisaggregatesuchchanges.
The group has a fully mobilised programme to implement the standard. Work will continue throughout 2022 to ensure technical compliance as well as to
test and embed the required systems and operational capability. Communication and training plans are in place for impacted employees, and the impact
on resources across the Finance function is being assessed to ensure the business is ready to implement the new standard.
Legal & General Group Plc Annual Report and Accounts 2021 137
Strategic report Governance Financial statements Other information
Primary statements and performance
1 Basis of preparation continued
(iv) Standards, interpretations and amendments to published standards which are not yet effective continued
IFRS 9 – Financial Instruments
In July 2014, the IASB issued IFRS 9, ‘Financial Instruments’ which is effective for annual periods beginning on or after 1 January 2018. The standard
replacesIAS39,‘FinancialInstruments:RecognitionandMeasurement’.Itincludesnewprinciplesaroundclassificationandmeasurementoffinancial
instruments, introduces an impairment model based on expected credit losses (replacing the current model based on incurred losses) and new
requirements on hedge accounting. The IASB subsequently issued ‘Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance
Contracts’ which allows entities which meet 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
reportingperiodsbeginningonorafter1January2023.Thegroupqualifiesfor,andismakinguseof,thisdeferraloption.
In December 2021, in order to alleviate operational complexities and potential one-off accounting mismatches in comparative information between
insurancecontractliabilitiesandrelatedfinancialassetsontheinitialapplicationofIFRS17,theIASBissuedanamendmenttoIFRS17titled‘Initial
ApplicationofIFRS9andIFRS17–ComparativeInformation’.IfanentityappliesIFRS17andIFRS9atthesametime,thisamendmentpermitsitto
presentcomparativeinformationaboutfinancialassetsderecognisedinthecomparativeperiodasiftheclassificationandmeasurementrequirements
ofIFRS9hadbeenappliedtothem.Thegrouphaschosentorestatecomparativeinformationandtoapplythisclassificationoverlaytoallfinancial
assetsinscope.Whilethegroupisstillrefiningitsmethodologyandcompletingthedevelopmentofmodelsandoperationalcapabilities,itisnot
possibletoprovideareliableestimateoftheimpactonadoptingIFRS9,noroftheongoingimpactonthegroup’sfinancialresults.
IFRS9classifiesfinancialassetsintothefollowingthreecategories:amortisedcost,fairvaluethroughothercomprehensiveincome(FVOCI)andfair
valuethroughprofitorloss(FVTPL).Theclassificationoffinancialassetsisbasedontheentity’sbusinessmodelformanagingthem,aswellastheir
contractualcashflowcharacteristics.Thegroupexpectstoreclassifyacertainamountoffinancialassetsasaresultoftheseassessments,inorder
to better align the accounting treatment of assets that are backing insurance contract liabilities under IFRS 17.
WiththeexceptionoffinancialassetsmeasuredunderFVTPL,thegroupwillapplyanexpectedcreditlossimpairmentmodeltoallfinancialassetsin
scope (including lease receivables and contract assets). The new impairment model requires utilising not only past events and current conditions but
alsoreasonableandsupportableforward-lookinginformation,inordertoassessthecreditriskprofilesofthosefinancialassetsinscope.Thegroupwill
recognise either twelve months’ or lifetime expected credit losses in the Consolidated Income Statement at each reporting period. The group intends to
usethepracticalexpedientforfinancialassetswithlowcreditriskatthereportingdate,whichallowsrecognisingtwelvemonths’expectedcreditlosses.
Additionally, for trade receivables, contract assets and lease receivables, the group plans to use a provision matrix method to calculate and recognise
lifetime expected credit losses.
Financialliabilitiesareexpectedtobeclassifiedandmeasuredundertheircurrentcategories(FVTPLoramortisedcost)underIFRS9.
The group has a fully mobilised programme to implement the standard. Work will continue throughout 2022 to ensure technical compliance as well as to
test and embed the required systems and operational capability. Communication and training plans are in place for impacted employees, and the impact
on resources across the Finance function is being assessed to ensure the business is ready to implement the new standard.
Annual Improvements to IFRS Standards 2018–2020
These amendments, issued in May 2020, make minor amendments to IFRS 1, ‘First-time Adoption of IFRS’, IFRS 9, ‘Financial Instruments’, IAS 41,
‘Agriculture’ and the Illustrative Examples accompanying IFRS 16, ‘Leases’. The amendments are effective for annual reporting periods beginning
onorafter1January2022,subjecttoUKendorsement.Thegroupdoesnotexpecttheimpacttobesignificant.
Amendments to IAS 16 – Property, plant and equipment
These amendments, issued in May 2020, prohibit a company from deducting from the cost of property, plant and equipment amounts received from
selling items produced while the company is preparing the asset for its intended use. Instead, a company will recognise such sales proceeds and related
costinprofitorloss.Theamendmentsareeffectiveforannualreportingperiodsbeginningonorafter1January2022,subjecttoUKendorsement.
Thegroupdoesnotexpecttheimpacttobesignificant.
Amendments to IAS 37 – Provisions, contingent liabilities and contingent assets
These amendments, issued in May 2020, specify which costs a company includes when assessing whether a contract will be loss-making. The
amendments are effective for annual reporting periods beginning on or after 1 January 2022, subject to UK endorsement. The group does not expect
theimpacttobesignificant.
Amendments to IFRS 3 – Business Combinations
These amendments, issued in May 2020, update a reference in IFRS 3 to the Conceptual Framework for Financial Reporting without changing the
accounting requirements for business combinations. The amendments are effective for annual reporting periods beginning on or after 1 January 2022,
subjecttoUKendorsement.Thegroupdoesnotexpecttheimpacttobesignificant.
Amendments to IAS 1 – Presentation of Financial Statements
Theseamendments,issuedinFebruary2021,intendtohelppreparersindecidingwhichaccountingpoliciestodiscloseintheirfinancialstatements
onorafter1January2023,subjecttoUKendorsement.Thegroupdoesnotexpecttheimpacttobesignificant.
Legal & General Group Plc Annual Report and Accounts 2021138 Financial statements
Primary statements and performance continued
Amendments to IAS 8 – Accounting policies, Changes in Accounting Estimates and Errors
These amendments, issued in February 2021, aim to help entities to distinguish between accounting policies and accounting estimates. The amendments
are effective for annual reporting periods beginning on or after 1 January 2023, subject to UK endorsement. The group does not expect the impact to
besignificant.
Amendments to IAS 12 – Income Tax
These amendments, issued in May 2021, clarify how companies account for deferred tax on transactions such as leases and decommissioning
obligations. The amendments are effective for annual reporting periods beginning on or after 1 January 2023, subject to UK endorsement. The group
doesnotexpecttheimpacttobesignificant.
(v) Critical accounting policies and the use of estimates
ThepreparationofthefinancialstatementsincludestheuseofestimatesandassumptionswhichaffectitemsreportedintheConsolidatedBalance
SheetandConsolidatedIncomeStatementandthedisclosureofcontingentassetsandliabilitiesatthedateofthefinancialstatements.Althoughthese
estimates are based on management’s best knowledge of current circumstances and future events and actions, material adjustments could be made to
thecarryingamountsofassetsandliabilitieswithinthenextfinancialyear.TheAuditCommitteereviewsthereasonablenessofjudgementsassociated
withandtheapplicationofsignificantaccountingpolicies.ThesignificantaccountingmattersconsideredbytheAuditCommitteeinrespectoftheyear
ended 31 December 2021 are included within the Audit Committee Report on page 89.
Thepreparationofthefinancialstatementshasalsoconsideredtheimpactofclimatechange,andasat31December2021managementdoesnot
considerthistobeasignificantareaofaccountingjudgementorsourceofestimationuncertainty.Specificconsiderationsinrespectofclimatechange
havebeenpresentedinthisAnnualReport&Accountsinthefollowingsections:
• Asset risk (Note 7)
• Financial investments and investment property (Note 10)
• IFRS sensitivity analysis (Note 19)
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.
Contractswhichtransfersignificantinsurancerisktothegroupareclassifiedasinsurancecontracts.Contractsthattransferfinancialrisk(e.g.change
ininterestrateorsecurityprice)tothegroupbutnotsignificantinsuranceriskareclassifiedasinvestmentcontracts.
Judgementisrequiredinordertoassessthesignificanceofthetransferofinsuranceriskwithinacontract.Thisassessmentisbasedonwhetherthe
occurrenceofaninsuredeventcouldcausethegrouptomakesignificantadditionalpayments,i.e.iftheoccurrenceoftheeventcausessignificantly
highercashoutflowsforthegroupthanitsnon-occurrence.
Certain contracts, which are both insurance and investment, can contain discretionary participating features representing the contractual right to receive
additionalbenefitsasasupplementtoguaranteedbenefitsundercertainconditions,being:
• thattheadditionalbenefitsareasignificantportionofthetotalcontractualbenefits;
• theamountandtimingoftheadditionalbenefitsisatthediscretionofthegroup;and
• thattheadditionalbenefitsarecontractuallydependentupontheperformanceofacompany,fundorspecifiedpoolofassets.
Insurance contracts and investment contracts with such discretionary participation features are accounted for under IFRS 4, while investment contracts
withoutdiscretionaryparticipationfeaturesareaccountedforasfinancialinstrumentsunderIAS39.
Judgementisthereforerequiredinordertoestablishwhetheranyadditionalbenefitsinaninsuranceorinvestmentcontractmeettheabove
requirements for being considered discretionary participation features.
Consolidation (Notes 42–44): 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.
Legal & General Group Plc Annual Report and Accounts 2021 139
Strategic report Governance Financial statements Other information
Primary statements and performance
1 Basis of preparation continued
(v) Critical accounting policies and the use of estimates 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
toallowthegroupnottocontrolthefund).Additionally,holdingsinsuchinvestmentscanfluctuateonadailybasisaccordingtotheparticipationofthe
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
impactofdailyfluctuationswhichdonotreflectthewiderfactsandcircumstancesofthegroup’sinvolvement.Thisisperformedinlinewiththe
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
uncertaintyattheendofthereportingperiod,thathaveasignificantriskofresultinginamaterialadjustmenttothecarryingamountsofassetsand
liabilitieswithinthenextfinancialyear:
Valuation of insurance and investment contract liabilities (Notes 18–21)
• Determination of 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.
• Determination of the expense assumptions used in the calculation of the insurance liabilities that represent the expected future costs of administering
the underlying insurance policies; the expense assumptions are based on management’s best estimate of these future costs, and appropriate
allocation between servicing new and existing business.
• Determination of valuation interest rates used to discount the liabilities 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 assets chosen to back the liabilities.
• Determination of the target long-term asset portfolio at certain period ends, depending on the quantum and timing of pension risk transfer (PRT)
volumes; this assumption is used to present LGR’s new business metrics.
Insurance and investment contract liabilities are of a long-term nature, and as such, the ultimate impact of Covid-19 will emerge over a long period of
time.Asat31December2021,therewasinsufficientcertaintyinmorerecentdatatoreviselong-termassumptionsinresponsetoemergingclaims
experience relating to the effects of the pandemic, with the exception of certain short-term allowances in protection contracts.
Valuation of unquoted illiquid assets and investment property (Note 10)
• 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
valuationsforfinancialassets.
In assessing asset valuation, in line with applicable standards and guidance, the group has both projected the short-term impact on earnings and cash
flowsofthecurrentmarketvolatility,whilecontinuingtoreviewtheassets’abilitytodeliverlonger-termreturnsalignedtotheirinvestmentcases.
Defined benefit pension plan (Note 23)
• Determinationofpensionplanassumptionsincludingmortality,discountratesandinflation;theseassumptionshavebeensetinaccordancewiththe
requirementsofIAS19,‘EmployeeBenefits’andincludeconsistentjudgementswiththoseinsettingtheannuityliabilitieswherepossible.Note23
includes a sensitivity analysis to alternative assumptions.
Legal & General Group Plc Annual Report and Accounts 2021140 Financial statements
Primary statements and performance continued
(vi) Consolidation principles
Subsidiary undertakings
Theconsolidatedfinancialstatementsincorporatetheassets,liabilities,equity,income,expensesandcashflowsofthecompanyandofitssubsidiary
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
itspowerovertheinvestee)(Note42).Profitsorlossesofsubsidiaryundertakingssoldoracquiredduringtheyearareincludedintheconsolidated
results up to the date of disposal or from the date of gaining control. Puttable instruments held by external parties in consolidated investment vehicles,
suchasunittrusts,areclassifiedasliabilitiesandappearas‘Netassetvalueattributabletounitholders’intheConsolidatedBalanceSheet.
Associates and joint ventures
The group has interests in associates and joint ventures (Note 43) which form part of an investment portfolio held through private equity vehicles, mutual
funds,unittrustsandsimilarentities.InaccordancewiththechoicepermittedbyIAS28,‘Investmentsinassociates’,theseinterestshavebeenclassified
asfairvaluethroughprofitorlossandmeasuredatfairvaluewithinfinancialinvestments,withchangesinfairvaluerecognisedintheConsolidated
Income Statement.
Associates which do not form part of an investment portfolio are initially recognised in the Consolidated Balance Sheet at cost. The carrying amount
oftheassociateisincreasedordecreasedtoreflectthegroup’sshareoftotalcomprehensiveincomeafterthedateoftheacquisition.
(vii) Product classification
Thegroup’sproductsareclassifiedforaccountingpurposesaseitherinsuranceorinvestmentcontracts.Thebasisofaccountingfortheseproductsis
outlinedinNotes20and21respectively.Thefollowingtablesummarisestheclassificationofthegroup’ssignificanttypesofnon-participatinginsurance
and investment contracts as described in Note 6 for each applicable reportable segment.
Reportable segment Non-participating insurance contracts Non-participating investment contracts
LGR • Pension risk transfers
• Individual annuities
• Longevity insurance
• Lifetime Care Plan
• Lifetime mortgages
• Fixed term individual annuities
• Assured payment policies
• Retirement interest only mortgages
• Workplace Savings
LGI • UK Retail protection
• UK Group protection
• US Protection
• US Universal life
• US Individual annuities
LGIM • Institutional Pension
• Segregated investment management mandates
• Collective Investment Schemes
(viii) Fiduciary activities
Assetsassociatedwithfiduciaryactivitiesandtheincomearisingfromthoseassets,togetherwithassociatedcommitmentstoreturnsuchassets
tocustomers,arenotincludedinthesefinancialstatements.Wherethegroupactsinafiduciarycapacity,forinstanceasatrusteeoragent,ithas
no contractual rights over the assets concerned.
(ix) 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. The income and expenses for each income statement 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.
ForeignexchangegainsandlossesarerecognisedintheConsolidatedIncomeStatement,exceptwhenrecognisedinequityasqualifyingcashflow
or net investment hedges.
The closing exchange rates at 31 December 2021 were 1.35 United States dollar and 1.19 euro (31 December 2020: 1.37 United States dollar and
1.12 euro).
The average exchange rates for the year ended 31 December 2021 were 1.38 United States dollar and 1.16 euro (31 December 2020: 1.28 United States
dollar and 1.13 euro).
Legal & General Group Plc Annual Report and Accounts 2021 141
Strategic report Governance Financial statements Other information
Primary statements and performance
2 Supplementary adjusted operating profit information
(i) Reconciliation between adjusted operating profit and profit from ordinary activities after tax
Notes
Profit/
(loss)
before
tax¹
2021
£m
Tax
(expense)/
credit
2021
£m
Profit/
(loss)
after
tax
2021
£m
Profit/
(loss)
before
tax¹
2020
£m
Tax
(expense)/
credit
2020
£m
Profit/
(loss)
after
tax
2020
£m
Legal&GeneralRetirement(LGR) 2(iii) 1,506 (219) 1,287 1,728 (250) 1,478
–LGRInstitutional(LGRI) 1,154 (170) 984 1,331 (194) 1,137
–LGRRetail(LGRR)
2
352 (49) 303 397 (56) 341
Legal&GeneralInvestmentManagement(LGIM)
2
422 (80) 342 407 (80) 327
Legal&GeneralCapital(LGC) 461 (82) 379 275 (51) 224
Legal&GeneralInsurance(LGI) 2(iii) 268 (41) 227 189 (34) 155
–UKandOther 320 (60) 260 205 (39) 166
–US(LGIA) (52) 19 (33) (16) 5 (11)
Adjustedoperatingprofitfromcontinuingoperations 2,657 (422) 2,235 2,599 (415) 2,184
Adjustedoperatingprofitfromdiscontinuedoperations
3
– – – 34 (6) 28
Adjusted operating profit from divisions/(tax expense)
on divisions 2,657 (422) 2,235 2,633 (421) 2,212
Group debt costs
4
(230) 44 (186) (233) 44 (189)
Group investment projects and expenses (165) 28 (137) (155) 38 (117)
Covid-19 costs
5
– – – (27) 7 (20)
Adjusted operating profit/(tax expense) 2,262 (350) 1,912 2,218 (332) 1,886
Investment and other variances 2(iv) 233 (95) 138 (394) 115 (279)
Losses attributable to non-controlling interests (7) – (7) (36) – (36)
Profit for the year/(tax expense) for the year
6
2,488 (445) 2,043 1,788 (217) 1,571
1. Theprofit/(loss)beforetaxreflectsprofit/(loss)beforetaxattributabletoequityholders.
2. LGRRincludestheWorkplaceSavingsbusinesswhichwaspreviouslyreportedinLGIM.Prioryearcomparativeshavebeenrestatedtoreflectthechangeinreportingstructure.Furtherdetails
are provided in Note 28.
3. In 2020, discontinued operations included the results of the Mature Savings division, the sale of which completed on 7 September 2020.
4. Groupdebtcostsexcludeinterestonnon-recoursefinancing.
5. Covid-19costsreflectedincrementaloperationalexpensesincurredasaresultofCovid-19.
6. Theprofit/(loss)beforetaxreflectstheadjustedprofitbeforetaxattributabletoequityholders.
Thissupplementaryadjustedoperatingprofitinformation(oneofthegroup’skeyperformanceindicators)providesadditionalanalysisoftheresults
reported under IFRS, and the group believes it provides stakeholders with useful information to enhance their understanding of the performance of the
business in the year.
Adjustedoperatingprofitmeasuresthepre-taxresultexcludingtheimpactofinvestmentvolatility,economicassumptionchangescausedbychangesin
marketconditionsorexpectationsandexceptionalitems.Itthereforereflectslonger-termeconomicassumptionsforthegroup’sinsurancebusinesses
andshareholderfunds,includingthetradedportfolioinLGC.Fordirectinvestments,operatingprofitreflectstheexpectedlong-termeconomicreturnfor
thoseassetswhicharedevelopedwiththeintentionofsale,ortheIFRSprofitbeforetaxfortheearlystageandmaturebusinesses.Variancesbetween
actualandlong-termexpectedinvestmentreturnontradedandrealassets(includingdirectinvestments)areexcludedfromadjustedoperatingprofit,
aswellaseconomicassumptionchangescausedbychangesinmarketconditionsorexpectations(e.g.creditdefaultandinflation)andanydifference
betweentheactualallocatedassetmixandthetargetlong-termassetmixonnewpensionrisktransferbusiness.Adjustedoperatingprofitalsoexcludes
the yield associated with assets held for future new pension risk transfer business from the valuation discount rate on insurance contract liabilities.
Exceptional income and expenses which arise outside the normal course of business in the year, such as merger and acquisition and start-up costs,
arealsoexcludedfromadjustedoperatingprofit.
The group reports its results across the following business segments:
• LGR represents worldwide pension risk transfer business including longevity insurance (within LGRI), and retail retirement, workplace savings and
lifetime mortgage loans (within LGRR).
• LGIM represents institutional and retail investment management.
• LGC represents shareholder assets invested in direct investments primarily in the areas of specialist commercial real estate, clean energy, housing
andSMEfinance,aswellastradedandtreasuryassets.
• LGI primarily represents UK and US retail protection business, UK group protection and Fintech business.
Legal & General Group Plc Annual Report and Accounts 2021142 Financial statements
Primary statements and performance continued
(ii) Reconciliation of release from operations to adjusted operating profit before tax
For the year ended
31 December 2021
Release from
operations¹
£m
New
business
surplus/
(strain)
£m
Net
release from
operations
£m
Experience
variances
£m
Changes in
valuation
assumptions
£m
Non-cash
items
£m
Other
£m
Adjusted
operating
profit/(loss)
after tax
£m
Tax
expense/
(credit)
£m
Adjusted
operating
profit/(loss)
before tax
£m
LGR 739 220 959 54 251 23 – 1,287 219 1,506
–LGRI 512 193 705 40 212 27 – 984 170 1,154
–LGRR
2
227 27 254 14 39 (4) – 303 49 352
LGIM
2
342 – 342 – – – – 342 80 422
LGC 379 – 379 – – – – 379 82 461
LGI 236 27 263 14 82 6 (138) 227 41 268
–UKandOther 131 27 158 14 82 6 – 260 60 320
–US(LGIA)
3
105 – 105 – – – (138) (33) (19) (52)
Total from divisions 1,696 247 1,943 68 333 29 (138) 2,235 422 2,657
Group debt costs (186) – (186) – – – – (186) (44) (230)
Group investment
projects and
expenses (69) – (69) – – – (68) (137) (28) (165)
Total 1,441 247 1,688 68 333 29 (206) 1,912 350 2,262
1. Release from operations within US (LGIA) includes £80m of dividends from the US.
2. LGRRincludestheWorkplaceSavingsbusinesswhichwaspreviouslyreportedinLGIM.Prioryearcomparativeshavebeenrestatedtoreflectthechangeinreportingstructure.Furtherdetails
are provided in Note 28.
3. Other includes experience variances, changes in valuation assumptions and non-cash items for LGIA.
Release from operations for LGR and LGI UK and Other represents the expected IFRS surplus generated in the year from the difference between the prudent
assumptions underlying the IFRS liabilities and our best estimate of future experience for in-force annuities and UK protection businesses. For Workplace
Savings, the release from operations represents the expected annual management charges generated from the in-force business less the expected
expenses. The LGI release from operations also includes dividends remitted from LGIA.
Newbusinesssurplus/(strain)forLGRandLGIUKandOtherrepresentstheinitialprofitorlossfromwritingnewbusiness.Thisincludesthecosts
associated with acquiring new business and setting up prudent reserves in respect of new business for UK annuities and protection, net of tax. Similarly
for Workplace Savings, this includes the cost of acquiring new business in the year less the annual management charges generated by the assets under
administration (AUA), net of tax. The new business surplus and release from operations for LGR and LGI excludes any capital held in excess of the
prudent reserves from the liability calculation.
LGR’s new business metrics are presented based on a target long-term asset portfolio. At certain year ends, depending upon the quantum and timing
of pension risk transfer (PRT) volumes, we may have sourced more or less of the high quality assets targeted to support that business. At year end, the
profitimpactofthedifferencebetweenactualassetsheld(includingalternativesurplusassetswheresuitable)andthelong-termassetmixisreflected
in investment variance.
NetreleasefromoperationsforLGRandLGIisdefinedasreleasefromoperationsplusnewbusinesssurplus/(strain).
ReleasefromoperationsandnetreleasefromoperationsforLGCandLGIMrepresentstheadjustedoperatingprofit(netoftax).
See Note 2 (iii) for more detail on experience variances, changes to valuation assumptions and non-cash items.
Legal & General Group Plc Annual Report and Accounts 2021 143
Strategic report Governance Financial statements Other information
Primary statements and performance
2 Supplementary adjusted operating profit information continued
(ii) Reconciliation of release from operations to adjusted operating profit before tax continued
For the year ended
31 December 2020
Release from
operations¹
£m
New
business
surplus/
(strain)
£m
Net
release from
operations
£m
Experience
variances
£m
Changes in
valuation
assumptions
£m
Non-cash
items
£m
Other
£m
Adjusted
operating
profit/(loss)
after tax
£m
Tax
expense/
(credit)
£m
Adjusted
operating
profit/(loss)
before tax
£m
LGR 685 262 947 99 400 32 – 1,478 250 1,728
–LGRI 492 220 712 81 314 30 – 1,137 194 1,331
–LGRR
2
193 42 235 18 86 2 – 341 56 397
LGIM
2
327 – 327 – – – – 327 80 407
LGC 224 – 224 – – – – 224 51 275
LGI 250 8 258 (41) 58 (5) (115) 155 34 189
–UKandOther 146 8 154 (41) 58 (5) – 166 39 205
–US(LGIA)
3
104 – 104 – – – (115) (11) (5) (16)
From continuing
operations 1,486 270 1,756 58 458 27 (115) 2,184 415 2,599
From discontinued
operations
4
28 – 28 – – – – 28 6 34
Total from divisions 1,514 270 1,784 58 458 27 (115) 2,212 421 2,633
Group debt costs (189) – (189) – – – – (189) (44) (233)
Group investment
projects and
expenses (56) – (56) – – – (61) (117) (38) (155)
Covid-19 costs
5
– – – – – – (20) (20) (7) (27)
Total 1,269 270 1,539 58 458 27 (196) 1,886 332 2,218
1. Release from operations within US (LGIA) includes £84m of dividends from the US.
2 LGRR includes the Workplace Savings business which was previously reported in LGIM. Further details are provided in Note 28.
3. Other includes experience variances, changes in valuation assumptions and non-cash items for LGIA.
4. Discontinued operations include the results of the Mature Savings division, the sale of which completed on 7 September 2020.
5. Covid-19costsreflectincrementaloperationalexpensesincurredasaresultofCovid-19.
Legal & General Group Plc Annual Report and Accounts 2021144 Financial statements
Primary statements and performance continued
(iii) Analysis of LGR and LGI adjusted operating profit
LGR
1
2021
£m
LGI
2021
£m
LGR
1
2020
£m
LGI
2020
£m
Net release from operations 959 263 947 258
Experience variances
–Persistency 1 (5) 7 3
–Mortality/morbidity
2
40 13 104 (46)
–Expenses – 5 (18) (5)
–Projectanddevelopmentcosts (19) (11) (9) (1)
–Other 32 12 15 8
Total experience variances 54 14 99 (41)
Changes in valuation assumptions
–Persistency – (5) – (1)
–Mortality/morbidity
3
201 (2) 255 54
–Expenses – (1) – 2
–Other
4,5
50 90 145 3
Total changes in valuation assumptions 251 82 400 58
Movement in non-cash items
–Acquisitionexpensetaxrelief – – – (3)
–Other
6
23 6 32 (2)
Total movement in non-cash items 23 6 32 (5)
Other
2
– (138) – (115)
Adjusted operating profit after tax 1,287 227 1,478 155
Tax expense 219 41 250 34
Adjusted operating profit before tax 1,506 268 1,728 189
1. LGRincludestheWorkplaceSavingsbusinesswhichwaspreviouslyreportedinLGIM.Prioryearcomparativeshavebeenrestatedtoreflectthechangeinreportingstructure.Furtherdetails
are provided in Note 28.
2. Mortalityexperiencevariancesin2020weredrivenbyincreasedclaimsexperienceduetoCovid-19,particularlyimpactingLGIA(reflectedinOther)whereweretainthemajorityofthemortality
risk. In 2021, total LGI Covid-19 claims have exceeded the prior year reserves by £79m, and we have further established a provision of £57m for Covid-19 mortality impacts expected in 2022.
3. In2021,mortalityassumptionchangesforLGRreflectaone-offupdatetothespousedemographyassumptionof£100m.WehavenotrecognisedanexplicitreleasefromadoptingCMI2019
given the uncertainty in the data created by Covid-19. In 2020, the assumption changes included a one-off release of £153m (net of tax) from an update in the longevity trend assumption from
adjusted CMI 2017 to adjusted CMI 2018. Other positive longevity variances in both years are driven by routine updates to our assumptions relating to base mortality rates.
4. In2020,the£145mpositiveOtherchangesinvaluationassumptionsinLGRreflectbothareductionintheassumedlateretirementfactorsappliedtodeferredannuitiesandtheimpactof
updating unit cost and investment management expense assumptions.
5. In2021,the£90mpositiveOtherchangesinvaluationassumptionsinLGIreflectthebenefitofmodellingimprovementsinUKretailprotection,includingtheintroductionofanilliquidity
premium in the liability discount rate.
6. LGROthermovementinnon-cashitemsisdrivenbytheneteffectofthecapitalisationandunwindoffutureassetmanagementprofitsonactivitymanagedbyLGIM,andisafunctionofnew
business volumes and movements in the main unit cost assumptions.
(iv) Investment and other variances
2021
£m
2020
£m
Investment variance related to protection liabilities 111 (459)
Investment variance related to the traded investment portfolio and direct investments 19 (299)
Other investment variance
1
211 67
Investment variance 341 (691)
M&Arelatedandothervariances
2
(108) 297
Total investment and other variances 233 (394)
1. Otherinvestmentvarianceincludesvariancesinrespectofthedefinedbenefitpensionscheme,reflectingtheimpactoftheacquisitionofannuityassetsfromLGR,andthedifferencebetween
the IAS 19 and annuity discount rates.
2. M&Arelatedandothervariancesincludesgainsandlosses,expensesandintangibleamortisationrelatingtoacquisitions,disposalsandrestructuring.2021includes:theimpactofthesaleof
abookofretailinvestmentproductswithintheL&GPersonalInvestingbusinesstoFidelityInternationalLimited,announcedinOctober2020;thecostsassociatedwithLGIM’sappointment
ofStateStreettoprovideCharlesRivertechnologyandmiddleofficeservices,includingtherecognitionofamulti-yearrestructuringprovision;andtheimpactofimpairingcapitalisedsoftware
intangibles as a result of various restructuring exercises.
Investment variance includes differences between actual and long-term expected investment return on traded and real assets (including direct investments),
economicassumptionchangescausedbychangesinmarketconditionsorexpectations(e.g.creditdefaultandinflation),theimpactofanydifference
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 from the valuation discount rate.
The long-term expected investment return is based on opening economic assumptions applied to the assets under management 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.
Legal & General Group Plc Annual Report and Accounts 2021 145
Strategic report Governance Financial statements Other information
Primary statements and performance
2 Supplementary adjusted operating profit information continued
(iv) Investment and other variances continued
The long-term expected investment returns are:
2021 2020
Equities 7% 7%
Commercial property 5% 5%
Residential property RPI + 50bps RPI + 50bps
Additionally, other alternative assets within the LGC portfolio comprise investments in housing, specialist commercial real estate, clean energy, digital
infrastructure and venture capital. The long-term expected investment return is on average between 8% and 10%, in line with our stated investment objectives.
Ratesofreturnspecifictoeachassetaredeterminedatthepointofunderwritingandreviewedandupdatedannually.Theexpectedinvestmentreturn
includesassumptionsonappropriatediscountratesandinflationaswellassectorspecificassumptionsincludingretailandcommercialpropertyyields
and power prices.
3 Other expenses
An analysis of other expenses is set out below:
Notes
2021
£m
2020
£m
Staff costs (including pensions and share-based payments)
1
32 1,014 960
Redundancy costs 4 6
Lease rentals
2
4 –
Auditors’ remuneration 31 12 13
Depreciation and impairment of plant and equipment 53 52
Amortisation and impairment of other intangible assets 9 89 21
Direct operating expenses arising from investment properties
which generate rental income – 6
House building expenses
3
1,072 643
Other administrative expenses
1
860 542
Total other expenses 3,108 2,243
Less: other expenses from discontinued operations – (10)
Other expenses from continuing operations 3,108 2,233
1. Definedbenefitpensioncosts,includedwithinStaffcosts,representthesumofcurrentservicecostandnetinterestexpense,andnotthecontributionspaidtothedefinedbenefitschemes,as
previously disclosed. As set out in Note 32, these amounts have been updated for the prior year, and accordingly Staff costs and Other administrative expenses for 2020 have been represented
to be on a basis consistent with 2021. There is no impact on Total other expenses, the Consolidated Income Statement or Consolidated Balance Sheet.
2. Lease rentals represent expenses on short-term leases or low value leases as permitted under IFRS 16.
3. House building expenses represent cost of sales of the group’s housing businesses, including CALA Homes. A total of £1,314m (2020: £748m) of house building income has been recognised
in the year (see Note 28 (ii) (d)).
4 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.
Dividend
2021
£m
Per share
1
2021
p
Dividend
2020
£m
Per share
1
2020
p
Ordinary dividends paid and charged to equity in the year:
–Final2019dividendpaidinJune2020 – – 754 12.64
–Interim2020dividendpaidinSeptember2020 – – 294 4.93
–Final2020dividendpaidinJune2021 754 12.64 – –
–Interim2021dividendpaidinSeptember2021 309 5.18 – –
Total dividends 1,063 17.82 1,048 17.57
Ordinary share dividend proposed
2
790 13.27 754 12.64
1. The dividend per share calculation is based on the number of equity shares registered on the ex-dividend date.
2. Subsequentto31December2021,thedirectorsdeclaredafinaldividendfor2021of13.27penceperordinaryshare.Thisdividendwillbepaidon1June2022.Itwillbeaccountedforasan
appropriation of retained earnings in the year ended 31 December 2022 and is not included as a liability in the Consolidated Balance Sheet as at 31 December 2021.
Legal & General Group Plc Annual Report and Accounts 2021146 Financial statements
Primary statements and performance continued
5 Earnings per share
Earningspershareisameasureoftheportionofthegroup’sprofitallocatedtoeachoutstandingshare.Itiscalculatedbydividingnetincome
attributable to ordinary equity holders by the weighted average number of ordinary shares in issue during the year, excluding employee scheme
treasuryshares.Forthispurpose,netincomeisdefinedastheprofitaftertax,attributabletoequityholdersofthecompany,derivedfrom
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.
(i) Basic earnings per share
After tax
2021
£m
Per share
1
2021
p
After tax
2020
£m
Per share
1
2020
p
Profit for the year attributable to equity holders 2,050 34.58 1,607 27.10
Less: coupon payable in respect of restricted Tier 1 convertible notes net of tax relief (23) (0.39) (6) (0.10)
Total basic earnings 2,027 34.19 1,601 27.00
Less: earnings derived from discontinued operations – – (290) (4.89)
Basic earnings derived from continuing operations 2,027 34.19 1,311 22.11
1. Basicearningspershareiscalculatedbydividingprofitaftertaxbytheweightedaveragenumberofordinarysharesinissueduringtheyear,excludingemployeeschemetreasuryshares.
(ii) Diluted earnings per share
After tax
2021
£m
Weighted
average
number of
shares
2021
m
Per share
1
2021
p
Profit for the year attributable to equity holders 2,050 5,929 34.58
Net shares under options allocable for no further consideration – 59 (0.34)
Conversion of restricted Tier 1 notes – 307 (1.67)
Total diluted earnings 2,050 6,295 32.57
After tax
2020
£m
Weighted
average
number of
shares
2020
m
Per share
1
2020
p
Profitfortheyearattributabletoequityholders 1,607 5,930 27.10
Net shares under options allocable for no further consideration – 40 (0.18)
Conversion of restricted Tier 1 notes – 307 (1.32)
Total diluted earnings 1,607 6,277 25.60
Less: diluted earnings derived from discontinued operations (290) – (4.62)
Diluted earnings derived from continuing operations 1,317 6,277 20.98
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.
Legal & General Group Plc Annual Report and Accounts 2021 147
Strategic report Governance Financial statements Other information
Primary statements and performance
6 Principal products
Asignificantpartofthegroup’sbusinessinvolvestheacceptanceandmanagementofrisk.
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
usedtomonitorriskexposurescanbefoundonpages52–59.
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 (LGR)
Annuity contracts
Annuityproductsprovideguaranteedincomeforaspecifiedtime,usuallythelifeofthepolicyholder,inexchangeforalumpsumcapitalpayment.
No surrender value is available under any of these products.
Pension Risk Transfer (PRT) represents bulk annuities, whereby the group accepts the assets and liabilities of a company pension scheme or a life fund.
These are written predominantly to UK clients but increasing internationally.
Immediate annuity contracts are offered to individual policyholders. Immediate annuities provide a regular income stream to the policyholder, purchased
with a lump sum investment, where the income stream starts immediately after the purchase. These annuities may include a guaranteed payment period.
Some deferred annuities sold by the group contain guaranteed cash options, predominantly minimum factors for commuting part of the annuity income
into cash at the date of vesting. The value of such guaranteed options is currently immaterial.
ThereisablockofimmediateanddeferredannuitieswithintheUKbusinesswithbenefitslinkedtochangesintheRPIorforaminoritytheCPI,butwith
contractual maximum or minimum increases. In particular, most of these annuities have a provision that the annuity will not reduce if RPI, or for a minority
CPI, becomes negative. The total annual annuity value of such annuities in payment at 31 December 2021 was £1,510m (2020: £1,170m). Thus, 1%
negativeinflation,whichwasreversedinthefollowingyear,wouldresultinaguaranteecostofapproximately£15m(2020:£12m).Negativeinflation
sustainedoveralongerperiodwouldgiverisetosignificantlygreaterguaranteecosts.Someoftheseguaranteecostshavebeenpartiallymatched
throughthepurchaseofnegativeinflationhedgesandlimitedpriceindexationswaps.
Thegroupalsooffersproductsforindividualsthatprovideaguaranteedlevelofincomeoverachosenfixedperiodoftime,inexchangeforaninitiallump
sumpaymentfromthepolicyholder.Theproductscanprovideafixedlumpsumatmaturityand/oroptionstosurrenderonnon-guaranteedterms.
The group writes Assured Payment Policies (APP). An APP is a long-term contract under which the policyholder (a registered UK pension scheme) pays
aday-onepremiumandinreturnreceivesacontractuallyfixedand/orinflation-linkedsetofpaymentsovertimefromtheinsurer.
Longevity insurance contracts
Thegroupalsoprovideslongevityinsuranceproductsforcompanypensionschemes,underwhichregularpaymentsaremadetotheschemereflecting
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.
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.
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
canchoosetoreceiveafixedmonthlypaymentoropttohaveescalationbuiltin.Adeathbenefitexistswithintheproductsothatifapolicyholderdies
withinthefirst6monthsofthestartdateapercentageoftheoriginalpremiumlessanypaymentsalreadymadeispayabletotheestate.
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).
Legal & General Group Plc Annual Report and Accounts 2021148 Financial statements
Balance sheet management
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
LGIMprovidesadiversifiedrangeofpooledindexfunds,providingawidechoiceandtheabilitytopursuespecificbenchmarksefficiently.Inaddition,
segregated solutions are offered to institutional clients providing large scale customisation against established market capitalisation weighted and
alternative indices.
The LGIM ETF business provides clients access to LGIM’s index fund management capabilities via our Exchange Traded Fund platform. ETF products
cover a broad range of traditional and thematic asset classes.
Active strategies
LGIMoffersarangeofpooledandsegregatedactivefixedincomefunds.TheLGIMliquidityfundsofferinstitutionalinvestorsasolutionfortheircash
managementrequirementsacrossarangeofcorecurrencies.Theliquidityfundsaimtodelivercompetitivereturnswithahighlevelofdiversification,
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)
LGIMprovidesarangeofpooledandbespokesolutionstohelpde-riskdefinedbenefitpensionschemes.Thesesolutionswillusuallycombineactive
orpassiveunderlyingportfolioswithderivativeoverlaysdesignedtomeetclients’specificrequirements.Anallocationstrategyserviceisalsooffered
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&GeneralCapitalmanagesshareholderassetswhicharenotdirectlyrequiredtomeetcontractualobligationstopolicyholders.LGC’sinvestments
fall into two distinct categories; direct investments and traded assets. The value of, and income from, both categories are 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
structuralfundingshortfalls,andisorganisedintofoursectors:specialistcommercialrealestate,cleanenergy,housingandSMEfinance.LGCdeploys
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.
Legal & General Insurance (LGI)
LGI business comprises UK and US retail protection, UK group protection, US universal life business and Fintech business.
UK protection business (retail and group)
Thegroupoffersprotectionproductswhichprovidemortalityormorbiditybenefits.Theymayincludehealth,disability,criticalillnessandaccident
benefits;theseadditionalbenefitsarecommonlyprovidedassupplementstomainlifepoliciesbutcanalsobesoldseparately.Thebenefitamounts
wouldusuallybespecifiedinthepolicyterms.Somesicknessbenefitscoverthepolicyholder’smortgagerepaymentsandarelinkedtotheprevailing
mortgageinterestrates.Inadditiontothesebenefits,somecontractsmayguaranteepremiumrates,provideguaranteedinsurabilitybenefitsandoffer
policyholders conversion options.
US protection business
Protectionconsistsofindividualtermassurance,whichprovidesdeathbenefitsoverthemediumtolong-term.Thecontractshavelevelpremiumsforan
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.
Legal & General Group Plc Annual Report and Accounts 2021 149
Strategic report Governance Financial statements Other information
Balance sheet management
6 Principal products continued
Reinsurance is used within the protection businesses to manage exposure to large claims. These practices lead to the establishment of reinsurance
assetsonthegroup’sbalancesheet.WithinourUSbusiness,Legal&GeneralAmerica(LGA),reinsuranceandsecuritisationarealsousedtoprovide
regulatory solvency relief (including relief from regulation governing term insurance and universal life reserves).
US universal life
UniversallifecontractswrittenbyLGAprovidesavingsanddeathbenefitsoverthemediumtolong-term.Thesavingselementhasaguaranteedminimum
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.
Annuities
Immediate annuities have similar characteristics as products sold by LGR. 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.
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. The group is also
exposedtoinsuranceriskasaconsequenceofofferingtheseproducts–moredetailoninsuranceriskcanbefoundinNote17.
Market risk
Exposuretolossasadirectorindirectresultoffluctuationsinthevalueof,orincomefrom,specificassets.
Credit risk
Exposuretolossifanotherpartyfailstoperformitsfinancialobligationstothegroup.
Liquidity risk
Theriskthatthegroup,thoughsolvent,eitherdoesnothavesufficientfinancialresourcesavailabletoenableittomeetitsobligationsastheyfalldue,
or can secure them only at excessive cost.
Climate risk
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 our 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
efficiencystandardsintothegroupdirectlyownedcommercialpropertyandhousingbusinesses.
The group is not directly exposed to any market risk, credit risk or liquidity risk associated with LGIM’s businesses. As a result, the detailed risk disclosures
have not been presented.
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 below.
Legal & General Group Plc Annual Report and Accounts 2021150 Financial statements
Balance sheet management continued
Market risk
Principal risks Business segment 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
toapotentialfinancialloss.
LGR, LGC and LGI 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
tointerestrateandinflationrisk,analysisoftheliabilitiesisundertakento
create a portfolio of securities, the value of which changes in line with the
value of liabilities when interest rates change.
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.
Unit linked Theriskismanagedthroughmaintainingadiversifiedrangeoffunds
in which customers may invest. The performance of linked investment
funds relative to their investment objectives is subject to regular monitoring.
Periodicassessmentisalsomadeofthelong-termprofitabilitytothegroup
of these funds. For some contracts the group has discretion over the level
of management charges levied.
Property risk
Lifetime mortgages include a no-negative equity
guarantee which transfers a potential loss exposure
tothegroupasaresultoflowhousepriceinflation
andanexposuretospecificpropertieswhichmay
experiencelowerhousepriceinflationfor
whatever reason.
LGR 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
andmaintained,includingtherightofinspection.Thediversificationof
lending by property type and geographic region seeks to control exposures
tospecificaspectsinthepropertymarket.
LGC businesses build homes across the residential
market, invest in large commercial and residential
development projects and 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 many be
affected by the performance of the housing market.
Revenue streams may also be impacted by
significantincreasesinthecostofrawmaterialsor
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.
LGC Diversificationbygeographicregionandpropertytypeavoidsconcentration
ofexposurestospecificareasofthepropertymarket.Sitesaredeveloped
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. Where appropriate,
keymethodsareadoptedtofurthermanagetherisk,suchasfixedprice
construction contracts, forward sales and pre-letting. These businesses can
alsobenefitfromflexiblefundingarrangementsavailablefromthegroup.
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.
LGR, LGC and LGI Tomitigatetheriskoflossfromcurrencyfluctuations,currencyswaps
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.
The consolidated international subsidiaries and
financialinstrumentsofsubsidiariesaretranslated
into sterling in the consolidated accounts. Changes in
the sterling value can impact consolidated equity but
may be mitigated by associated hedging transactions.
Group 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.
Inflation risk
Inflationriskisthepotentialofrealisingalossbecause
ofrelativeorabsolutechangesininflationrates.
Annuitycontractsmayprovideforfuturebenefitsto
be paid taking account of changes in the level of
inflation.Annuitycontractsinpaymentmayinclude
an annual adjustment for movements in price indices.
LGR The investment strategy for the annuities business takes explicit account of
theeffectofmovementsinpriceindicesoncontractedliabilities.Significant
exposuresthatmayadverselyimpactprofitabilityarehedgedusinginflation
swaps. Annuity contracts also typically provide for a cap on the annual
increaseininflationlinkedbenefitpayments.Thehedgesdonoteliminate
allinflationriskandthegroupretainssomeresidualrisk.
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
fluctuationsinthevalueof,orincomefrom,specific
assets and liabilities arising from changes in
underlying interest rates.
LGR, LGI and Group Tomitigatetheriskthatguaranteesandcommitmentsarenotmet,financial
instruments are purchased, which broadly match the nature and terms of
theexpectedpolicybenefitspayable.Thecompositionoftheinvestment
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
availabletomeetthepricefluctuationsofeachassetclass,relativetothe
liabilities they support.
Legal & General Group Plc Annual Report and Accounts 2021 151
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Balance sheet management
7 Asset risk continued
Credit risk
Principal risks Business segment Controls to mitigate risks
Bond default risk
Asignificantportfolioofcorporatebondsand
commercial loans are held to back the liabilities
arising from writing insurance and annuities business.
Whilsttheportfolioisdiversified,theassetclassis
inherently exposed to the risk of issuer default, with
thepossibilityoffinancialloss.
LGR and LGI Portfoliolevelandspecificissuerlimitsaresetbyfinancialstrengthrating,
sector and geographic region to limit exposure to a default event. Issuer
limits are regularly reviewed to take account of changes in market
conditions,sectorperformanceandthere-assessmentoffinancialstrength
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.
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
possiblefinancialloss.Thegroupisrequiredtocarry
an element of associated credit risk capital on its
balance sheet should the business not be re-brokered
on the same terms.
LGR and LGI When selecting new reinsurance partners for its protection business,
the group considers only companies which have a minimum credit rating
equivalenttoA-fromStandard&Poor’s.Foreachreinsurer,exposurelimits
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.
Property lending counterparty risk
Aspartofourassetdiversificationstrategy,wehold
property lending and sale and leaseback investments.
We are inherently exposed to the risk of default by
a borrower or tenant.
LGR and LGC Each property lending and sale and leaseback investment transaction is
subject to a due diligence process to assess the credit risks implicit in the
transactionandconfirmthatanyriskofdefaulthasbeenappropriately
mitigated. We also protect our interests by taking security over the
underlying property associated with each investment transaction.
Banking counterparty risk
Thegroupisexposedtopotentialfinanciallossshould
banksortheissuersoffinancialinstrumentsdefault
on their obligations to us. We are also exposed to
counterparty risks in respect of the providers of
settlement and custody services.
LGR, LGC and Group The group controls its exposures to banking counterparties and the issuers
offinancialinstrumentsusingaframeworkofcounterpartylimits.These
limitstakeaccountoftherelativefinancialstrengthofthecounterpartyas
well as other bank counterparty exposures that the group may have. Limits
are subject to regular review with actual exposures monitored against limits.
Thegrouphasdefinedcriteriafortheselectionofcustodyandsettlement
services.Thefinancialstrengthofprovidersisregularlyreviewed.
Liquidity risk
Principal risks Business segment Controls to mitigate risks
Contingent event risk
Events that result in liquidity risk include a pandemic
thatcouldleadtosignificantlyhigherlevelsofclaims
than would normally be expected, or extreme events
impactingthetimingofcashflowsortheabilityto
realise investments at a given value within a
specifiedtimeframe.
LGI and Group 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
tomaintainsufficientliquidassetsandstandbyfacilitiestomeetaprudent
estimateofthecashoutflowsthatmayarisefromcontingentevents.
Thelevelofrequiredliquidityisidentifiedusingtechniquesincludingstress
testsforshockeventsandtheprofileofactualliquidassetsisregularly
comparedtotherequiredliabilityprofile.Thegroup’streasuryfunction
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.
Collateral liquidity risk
Withintheannuitiesbusiness,theuseoffinancial
instruments to hedge default, interest rate, currency and
inflationriskscanrequirethepostingofcollateralwith
counterparties at short notice.
LGR, LGC and Group Liquidity requirements to meet potential collateral calls under stressed
conditions are actively managed and an appropriate pool of eligible assets
ismaintainedwithcounterpartiesasspecifiedintheassociatedagreements.
Asat31December2021,LGRheldeligiblecollateralworthmorethanfive
times the total amount of outstanding collateral (using the most
representativedefinitionofcollateralcontainedwithinthegroup’sdifferent
collateral agreements).
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.
LGR and LGC 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 2021, the group had £3,596m (2020: £3,616m) of cash and cash equivalents in shareholder funds and a £1.0bn syndicated
committed revolving credit facility in place, provided by a number of its key relationship banks, maturing in December 2024.
Legal & General Group Plc Annual Report and Accounts 2021152 Financial statements
Balance sheet management continued
8 Assets 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 arrangements are in place as a mechanism 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
AssuranceSocietyLimitedandLegalandGeneralAssurance(PensionsManagement)Limited.Thefinancialriskonthesecontractsisbornebythe
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.
Shareholder
Allnon-unitlinkedassetsareclassifiedasshareholderassets.Shareholdersofthegrouparedirectlyexposedtomarketandcreditriskontheseassets,
includingthosebackingthenon-profitnon-unitlinkedbusiness.
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 2021
Shareholder
£m
Unit
linked
£m
Total
£m
Assets
Goodwill and Other intangible assets 433 – 433
Investment in associates and joint ventures accounted for using the equity method 375 – 375
Property, plant and equipment 242 74 316
Investments
1
114,829 450,182 565,011
Reinsurers’ share of contract liabilities 7,180 – 7,180
Other assets 6,701 2,622 9,323
Total assets 129,760 452,878 582,638
Liabilities
Core borrowings 4,309 (53) 4,256
Operational borrowings 924 8 932
Non-participating contract liabilities 91,698 371,081 462,779
Other liabilities 21,916 81,812 103,728
Total liabilities 118,847 452,848 571,695
As at 31 December 2020
Shareholder
£m
Unit
linked
£m
Total
£m
Assets
Goodwill and Other intangible assets 397 – 397
Investment in associates and joint ventures accounted for using the equity method 288 – 288
Property, plant and equipment 274 – 274
Investments
1
122,060 430,492 552,552
Reinsurers’ share of contract liabilities 6,936 3 6,939
Other assets 7,471 2,644 10,115
Total assets 137,426 433,139 570,565
Liabilities
Core borrowings 4,609 (51) 4,558
Operational borrowings 1,045 10 1,055
Non-participating contract liabilities 90,020 342,552 432,572
Other liabilities 31,792 90,622 122,414
Total liabilities 127,466 433,133 560,599
1. Investmentsincludesfinancialinvestments,investmentpropertyandcashandcashequivalents.
Legal & General Group Plc Annual Report and Accounts 2021 153
Strategic report Governance Financial statements Other information
Balance sheet management
9 Other intangible assets
Other intangible assets mainly consist of capitalised software costs and intangible assets acquired as part of a business combination (customer
relationships and brand).
Wheresoftwarecostsareseparatelyidentifiableandmeasurable,theyarecapitalisedatcostandamortisedovertheirexpectedusefullifeona
straight line basis. Costs incurred to internally develop software are only capitalised if the expenditure can be measured reliably, the product or
processistechnicallyandcommerciallyfeasible,futureeconomicbenefitsareprobableandthegroupintendstoandhassufficientresources
tocompletesuchdevelopmentandtouseorselltheasset.Otherwise,suchcostsarerecognisedinprofitorlossasincurred.
Intangible assets acquired via business combinations are recognised at fair value and are subsequently amortised on a straight line method over
theirestimatedusefullife.Thebrandbalanceacquiredbythegroupisdeemedtohaveanindefiniteusefullifeandisthereforenotamortised.
Theestimatedamortisationperiodsforintangibleassetswithfiniteusefullivesareasfollows:
• 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 amortisation charge for the year is recognised in the Consolidated Income Statement in Other expenses (see Note 3).
Forimpairmenttesting,otherintangibleassetsaretestedeitherindividuallyoratthecash-generatingunitlevel.Intangibleassetswithindefinite
useful lives and intangible assets not yet available for use are tested for impairment at least annually, or whenever events or changes in circumstances
indicatethatthecarryingamountmaynotberecoverable.Intangibleassetswithfiniteusefullivesaretestedwhenthereareindicationsofimpairment.
The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Any impairments are charged in Other expenses
(see Note 3).
Capitalised
software
costs
1
2021
£m
Other
2
2021
£m
Total
2021
£m
Cost
As at 1 January 372 33 405
Additions
1
120 1 121
Increase due to currency translation 1 – 1
Other movements
3
(43) – (43)
As at 31 December 450 34 484
Accumulated amortisation and impairment
As at 1 January (73) (3) (76)
Amortisation for the year (39) (1) (40)
Impairment (49) – (49)
Other movements
3
46 – 46
As at 31 December (115) (4) (119)
Total net book value as at 31 December 335 30 365
To be amortised within 12 months 60
To be amortised after 12 months 305
1. Total capitalised software costs includes £152m of work in progress assets that are not yet available for use as at 31 December 2021.
2. Other intangible assets include brand (£24m) and product design costs (£6m) as at 31 December 2021.
3. Othermovementsprimarilyreflecttheremovaloffullyamortisedassetsthatarenolongerinuse.
Legal & General Group Plc Annual Report and Accounts 2021154 Financial statements
Balance sheet management continued
Capitalised
software
costs
1
2020
£m
Other
2
2020
£m
Total
2020
£m
Cost
As at 1 January 316 33 349
Additions 166 – 166
Disposals
3
(30) – (30)
Decrease due to currency translation (1) – (1)
Other movements
4
(79) – (79)
As at 31 December 372 33 405
Accumulated amortisation and impairment
As at 1 January (159) (3) (162)
Amortisation for the year (21) – (21)
Disposals
3
25 – 25
Other movements
4
82 – 82
As at 31 December (73) (3) (76)
Total net book value as at 31 December 299 30 329
To be amortised within 12 months 60
To be amortised after 12 months 269
1. Total capitalised software costs includes £251m of work in progress assets that are not yet available for use as at 31 December 2020.
2. Other intangible assets include brand (£24m), product design costs (£5m) and customer relationship assets (£1m) as at 31 December 2020.
3. Disposals primarily relate to the sale of the Mature Savings business, which completed on 7 September 2020.
4. Othermovementsprimarilyreflecttheremovaloffullyamortisedassetsthatarenolongerinuse.
Legal & General Group Plc Annual Report and Accounts 2021 155
Strategic report Governance Financial statements Other information
Balance sheet management
10 Financial investments and investment property
Thegroupholdsfinancialinvestmentsandinvestmentpropertytobackinsurancecontractsonbehalfofpolicyholdersandasgroupcapital.
Thegroupclassifiesitsfinancialinvestmentsoninitialrecognitionasheldfortrading(HFT),designatedatfairvaluethroughprofitorloss(FVTPL),
available-for-sale(AFS)orloansandreceivables.Initialrecognitionoffinancialinvestmentsisonthetradedate.
In general, the group’s policy is to measure investments at FVTPL. Financial investments held by the group are designated as FVTPL as their
performance is evaluated on a total return basis, consistent with asset performance reporting to the Group Investment and Market Risk Committee
and the group’s investment strategy. Assets designated as FVTPL include debt securities (including lifetime and retirement interest only mortgages)
andequityinstrumentswhichwouldotherwisehavebeenclassifiedasAFSandreverserepurchaseagreementswithinloanswhichwouldotherwise
be designated at amortised cost. Assets backing non-participating policyholder liabilities are designated as FVTPL. The group’s non-participating
investment contract liabilities are measured on the basis of current information and are designated as FVTPL.
AllderivativesotherthanthosedesignatedashedgesareclassifiedasHFT.FinancialinvestmentsclassifiedasHFTanddesignatedatFVTPLare
measuredatfairvaluewithgainsandlossesreflectedintheConsolidatedIncomeStatement.Transactioncostsareexpensedasincurred.
CertainotherfinancialinvestmentsclassifiedasAFSaremeasuredatfairvaluewithunrealisedgainsandlossesrecognisedinaseparatereserve
within equity. Realised gains and losses, impairment losses, dividends, interest and foreign exchange movements on non-equity instruments are
reflectedintheConsolidatedIncomeStatement.Directlyattributabletransactioncostsareincludedintheinitialmeasurementoftheinvestment.
FinancialinvestmentsclassifiedasloansareeitherdesignatedatFVTPL,orinitiallymeasuredatfairvalueplustransactioncosts,andsubsequently
measuredatamortisedcostusingtheeffectiveinterestmethod.ThedesignatedatFVTPLclassificationcurrentlyonlyappliestoreverse
repurchase agreements.
Financial investments are recognised when the group becomes a party to the contractual provisions of the instrument. Financial investments are
derecognisedonlywhenthecontractualrightstothecashflowsfromtheinvestmentexpire,orwhenthegrouptransferssubstantiallyalltherisks
and rewards of ownership to another entity.
Financial assets, other than those measured at FVTPL, are assessed for impairment at each balance sheet date. They are impaired where there
isobjectiveevidencethat,asaresultofoneormoreeventsafterinitialrecognitionofthefinancialasset,theestimatedfuturecashflowshave
been affected.
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. It is carried at fair value with changes in fair value recognised in the Consolidated Income Statement within investment return.
Investment property in the UK is valued at least bi-annually by external chartered surveyors at open market values in accordance with the
‘Appraisal and Valuation Manual’ of The Royal Institution of Chartered Surveyors or using internal valuations and estimates during the intervening
period.OutsidetheUK,valuationsareproducedinconjunctionwithexternalqualifiedprofessionalvaluersinthecountriesconcerned.Intheevent
of a material change in market conditions between the valuation date and balance sheet date, an internal valuation is performed and adjustments
madetoreflectanymaterialchangesinfairvalue.
Right-of-use investment property assets relate to long-leasehold interests in land held solely for the purposes of the related investment property
asset.ThegroupappliesthefairvaluemodeltotheseinterestsastheymeetthedefinitionofinvestmentpropertyunderIAS40,‘InvestmentProperty’.
The group receives and pledges collateral in the form of cash or non-cash assets in respect of various transactions, in order to reduce the credit
risk of these transactions. The amount and type of collateral required where the group receives collateral depends on an assessment of the credit
risk of the counterparty.
Collateralreceivedintheformofcash,wherethegrouphascontractualrightstoreceivethecashflowsgenerated,isrecognisedasanassetinthe
Consolidated Balance Sheet with a corresponding liability for its repayment. Non-cash collateral received is not recognised in the Consolidated
Balance Sheet unless the counterparty defaults on its obligations under the relevant agreement.
Non-cashcollateralpledgedwherethegroupretainsthecontractualrightstoreceivethecashflowsgeneratedisnotderecognisedfromthe
Consolidated Balance Sheet, unless the group defaults on its obligations under the relevant agreement.
Cashcollateralpledged,wherethecounterpartyhascontractualrightstoreceivethecashflowsgenerated,isderecognisedfromtheConsolidated
Balance Sheet and a corresponding receivable is recognised for its return.
Legal & General Group Plc Annual Report and Accounts 2021156 Financial statements
Balance sheet management continued
Note
Shareholder
2021
£m
Unit
linked
2021
£m
Total
2021
£m
Financial investments at fair value classified as:
Fairvaluethroughprofitorloss 89,323 419,991 509,314
Available-for-sale 665 – 665
Held for trading 13,203 3,589 16,792
Loans at fair value 10(ii) 2,240 9,271 11,511
Financial investments at fair value 105,431 432,851 538,282
Loans at amortised cost 10(ii) 92 – 92
Total financial investments 105,523 432,851 538,374
Investment property 5,710 4,440 10,150
Total financial investments and investment property 111, 233 437,291 548,524
Expected to be recovered within 12 months 48,766
Expected to be recovered after 12 months 499,758
Note
Shareholder
2020
£m
Unit
linked
2020
£m
Total
2020
£m
Financialinvestmentsatfairvalueclassifiedas:
Fairvaluethroughprofitorloss 87,9 45 396,161 484,106
Available-for-sale 643 – 643
Held for trading 20,936 3,695 24,631
Loans at fair value 10(ii) 4,117 12,429 16,546
Financial investments at fair value 113,641 412,285 525,926
Loans at amortised cost 10(ii) 131 – 131
Totalfinancialinvestments 113,772 412,285 526,057
Investment property 4,672 3,803 8,475
Totalfinancialinvestmentsandinvestmentproperty 118,444 416,088 534,532
Expected to be recovered within 12 months 47, 809
Expected to be recovered after 12 months 486,723
Investmentrisksonunitlinkedassetsarebornebythepolicyholders.TheremainingrisksassociatedwithfinancialinvestmentsareoutlinedinNote7.
Financial investments, cash and cash equivalents include £3,826m (2020: £4,097m) of assets pledged as collateral against net derivative liability
counterparty positions. The assets used as collateral are Treasury Gilts, Foreign Government Bonds, AAA and AA Corporate Bonds and Cash (2020:
Treasury Gilts, Foreign Government Bonds, AAA and AA Corporate Bonds and Cash) having a residual maturity of over 34 years (2020: over 25 years).
Thegroupisentitledtoreceiveallofthecashflowsfromtheassetduringtheperiodwhenitispledgedascollateral.Further,thereisnoobligationtopay
ortransferthesecashflowstoanotherentity.Thegroupcandecidetosubstituteanassetwhichisdesignatedascollateralatanytime,providedthe
relevant terms and conditions of the International Swap Dealers Association agreement are met.
Financial investments include £46,331m (2020: £53,853m) of assets that have been sold but not derecognised and are subject to repurchase agreements.
TherelatedobligationtorepurchasethefinancialassetsisincludedwithinPayablesandotherfinancialliabilities(Note24).
Various pension risk transfer deals include collateralised structures. £7,586m (2020: £8,022m) of Corporate Bonds and Treasury Gilts are pledged as
collateral in relation to these.
Collateral of £900m (2020: £760m) made up of Treasury Gilts, Foreign Government Bonds and Corporate Bonds (AAA, AA, A and BBB) was pledged out
inrespectoflongevityswapswithreinsurancecounterparties.Theseassetsareneitherpastdue,norimpaired.Thecarryingvaluereflectsthefull
exposure value of these assets.
Financial investments have been allocated between those expected to be settled within 12 months and after 12 months in line with the expected
settlementofthebackedliabilities.Assetsinexcessoftheinsuranceandinvestmentcontractliabilitieshavebeenclassifiedasexpectedtobesettled
after 12 months.
Legal & General Group Plc Annual Report and Accounts 2021 157
Strategic report Governance Financial statements Other information
Balance sheet management
10 Financial investments and investment property continued
(i) Financial investments at fair value
Note
Shareholder
2021
£m
Unit
linked
2021
£m
Total
2021
£m
Equity securities 3,185 209,864 213,049
Debt securities 86,803 210,127 296,930
Derivative assets 12 13,203 3,589 16,792
Loans at fair value 10(ii) 2,240 9,271 11,511
Total financial investments at fair value 105,431 432,851 538,282
Note
Shareholder
2020
£m
Unit
linked
2020
£m
Total
2020
£m
Equity securities 3,086 186,003 189,089
Debt securities 85,502 210,158 295,660
Derivative assets 12 20,936 3,695 24,631
Loans at fair value 10(ii) 4,117 12,429 16,546
Totalfinancialinvestmentsatfairvalue 113,641 412,285 525,926
Included within unit linked equity securities are £237m (2020: £227m) of debt instruments which incorporate an embedded derivative linked to the value
of the group’s share price.
(ii) Loans
Shareholder
2021
£m
Unit
linked
2021
£m
Total
2021
£m
Loans at amortised cost
Policy loans 30 – 30
Other loans and receivables 62 – 62
92 – 92
Loans at fair value
Reverse repurchase agreements 2,240 9,271 11,511
Total loans 2,332 9,271 11,603
Shareholder
2020
£m
Unit
linked
2020
£m
Total
2020
£m
Loans at amortised cost
Policy loans 31 – 31
Other loans and receivables 100 – 100
131 – 131
Loans at fair value
Reverse repurchase agreements 4,117 12,429 16,546
Total loans 4,248 12,429 16,677
Therearenomaterialdifferencesbetweenthecarryingvaluesreflectedaboveandthefairvaluesoftheseloans.
Legal & General Group Plc Annual Report and Accounts 2021158 Financial statements
Balance sheet management continued
(iii) Fair value hierarchy
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.
Fairvaluemeasurementsarebasedonobservableandunobservableinputs.Observableinputsreflectmarketdataobtainedfromindependentsources,
whileunobservableinputsreflectthegroup’sviewofmarketassumptionsintheabsenceofobservablemarketinformation.Thegrouputilises
techniques that maximise the use of observable inputs and minimise the use of unobservable inputs.
Thelevelsoffairvaluemeasurementbasesaredefinedasfollows:
Level 1: fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level2:fairvaluesmeasuredusingvaluationtechniquesforallinputssignificanttothemeasurementotherthanquotedpricesincludedwithinlevel1
that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level3:fairvaluesmeasuredusingvaluationtechniquesforanyinputfortheassetorliabilitysignificanttothemeasurementthatisnotbasedon
observable market data (unobservable inputs).
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
activemarketandhavethereforeclassifiedthemasLevel2.
Thegroup’sinvestmentpropertiesarevaluedbyappropriatelyqualifiedexternalvaluersusingunobservableinputs,resultinginallinvestmentproperty
beingclassifiedasLevel3.
Thegroup’spolicyistore-assesscategorisationoffinancialassetsattheendofeachreportingperiodandtorecognisetransfersbetweenlevelsatthat
point in time. During 2020 the group enhanced the level of market data it uses to support the determination of the observability of valuation inputs, and
this has increased the sensitivity of the levelling assessment to trading volumes, which in turn has increased the number of debt securities transferring
between Level 1 and Level 2. At 31 December 2021 debt securities totalling net £5.2bn transferred from Level 2 to Level 1 in the fair value hierarchy.
Legal & General Group Plc Annual Report and Accounts 2021 159
Strategic report Governance Financial statements Other information
Balance sheet management
10 Financial investments and investment property continued
(iii) Fair value hierarchy continued
For the year ended 31 December 2021
Total
£m
Level 1
£m
Level 2
£m
Level 3
£m
Shareholder
Equity securities 3,185 1,854 63 1,268
Debt securities 86,803 32,593 29,887 24,323
Derivative assets 13,203 9 13,194 –
Loans at fair value
1
2,240 – 2,240 –
Investment property 5,710 – – 5,710
Total Shareholder 111,141 34,456 45,384 31,301
Unit linked
Equity securities 209,864 209,119 25 720
Debt securities 210,127 170,838 38,726 563
Derivative assets 3,589 90 3,499 –
Loans at fair value 9,271 – 9,271 –
Investment property 4,440 – – 4,440
Total Unit linked 437, 291 380,047 51,521 5,723
Total financial investments and investment property at fair value
1
548,432 414,503 96,905 37,024
For the year ended 31 December 2020
Total
£m
Level 1
£m
Level 2
£m
Level 3
£m
Shareholder
Equity securities 3,086 1,905 16 1,165
Debt securities 85,502 29,898 33,935 21,669
Derivative assets 20,936 4 20,932 –
Loans at fair value
1
4,117 – 4,117 –
Investment property 4,672 – – 4,672
Total Shareholder 118,313 31,807 59,000 27, 5 06
Unit linked
Equity securities 186,003 185,345 22 636
Debt securities 210,158 168,155 41,715 288
Derivative assets 3,695 224 3,471 –
Loans at fair value 12,429 – 12,429 –
Investment property 3,803 – – 3,803
Total Unit linked 416,088 353,724 57, 6 37 4,727
Totalfinancialinvestmentsandinvestmentpropertyatfairvalue
1
534,401 385,531 116,637 32,233
1. Excludes loans (including accrued interest) of £92m (2020: £131m), which are held at amortised cost.
Legal & General Group Plc Annual Report and Accounts 2021160 Financial statements
Balance sheet management continued
(a) 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,
thegroupdeterminesthelevelinwhichthefairvaluefallsbaseduponthelowestlevelinputthatissignificanttothedeterminationofthefairvalue.Asa
result,bothobservableandunobservableinputsmaybeusedinthedeterminationoffairvaluesthatthegrouphasclassifiedwithinLevel3.
Thegroupdeterminesthefairvaluesofcertainfinancialassetsandliabilitiesbasedonquotedmarketprices,whereavailable.Thegroupalsodetermines
fairvaluebasedonestimatedfuturecashflowsdiscountedattheappropriatecurrentmarketrate.Asappropriate,fairvaluesreflectadjustmentsfor
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.
Equity
securities
2021
£m
Other
financial
investments
2021
£m
Investment
property
2021
£m
Total
2021
£m
Equity
securities
2020
£m
Other
financial
investments
2020
£m
Investment
property
2020
£m
Total
2020
£m
As at 1 January 1,801 21,957 8,475 32,233 2,035 19,402 9,107 30,544
Total gains/(losses) for the year
–inothercomprehensiveincome – (3) – (3) – 2 – 2
–realisedgains/(losses)
1
31 12 (4) 39 (39) 13 (280) (306)
–unrealisedgains/(losses)
1
208 (87) 1,028 1,149 (46) 1,354 195 1,503
Purchases/Additions 130 5,429 985 6,544 283 2,491 1,019 3,793
Sales/Disposals
2
(153) (2,351) (334) (2,838) (451) (1,123) (1,566) (3,140)
Transfers into Level 3 2 10 – 12 52 – – 52
Transfers out of Level 3 (31) (112) – (143) (32) (87) – (119)
Foreign exchange rate movements – 31 – 31 (1) (95) – (96)
As at 31 December 1,988 24,886 10,150 37,024 1,801 21,957 8,475 32,233
1. Realised and unrealised gains/(losses) are recognised in Investment return in the Consolidated Income Statement.
2. Disposals in 2020 include £926m of Investment property and £234m of Equity securities that relate to the sale of the Mature Savings business, which completed on 7 September 2020.
Climate risk
The group’s asset portfolio can be exposed to climate change through both:
• 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.
Exposure to the physical risks of climate change are minimised in the direct investment portfolio through rigorous assessment of potential investments,
particularly in ensuring there is low susceptibility to extreme weather events. The group monitors the carbon intensity of the investments held at a
portfolio level to help understand the environmental impact and reduce high carbon intensive investments in the future. Further detail can be found
in our Climate Report (TCFD).
Thegroup’sassetsarevalued,wherepossible,usingstandardmarketpricingsourcesorappropriatelyqualifiedexternalvaluersandthereforereflect
current market sentiments in respect of climate risk.
Equity securities
Level 3 equity securities amount to £1,988m (2020: £1,801m), 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 investments. Such techniques include transaction values underpinned by analysis
ofmilestoneachievement,andcashrunwayforearly/start-upstageinvestments,discountedcashflowmodelsforinvestmentsatthenextstageof
development and earnings multiples for more mature investments.
Legal & General Group Plc Annual Report and Accounts 2021 161
Strategic report Governance Financial statements Other information
Balance sheet management
10 Financial investments and investment property continued
(iii) Fair value hierarchy continued
(a) Level 3 assets measured at fair value continued
Other financial investments
Lifetime mortgage (LTM) loans and retirement interest only mortgages amount to £6,857m (2020: £6,036m). Lifetime mortgages are valued using a
discountedcashflowmodelbyprojectingbest-estimatenetassetproceedsanddiscountedusingratesinferredfromcurrentLTMloanpricing.Theinferred
illiquidity premiums for the majority of the portfolio range between 100 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. The 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,voluntaryearlyrepaymentsandlongevityassumptions.Thevaluationasat31December2021reflectsalong-termpropertygrowthrate
assumption of 2.9% 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 £13,521m (2020: £11,889m). Their valuation is determined by discounted future
cashflowswhicharebasedontheyieldcurveoftheLGIMapprovedcomparablebondsandtheinitialspread,bothofwhichareagreedbyIHSMarkit
who also provide an independent valuation of comparable bonds. Unobservable inputs that go into the determination of comparators include: rating,
sector,sub-sector,performancedynamics,financingstructureanddurationofinvestment.Existingprivatecreditinvestments,whichwereexecuted
backasfaras2011,aresubjecttoarangeofinterestrateformats,althoughthemajorityarefixedrate.Theweightedaveragedurationoftheportfolio
is 10.8 years, with a weighted average life of 13.1 years. Maturities in the portfolio currently extend out to 2064. 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 £1,762m (2020: £2,049m). 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
calculatethediscountedcashflowsandestablishamarketvalueforeachinvestmentgradeprivateplacement.Thevaluationasat31December2021
reflectsilliquiditypremiumsbetween20and70bps.
Income strip assets amount to £1,626m (2020: £1,449m). Their valuation is outsourced to Knight Frank and CBRE who apply a yield to maturity to
discountedfuturecashflowstoderivevaluations.Theoverallvaluationtakesintoaccountthepropertylocation,tenantdetails,tenure,rent,rentalbreak
terms,leaseexpiriesandunderlyingresidualvalueoftheproperty.Thevaluationasat31December2021reflectsequivalentyieldrangesbetween1%
and 9% and estimated rental values (ERV) between £10 and £338 per sq.ft.
Commercial mortgage loans amount to £1,021m (2020: £419m) and are determined by incorporating credit risk for performing loans at the portfolio level
andadjustedforloansidentifiedtobedistressedattheloanlevel.Theprojectedcashflowsofeachloanarediscountedalongstochasticrisk-freerate
paths and are inclusive of an Option Adjusted Spread (OAS), derived from current internal pricing on new loans, along with the best observable inputs.
Thevaluationasat31December2021reflectsilliquiditypremiumsbetween20and30bps.
Other debt securities which are not traded in an active market amount to £99m (2020: £115m). 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 £10,150m (2020: £8,475m) is valued with the involvement of external valuers. All property valuations are
carried out in accordance with the latest edition of the Valuation Standards published by the Royal Institute of Chartered Surveyors, and are undertaken
byappropriatelyqualifiedvaluersasdefinedtherein.Whilsttransactionevidenceunderpinsthevaluationprocess,thedefinitionofmarketvalue,
includingthecommentary,inpracticerequiresthevaluertoreflecttherealitiesofthecurrentmarket.Inthiscontextvaluersmustusetheirmarket
knowledge and professional judgement and not rely only upon historic 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
31December2021reflectsequivalentyieldrangesbetween1%and13%andERVbetween£1and£338persq.ft.
The table below shows investment property by sector.
2021
£m
2020
£m
Retail 1,025 999
Leisure 482 440
Distribution 1,552 1,142
Officespace 4,223 3,703
Industrial and other commercial 1,767 1,588
Accommodation 1,101 603
Total 10,150 8,475
Legal & General Group Plc Annual Report and Accounts 2021162 Financial statements
Balance sheet management continued
(b) Effect of changes in assumptions on Level 3 assets
Fairvaluesoffinancialinstrumentsare,incertaincircumstances,measuredusingvaluationtechniquesthatincorporateassumptionsthatare
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 on the fair value of Level 3 assets as at 31 December 2021.
Further disclosure on how these sensitivities have been applied can be found in the descriptions following the table.
Sensitivities
Fair value
2021
£m
Positive impact
2021
£m
Negative impact
2021
£m
Lifetime mortgages 6,857 234 (365)
Private credit portfolios 16,304 921 (921)
Investment property 10,150 961 (793)
Other investments
1
3,713 301 (269)
Total Level 3 assets 37,024 2,417 (2,348)
1. Other investments include Level 3 equity securities, income strip assets and other traded debt securities which are Level 3.
Thesensitivitiesarenotafunctionofsensitisingasinglevariablerelatingtothevaluationoftheasset,butratherafunctionofflexingmultiplefactors
oftenatindividualassetlevel.Thefollowingsetsoutanumberofkeyfactorsbyassettype,andhowtheyhavebeenflexedtoderivereasonable
alternative valuations.
Lifetime mortgages
Key assumptions used in the valuation of Lifetime mortgage assets are listed in Note 10(iii)(a) and sensitivities are applied to each assumption to arrive
attheoverallsensitisedvaluesintheabovetable.Themostsignificantsensitivitybyvalueis+/-10%instantreductioninpropertyvaluationacrossthe
portfolio which, applied in isolation produces sensitised values of £133m and £(271)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
shorterdurationassetsascomparedtolowerratedand/orlongerdurationassets.Asignificantcomponentofthespreaddifferentialisinrelationto
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 15bps on the selection of comparator bonds as opposed to 40bps for a similar
durationBBBratedasset.Appliedinisolationthesensitivityusedtoreflectthespreadincomparatorbondselectionresultsinsensitisedvaluesof
£339m and £(339)m.
Investment property
Investmentpropertyholdingsarevaluedbyindependentvaluersonthebasisofopenmarketvalueasdefinedintheappraisalandvaluationmanualof
the Royal Institute of Chartered Surveyors (RICS). As such, sensitivities are calculated through a mixture of asset level and portfolio level methodologies
whichmakereferencetoindividualinvestmentcharacteristicsoftheholdingbutdonotflexindividualassumptionsusedbytheindependentexpertinvaluing
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
termof25yearsinnormalmarketconditionsthiswouldleadtoa15bpsyieldflex(asopposedtoa35bpsyieldflexforaBBBratedassetwith30year
remainingterm).Themethodologywhichleadstothemostsignificantsensitivityatthebalancesheetdateisrelatedtoanexampleincaselawwhere
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 £708m and £(708)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.
Legal & General Group Plc Annual Report and Accounts 2021 163
Strategic report Governance Financial statements Other information
Balance sheet management
11 IFRS 9 ‘Financial Instruments’ deferral
As required by the amendments to IFRS 4 ‘Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts’, the
disclosuresbelowarepresentedinordertoprovideusersofthefinancialstatementswithinformationwhichallowsthemtocomparefinancial
assets when IFRS 9 is not applied with those of entities applying IFRS 9. All entities within the group whose activities are not primarily insurance
relatedandwhichpreparefinancialstatementsonanIFRSbasis(includingUKentitiesqualifyingfordisclosureexemptionsunderFRS101,
‘ReducedDisclosureFramework’)haveimplementedIFRS9in2018.Thefinancialstatementsoftheseentitieswillbemadeavailablethrough
Companies House.
(i) Fair value of financial assets with contractual terms that give rise on specified dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding (passing the SPPI test):
Financial
assets passing
the SPPI test¹
,
²
2021
£m
All other
financial
assets³
2021
£m
Financial assets
passing the SPPI
test¹
,
²
2020
£m
All other
financial
assets³
2020
£m
Equity securities – 213,049 – 189,089
Debt securities 2,296 294,634 2,350 293,310
Derivative assets – 16,792 – 24,631
Loans at fair value – 11,511 – 16,546
Total financial investments at fair value 2,296 535,986 2,350 523,576
Loans at amortised cost 92 – 131 –
Reinsurance receivables 84 – 73 –
Insurance and intermediaries receivables 60 9 68 8
Otherfinancialassets 5,171 – 5,961 –
Total fair value of financial assets
4
7,703 535,995 8,583 523,584
1. FinancialassetsclassifiedasheldfortradingorthataremanagedandwhoseperformanceisevaluatedonafairvaluebasisdonotrequireanSPPItesttobeperformed.Theseassetsare
reportedinAllotherfinancialassets.
2. ForfinancialassetswhichpasstheSPPItestheldat31December2021therewasachangeinthefairvalueintheyearof£(64)m(2020:£40m).
3. Forallotherfinancialassetsheldat31December2021therewasachangeinthefairvalueintheyearof£25,093m(2020:£28,281m).
4. Financialassetsexcludecashandcashequivalentsandreceivablesunderfinanceleases.
(ii) Credit risk information of financial assets passing the SPPI test:
AAA
2021
£m
AA
2021
£m
A
2021
£m
BBB
2021
£m
BB or below
1
2021
£m
Other
2
2021
£m
Total
2021
£m
Total financial investments at fair value 327 257 485 1,180 47 – 2,296
Loans at amortised cost – – 1 – – 91 92
Reinsurance receivables – – – – – 84 84
Insurance and intermediaries receivables – – – – – 60 60
Otherfinancialassets – 1 91 9 2 5,068 5,171
Total carrying value of financial assets passing the SPPI test
3
327 258 577 1,189 49 5,303 7,703
1. Financialassetsclassifiedas‘BBorbelow’areconsideredtobelowerthaninvestmentgrade,andthereforearenotdeemedtohavelowcreditriskunderIFRS9.
2. Otherfinancialassetsaremadeupofunratedandshort-termreceivablesforwhichaformalcreditratingisnotassigned.ThefairvalueoffinancialassetspassingtheSPPItestthatarenot
deemed to have low credit risk as at 31 December 2021 is £30m.
3. Financialassetsexcludecashandcashequivalentsandreceivablesunderfinanceleases.Thefairvalueoftheseassetsapproximatestotheircarryingvalue.
AAA
2020
£m
AA
2020
£m
A
2020
£m
BBB
2020
£m
BB or below
1
2020
£m
Other
2
2020
£m
Total
2020
£m
Totalfinancialinvestmentsatfairvalue 434 207 465 1,181 63 – 2,350
Loans at amortised cost – – 1 – – 130 131
Reinsurance receivables – – – – – 73 73
Insurance and intermediaries receivables – – – – – 68 68
Otherfinancialassets – 2 89 4 3 5,863 5,961
TotalcarryingvalueoffinancialassetspassingtheSPPItest
3
434 209 555 1,185 66 6,134 8,583
1. Financialassetsclassifiedas‘BBorbelow’areconsideredtobelowerthaninvestmentgrade,andthereforearenotdeemedtohavelowcreditriskunderIFRS9.
2. Otherfinancialassetsaremadeupofunratedandshort-termreceivablesforwhichaformalcreditratingisnotassigned.ThefairvalueoffinancialassetspassingtheSPPItestthatarenot
deemed to have low credit risk as at 31 December 2020 is £81m.
3. Financialassetsexcludecashandcashequivalentsandreceivablesunderfinanceleases.Thefairvalueoftheseassetsapproximatestotheircarryingvalue.
Legal & General Group Plc Annual Report and Accounts 2021164 Financial statements
Balance sheet management continued
12 Derivative assets and liabilities
Thegroup’sactivitiesexposeittothefinancialrisksofchangesinforeignexchangeratesandinterestrates.Thegroupusesderivativessuchas
foreign exchange forward contracts and interest rate swap contracts to hedge these exposures. The group uses hedge accounting, provided the
prescribed criteria in IAS 39, ‘Financial instruments: Recognition and measurement’ are met, to recognise the offsetting effects of changes in the
fairvalueorcashflowofthederivativeinstrumentandthehedgeditem.Thegroup’sprincipalusesofhedgeaccountingareto:
(i) Deferinequitythechangesinthefairvalueofderivativesdesignatedasthehedgeofafuturecashflowattributabletoarecognisedassetor
liability,ahighlyprobableforecasttransaction,orafirmcommitmentuntiltheperiodinwhichthefuturetransactionaffectsprofitorlossoris
no longer expected to occur; and
(ii) Hedgethefairvaluemovementsinloansduetointerestrateandexchangeratefluctuations.Anygainorlossfromremeasuringthehedging
instrument at fair value is recognised immediately in the Consolidated Income Statement. Any gain or loss on the hedged item attributable to
the hedged risk is adjusted against the carrying amount of the hedged item and recognised in the Consolidated Income Statement.
(iii) Hedge a net investment in a foreign operation: a hedge of the exposure to the currency risk of a net investment in a foreign entity.
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 at the inception of the transaction. The effectiveness of the hedge is documented and monitored on an
ongoing basis. Hedge accounting is only applied for highly effective hedges (between 80% and 125% effectiveness) with any ineffective portion
of the gain or loss recognised in the Consolidated Income Statement in the current year.
Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instruments which do not qualify
for hedge accounting are recognised immediately in the Consolidated Income Statement.
Where the risks and characteristics of derivatives embedded in other contracts are not closely related to those of the host contract and the whole
contract is not carried at fair value, the derivative is separated from that host contract and measured at fair value, with fair value movements
reflectedwithininvestmentreturn,unlesstheembeddedderivativeitselfmeetsthedefinitionofaninsurancecontract.
Cashinflowsandoutflowsarepresentedonanetbasiswherethegroupisrequiredtosettlenetorhasalegallyenforceablerightofoffsetand
the intention is to settle on a net basis.
Forward foreign exchange contracts – net investment hedges
The group hedges part of the foreign exchange translation exposure on its net investment in certain overseas subsidiaries, using forward foreign
exchange contracts. It recognises the portion of the gain or loss which is determined in the Consolidated Statement of Comprehensive Income, along
with the gain or loss on translation of the foreign subsidiaries.
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.
Legal & General Group Plc Annual Report and Accounts 2021 165
Strategic report Governance Financial statements Other information
Balance sheet management
12 Derivative assets and liabilities continued
Thegroupusesderivativesasacomponentofefficientportfoliomanagement.Thisincludes,butisnotlimitedto,hedgingeconomicexposuretoforeign
currencies,interestrates,inflationandcreditrisks.
Fair values Fair values
Assets
1
2021
£m
Liabilities
2
2021
£m
Assets
1
2020
£m
Liabilities
2
2020
£m
Shareholder derivatives:
Interestratecontracts–heldfortrading 9,809 10,158 17,927 15,967
Interestratecontracts–cashflowhedges – 105 – 114
Forwardforeignexchangecontracts–heldfortrading 34 15 78 75
Currencyswapcontracts–heldfortrading 463 671 1,092 290
Inflationswapcontracts–heldfortrading 2,861 2,778 1,782 3,624
Creditderivatives–heldfortrading – 23 – 28
Otherderivatives–heldfortrading 36 347 57 1,150
Total shareholder derivatives 13,203 14,097 20,936 21,248
Unit linked derivatives:
Interestratecontracts–heldfortrading 584 732 373 220
Forwardforeignexchangecontracts–heldfortrading 1,851 570 1,767 345
Creditderivatives–heldfortrading 16 34 15 36
Inflationswapcontracts–heldfortrading 955 156 158 601
Inflationratecontracts–heldfortrading 1 – – –
Equity/indexderivatives–heldfortrading 70 75 1,282 696
Otherderivatives–heldfortrading 112 54 100 62
Total unit linked derivatives 3,589 1,621 3,695 1,960
Total derivative assets and liabilities 16,792 15,718 24,631 23,208
1. Derivative assets are reported in the Consolidated Balance Sheet within Financial investments and investments property Note 10.
2. DerivativeliabilitiesarereportedintheConsolidatedBalanceSheetwithinPayablesandotherfinancialliabilitiesNote24.
ThegrouphasenteredintofixedrateborrowingsdenominatedinUSDandisthereforeexposedtoforeignexchangeandinterestraterisks.Inordertohedge
theserisksthegrouphasenteredintoacrosscurrencyinterestrateswap,enablingtheexposuretobeswappedintoafixedrateinitsfunctionalcurrency.
These had a fair value liability totalling £44m (2020: £74m) and a notional amount of £1,099m (2020: £1,099m) at 31 December 2021. There was no
ineffectiveness recognised in the income statement in respect of these hedges during 2021.
Thecontractualundiscountedcashflowsinrelationtonon-unitlinkedderivativeshavethefollowingmaturityprofile.Unitlinkedderivativeshave
not been included as shareholders are not directly exposed to liquidity risks.
As at 31 December 2021
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
Cash inflows
Shareholder derivatives
Derivative assets 13,203 7,117 10,195 23,937 14,292 13,509 69,050
Derivative liabilities (14,097) 7,243 9,662 25,002 12,898 11,199 66,004
Total (894) 14,360 19,857 48,939 27,190 24,708 135,054
Cash outflows
Shareholder derivatives
Derivative assets 13,203 (6,458) (8,293) (19,864) (11,135) (10,017) (55,767)
Derivative liabilities (14,097) (8,261) (12,596) (30,235) (15,500) (13,291) (79,883)
Total (894) (14,719) (20,889) (50,099) (26,635) (23,308) (135,650)
Net cash flows (359) (1,032) (1,160) 555 1,400 (596)
Futurecashflowsonthefloatinglegsofinterestrateandexchangederivativesarecalculatedusingcurrentspotrates,whichmaydifferfromthemarket
expectation incorporated in the fair value.
Cashflowsarisingfromimpliedeventscoveredbycreditderivativesarepresentedinthetableaboveonanexpectedbasisascashflowswithinoneyear.
Cashinflowsoroutflowsarepresentedonanetbasiswherethegroupisrequiredtosettlenetorhasalegallyenforceablerightofoffsetandtheintention
is to settle on a net basis.
Legal & General Group Plc Annual Report and Accounts 2021166 Financial statements
Balance sheet management continued
Thecontractualundiscountedcashflowsinrelationtonon-unitlinkedderivativeshavethefollowingmaturityprofile.Unitlinkedderivativeshavenot
been included as shareholders are not directly exposed to liquidity risks.
As at 31 December 2020
Maturityprofileofundiscountedcashflows
Fair
values
£m
Within
1 year
£m
1–5years
£m
5–15years
£m
15–25years
£m
Over
25 years
£m
Total
£m
Cashinflows
Shareholder derivatives
Derivative assets 20,936 11,335 13,176 22,767 13,274 12,902 73,454
Derivative liabilities (21,248) 5,516 3,962 15,930 7,716 8,190 41,314
Total (312) 16,851 17,138 38,697 20,990 21,092 114,768
Cashoutflows
Shareholder derivatives
Derivative assets 20,936 (9,610) (9,300) (17, 20 4) (9,036) (7,199) (52,349)
Derivative liabilities (21,248) (6,958) (8,861) (22,459) (11,508) (12,691) (62,477)
Total (312) (16,568) (18,161) (39,663) (20,544) (19,890) (114,826)
Netcashflows 283 (1,023) (966) 446 1,202 (58)
Futurecashflowsonthefloatinglegsofinterestrateandexchangederivativesarecalculatedusingcurrentspotrates,whichmaydifferfromthemarket
expectation incorporated in the fair value.
Cashflowsarisingfromimpliedeventscoveredbycreditderivativesarepresentedinthetableaboveonanexpectedbasisascashflowswithinoneyear.
Cashinflowsoroutflowsarepresentedonanetbasiswherethegroupisrequiredtosettlenetorhasalegallyenforceablerightofoffsetandthe
intention is to settle on a net basis.
Legal & General Group Plc Annual Report and Accounts 2021 167
Strategic report Governance Financial statements Other information
Balance sheet management
13 Receivables and other assets
Note
2021
£m
2020
£m
Reinsurance receivables 84 73
Receivablesunderfinanceleases 13(i) 169 173
Accrued interest and rent 378 360
Prepayments and accrued income 289 255
Insurance and intermediaries receivables 69 76
Inventories
1
2,044 2,179
Contract assets
2
322 292
Other receivables
3
5,270 6,021
Total other assets 8,625 9,429
Due within 12 months 7,012 7,444
Due after 12 months 1,613 1,985
1. Inventories represent house building stock including land, options on land, work in progress and other inventory.
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 leases certain investment properties to third parties. Under these agreements, substantially all the risks and reward incidental to
ownershiparetransferredtothelessee;thereforethecontractshavebeenclassifiedasfinanceleases.Attheleasecommencementdate,the
groupderecognisestheinvestmentpropertyassetandrecognisesareceivableassetonitsbalancesheettoreflectthenetinvestmentinthelease,
equaltothepresentvalueoftheleasepayments.Thegrouprecognisesfinanceincomeovertheleasetermtoreflecttherateofreturnonthenet
investment in the lease.
Thegroupactsasalessorofcertainfinanceleases,whichhaveaweightedaveragedurationtomaturityof31yearsasat31December2021.
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
2021
£m
Unearned
interest
income
2021
£m
Present
value
2021
£m
Total
future
payments
2020
£m
Unearned
interest
income
2020
£m
Present
value
2020
£m
Within 1 year 10 (5) 5 10 (6) 4
1–2years 11 (5) 6 10 (5) 5
2–3years 10 (5) 5 11 (5) 6
3–4years 10 (5) 5 10 (5) 5
4–5years 10 (5) 5 10 (5) 5
After 5 years 200 (57) 143 210 (62) 148
Total 251 (82) 169 261 (88) 173
Legal & General Group Plc Annual Report and Accounts 2021168 Financial statements
Balance sheet management continued
14 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.
Shareholder
2021
£m
Unit
linked
2021
£m
Total
2021
£m
Cash at bank and in hand 1,115 2,702 3,817
Cash equivalents 2,481 10,189 12,670
Total cash and cash equivalents 3,596 12,891 16,487
Shareholder
2020
£m
Unit
linked
2020
£m
Total
2020
£m
Cash at bank and in hand 1,152 2,646 3,798
Cash equivalents 2,464 11,758 14,222
Total cash and cash equivalents 3,616 14,404 18,020
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
2021
£m
2020
£m
United Kingdom 307 240
North America 228 199
Europe 185 196
Japan 17 26
AsiaPacific 36 58
Other 57 62
Listed equities 830 781
Unlisted equities
1
300 277
Holdings in unit trusts
2
2,055 2,028
Total equities 3,185 3,086
1. Unlisted equities are split between £227m (2020: £226m) United Kingdom, £67m (2020: £46m) Europe and £6m (2020: £5m) North America.
2. Limited Partnerships are included within Holdings in unit trusts.
Legal & General Group Plc Annual Report and Accounts 2021 169
Strategic report Governance Financial statements Other information
Balance sheet management
15 Market risk continued
(i) Investment performance risk continued
(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
and accrued interest
Total
2021
£m
Total
2020
£m
United Kingdom 43,554 43,594
USA 26,859 27,165
Netherlands 2,763 2,599
France 1,899 1,710
Germany 640 610
GIIPS:
–Ireland 1,475 1,343
–Italy 36 36
–Spain 278 300
Belgium 394 374
Rest of Europe 2,551 3,383
Brazil 59 63
Rest of World 6,228 4,253
Collateralised debt obligations
1
67 72
Total 86,803 85,502
1. All CDOs of £67m (2020: £72m) are domiciled in the Rest of World.
(c) Additional disclosures on shareholder securities exposure
2021
£m
2021
%
2020
£m
2020
%
Sovereigns, supras and sub-sovereigns 14,027 16 16,244 19
Banks:
–Tier2andothersubordinated 95 – 107 –
–Senior 6,690 8 5,175 6
–Covered 138 – 158 –
Financial services:
–Tier2andothersubordinated 251 – 204 –
–Senior 1,210 1 1,077 1
Insurance:
–Tier2andothersubordinated 347 – 293 –
–Senior 1,195 1 1,166 1
Consumer services and goods:
–Cyclical 3,398 4 3,241 4
–Non-cyclical 8,272 10 8,749 10
–Healthcare 2,421 3 1,997 2
Infrastructure:
–Social 6,975 8 6,455 8
–Economic 5,959 7 5,469 7
Technology and telecoms 5,062 6 5,167 6
Industrials 1,307 2 1,510 2
Utilities 11,876 14 11,794 14
Energy 1,241 1 1,232 1
Commodities 1,262 1 1,277 2
Oil and gas 2,175 3 2,474 3
Real estate 3,527 4 3,398 4
StructuredfinanceABS/RMBS/CMBS/Other 2,451 3 2,207 3
Lifetime mortgage loans 6,857 8 6,036 7
Collateralised debt obligations 67 – 72 –
Total 86,803 100 85,502 100
Legal & General Group Plc Annual Report and Accounts 2021170 Financial statements
Balance sheet management continued
15 Market risk continued
(i) Investment performance risk continued
(c) Additional disclosures on shareholder debt securities exposure continued
Analysis of Sovereigns, Supras and Sub-Sovereigns
2021
£m
2020
£m
Market value by region
United Kingdom 9,829 11,568
USA 1,892 2,654
Netherlands 23 27
France 485 295
Germany 380 423
GIIPS:
–Ireland 302 318
Rest of Europe 54 335
Rest of World 1,062 624
Total 14,027 16,244
(ii) Currency risk
Thegrouphasminimalexposuretocurrencyriskfromfinancialinstrumentsheldbybusinessunitsincurrenciesotherthantheirfunctionalcurrencies,
nearly all such holdings are either backing insurance contracts in the same currency or are hedged back to GBP.
Thegroupoperatesinternationallyandasaresultisexposedtoforeigncurrencyexchangeriskarisingfromfluctuationsinexchangeratesofvarious
currencies.ThelargestUnitedStatesdollarcurrencyexposuresrelatetothegroup’sUSbusiness,Legal&GeneralAmerica.Themajorityofcurrency
exposuresrelatingtoeurosareheldbyLegal&GeneralInvestmentManagement(Europe)Limited,asubsidiaryofLegal&GeneralInvestmentManagement
(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.
Businessesaimtomaintainsufficientassetsinlocalcurrencytomeetlocalcurrencyliabilities,howevermovementsmayimpactthevalueofthegroup’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 2021, the group held 5% (2020: 14%) 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.
Consistentwiththegroup’saccountingpolicies,theprofitsofoverseasbusinessunits(reportedasfunctionalcurrencies)aretranslatedataverage
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)ordecrease(strengtheningofforeigncurrencies)intheserateswouldincreaseorreducetheprofitfortheyearandnetassetsasfollows:
A 10% increase in
USD:GBP exchange rate
A 10% decrease in
USD:GBP exchange rate
2021
£m
2020
£m
2021
£m
2020
£m
Profitfortheyear
1
(2) 18 3 (22)
Net assets attributable to USD exposures
1
(19) (80) 23 98
A 10% increase in
EUR:GBP exchange rate
A 10% decrease in
EUR:GBP exchange rate
2021
£m
2020
£m
2021
£m
2020
£m
Profitfortheyear
1
(1) – 1 –
Net assets attributable to EUR exposures
1
(39) (73) 47 90
1. Profitfortheyearimpactsrelateonlytooverseasbusinessunitswherethefunctionalcurrencyisnotsterling.Netassetimpactsincludebothfunctionalcurrencyandnon-functional
currency exposures.
Legal & General Group Plc Annual Report and Accounts 2021 171
Strategic report Governance Financial statements Other information
Balance sheet management
16 Credit risk
Thecreditprofileofthegroup’sassetsexposedtocreditriskisshownbelow.Thecreditratingbandsareprovidedbyindependentratingagencies.
For unrated assets, the group maintains internal ratings which are used to manage exposure to these counterparties. 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.
Thecarryingamountofthefinancialassetsrecordedinthefinancialstatementsrepresentthemaximumexposuretocreditrisk.
Shareholder
As at 31 December 2021
Notes
AAA
£m
AA
£m
A
£m
BBB
£m
BB and
below
£m
Internally
rated and
other
1
£m
Total
£m
Government securities 1,722 7, 389 144 348 9 474 10,086
Otherfixedratesecurities 1,619 6,146 18,391 17,723 865 14,062 58,806
Variable rate securities 143 1,953 2,539 2,413 64 3,388 10,500
Lifetime mortgages – – – – – 6,857 6,857
Accrued interest 22 56 166 231 12 67 554
Total debt securities
1
10(i) 3,506 15,544 21,240 20,715 950 24,848 86,803
Loans 10(ii) 61 1,309 779 153 – 30 2,332
Derivative assets 12 – – 11,176 1,925 – 102 13,203
Cash and cash equivalents 14 694 648 1,924 80 – 250 3,596
Reinsurers’ share of contract liabilities – 5,656 1,127 1 – 396 7,180
Other assets 57 35 592 32 7 5,951 6,674
Total 4,318 23,192 36,838 22,906 957 31,577 119,788
1. Of the total debt securities and accrued interest that have been internally rated and unrated, £4,617m is rated AAA, £3,649m AA, £8,675m A, £7,465m BBB, £417m BB or below and £25m as other.
As at 31 December 2020
Notes
AAA
£m
AA
£m
A
£m
BBB
£m
BB and
below
£m
Internally
rated and
other
1
£m
Total
£m
Government securities 2,336 9,527 88 385 9 223 12,568
Otherfixedratesecurities 1,660 5,467 18,270 18,771 966 13,061 58,195
Variable rate securities 80 2,046 2,705 1,915 60 1,335 8,141
Lifetime mortgages – – – – – 6,036 6,036
Accrued interest 25 61 172 236 14 54 562
Total debt securities
1
10(i) 4,101 17,101 21,235 21,307 1,049 20,709 85,502
Loans 10(ii) 44 3,030 886 203 – 85 4,248
Derivative assets 12 – 36 18,421 2,436 – 43 20,936
Cash and cash equivalents 14 250 1,002 2,068 89 – 207 3,616
Reinsurers’ share of contract liabilities – 5,591 958 3 – 384 6,936
Other assets 79 31 696 48 3 6,541 7, 398
Total 4,474 26,791 44,264 24,086 1,052 27,969 128,636
1. Of the total debt securities and accrued interest that have been internally rated and unrated, £4,068m is rated AAA, £3,347m AA, £6,702m A, £6,109m BBB, £465m BB or below and £18m as other.
Impairment
Thegroupreviewsthecarryingvalueofitsfinancialassets(otherthanthoseheldatFVTPL)ateachbalancesheetdate.Ifthecarryingvalueofafinancial
asset is impaired, the carrying value is reduced through a charge to the Consolidated Income Statement. There must be objective evidence of impairment
as a result of one or more events which have occurred after the initial recognition of the asset. Impairment is only recognised if the loss event has an
impactontheestimatedfuturecashflowsofassetsheldatamortisedcostorfairvalueofassetsclassifiedasavailableforsale.
ThetablebelowincludesassetsatFVTPLandheldatamortisedcost,whichprovidesinformationregardingthecarryingvalueoffinancialassetswhich
havebeenimpairedandtheageinganalysisoffinancialassetswhicharepastduebutnotimpaired.Unitlinkedassetshavenotbeenincludedas
shareholders are not exposed to the risks from unit linked policies.
Legal & General Group Plc Annual Report and Accounts 2021172 Financial statements
Balance sheet management continued
Ageing analysis
As at 31 December 2021
Neither past
due nor
impaired
£m
Past due but not impaired
0–3
months
£m
3–6
months
£m
6 months–
1 year
£m
Over
1 year
£m
Impaired
£m
Carrying
value
£m
Shareholder 119,600 132 23 16 17 – 119,788
Past due but not impaired
As at 31 December 2020
Neither past
due nor
impaired
£m
0–3
months
£m
3–6
months
£m
6months–
1 year
£m
Over
1 year
£m
Impaired
£m
Carrying
value
£m
Shareholder 128,314 250 24 30 18 – 128,636
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.
ThegrouphasnotenteredintoanyfinancialtransactionsresultinginfinancialassetsandliabilitiesbeingoffsetintheConsolidatedBalanceSheet.
Thetablebelowshowsthefinancialassetsandliabilitiesthataresubjecttomasternettingagreementsintheshareholder.Unitlinkedassetsandliabilities
have not been included as shareholders are not exposed to the risks on these policies.
As at 31 December 2021
Amounts subject to enforceable netting arrangements
Amounts under master netting
arrangements but not offset
Gross and
net amounts
reported
in the
Consolidated
Balance
Sheet
£m
Related
financial
instruments
1
£m
Cash
collateral
2
£m
Securities
collateral
pledged
2
£m
Net
amount
£m
Derivative assets 13,203 (11,720) (789) (694) –
Reverse repurchase agreements 2,240 – – (2,240) –
Total 15,443 (11,720) (789) (2,934) –
Derivative liabilities (14,097) 11,720 1,895 482 –
Repurchase agreements (1,116) – – 1,116 –
Total (15,213) 11,720 1,895 1,598 –
1. Relatedfinancialinstrumentsrepresentsoutstandingamountswiththesamecounterpartywhich,underagreementssuchastheISDAMasterAgreement,couldbeoffsetandsettlednet
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.
Legal & General Group Plc Annual Report and Accounts 2021 173
Strategic report Governance Financial statements Other information
Balance sheet management
16 Credit risk continued
As at 31 December 2020
Amounts subject to enforceable netting arrangements
Amounts under master netting
arrangements but not offset
Gross and
net amounts
reported in
the
Consolidated
Balance
Sheet
£m
Related
financial
instruments
1
£m
Cash
collateral
2
£m
Securities
collateral
pledged
2
£m
Net
amount
£m
Derivative assets 20,936 (18,593) (823) (1,758) (238)
Reverse repurchase agreements 4,117 – – (4,121) (4)
Total 25,053 (18,593) (823) (5,879) (242)
Derivative liabilities (21,249) 18,593 2,118 610 72
Repurchase agreements (2,004) – – 2,010 6
Total (23,253) 18,593 2,118 2,620 78
1. Relatedfinancialinstrumentsrepresentsoutstandingamountswiththesamecounterpartywhich,underagreementssuchastheISDAMasterAgreement,couldbeoffsetandsettlednet
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.
Inthetablesabove,theamountsofassetsorliabilitiespresentedintheConsolidatedBalanceSheetareoffsetfirstbyfinancialinstrumentsthathavethe
right of offset under master netting or similar arrangements with any remaining amount reduced by cash and securities collateral. The actual amount of
collateral may be greater than the amounts presented in the tables above.
Legal & General Group Plc Annual Report and Accounts 2021174 Financial statements
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 experience being different to that anticipated. Detailed below are the risks associated with each of the group’s segments and the associated
controls operated. They are applicable to all stated products across the group.
Principal risks Division Controls to mitigate risks
Longevity, mortality & morbidity risks
Forcontractsprovidingdeathbenefits,highermortality
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.
LGI The pricing of protection business is based on assumptions as to future
trends in mortality and morbidity having regard to past experience.
Underwritingcriteriaaredefinedsettingouttherisksthatareunacceptable
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.
For annuity contracts, the group is exposed to the
risk that mortality experience is lower than assumed.
Lower than expected mortality would require payments
tobemadeforlongerandincreasethecostofbenefits
provided. Lifetime mortgage business also explicitly
has some exposure to the life expectancy of borrowers.
LGR Annuity business is priced having regard to trends in improvements in
future mortality. Enhanced annuities, which are priced taking account of
impairmentstolifeexpectancy,aresubjecttospecificunderwritingcriteria.
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.
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.
LGI The pricing basis for protection business includes provision for policy lapses.
The persistency assumption for non-participating protection business allows
for the expected pattern of persistency, adjusted to incorporate a margin for
adverse deviation. Actual trends in policy lapse rates are monitored with
adverse trends being subject to actuarial investigation.
Expense risk
In pricing long-term insurance business, assumptions
are made as to the future cost of product servicing.
Asignificantadversedivergenceinactualexpenses
experiencecouldreduceproductprofitability.
LGR and LGI In determining pricing assumptions, account is taken of changes in price
indices and the costs of employment, with stress testing used to evaluate
theeffectofsignificantdeviations.Actualproductservicingcostsare
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,alteringtheriskprofileofthegroup.Themost
significantexposureofthistypearisesforgroup
protection business, where a single event could
result in a large number of related claims.
LGI 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.
Epidemic (catastrophe) risk
The spread of an epidemic could cause large
aggregate claims across the group’s portfolio
of protection businesses.
LGI The pricing basis for protection business includes an assessment of
potentialclaimsasaresultofepidemicrisks.Quotashareandexcess
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. As in the current pandemic, we can update the pricing
fornewbusinesstoreflectthechangeinexpectedclaims.Theprovisionfor
future Covid-19 claims relies on assumptions about the future developments
of the pandemic, including the impact of new variants, vaccines, social
distancing and treatment, all of which could result in a higher or lower loss
than assumed.
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. In particular,
thereislittlesignificantoverlapbetweenthelong-termandshort-terminsurancebusinesswrittenbythegroup.However,therearepotentiallymaterial
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
Operationalriskisdefinedaslossarisingfrominadequateorfailedinternalprocesses,people,systemsorexternalevents.Potentialforexposuretooperational
risk extends to all the group’s businesses. The group has constructed a framework of internal controls to minimise material loss from operational risk events
recognisingthatnosystemofinternalcontrolcancompletelyeliminatetheriskoferror,financialloss,fraudulentactionorreputationaldamage.
Legal & General Group Plc Annual Report and Accounts 2021 175
Strategic report Governance Financial statements Other information
Balance sheet management
18 Long-term insurance valuation assumptions
The group’s insurance assumptions, described below, relate to the UK insurance business and material lines of the US insurance business,
Legal&GeneralAmerica(LGA).Othernon-UKbusinessesdonotconstituteamaterialcomponentofthegroup’soperationsandconsideration
of geographically determined assumptions is therefore not included.
The group seeks to make prudent assumptions about future experience based on current market conditions and recent experience. Assumptions
incorporate prudent margins in excess of our best estimate assumptions to reduce the possibility of actual experience being less favourable than assumed.
(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
(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. Assumptions include an appropriate allowance for prudence. 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.
Thehighermortalityexperienceobservedin2020and2021asaresultofCovid-19isconsideredtobeexceptionaland,duetoinsufficientcertaintyin
morerecentdata,long-termmortalityassumptionshavenotbeenrevisedtoreflectthisexperience.Certainshort-termallowancescontinuetobemade
for higher mortality expected in the short term.
Inmostcases,mortalityratesaresetseparatelyforsexandsmokerstatus,andthepercentageofmortalitytablewillvaryforthefirst2–5yearsofthe
policy’s duration to allow for underwriting selection.
Mortality tables 2021 2020
Non-linked individual assurance business
UK term assurances
1
99%–101% TM08/TF08 Sel 5 99%–101%TM08/TF08Sel5
UK term assurances with terminal illness
1
63%–95% TM08/TF08 Sel 5 63%–95%TM08/TF08Sel5
UK term assurances with critical illness
2
107%–159% ACL08 Sel 2 107%–159%ACL08Sel2
US term assurances
3
Adjusted SOA 2014 VBT Adjusted SOA 2014 VBT
Whole of Life Protection Plan
4
Bespoke Tables based on TM08/TF08,
PCMA00/PCFA00 and UK death
registrations
Bespoke Tables based on TM08/TF08,
AM92/AF92 and UK death registrations
Whole of Life over 50
4
Bespoke Tables based on ELT15 and
Whole of Life Protection Plan assumptions
Bespoke Tables based on ELT15 and
Whole of Life Protection Plan assumptions
Annuity business
UK Annuities in deferment
5
70.9%–81.1% PNMA00/PNFA00 71.9%–81.9%PNMA00/PNFA00
UK Vested annuities
6
Pension risk transfer 71.6%–81.1% PCMA00/PCFA00 72.7%–81.9%PCMA00/PCFA00
Other annuities 59.3%–98.4% PCMA00/PCFA00 57.6%–105.1%PCM A00/PCFA0 0
US annuities
7
Bespoke tables based on RP–2014
Healthy Annuitant Total table
BespoketablesbasedonRP–2014
Healthy Annuitant Total table
1. Improvement assumptions applied of 0.6% p.a. for males and females (2020: 0.6% p.a. for males and females).
2. Morbidity rates are assumed to deteriorate at a rate of 0.50% p.a. for males and 0.75% p.a. for females (2020: 0.50% p.a. for males and 0.75% p.a. for females).
3. Adjustments are made for sex, select period, smoker status, policy size, policy duration and year, issue year and age.
4. Mortality rates are assumed to reduce based on CMI 2019 model with a long-term annual improvement rate of 1.5% for males and 1.0% for females (2020: Mortality rates are assumed
to reduce based on CMI 2018 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 (2020: CMI 2018) with the following parameters:
Males: Long-term Rate of 1.50% p.a. up to age 85 tapering to 0% at 110 (2020: Long-term Rate of 1.50% p.a. up to age 85 tapering to 0% at 110).
Females: Long-term Rate of 1.00% p.a. up to age 85 tapering to 0% at 110 (2020: Long-term Rate of 1.00% p.a. up to age 85 tapering to 0% at 110).
Smoothingisappliedtoderiveinitialratesusingasmoothingparameter(Sk)valueof7.5appliedtoL&Gbespokepopulationdatato2019.Theresultinginitialratesarethenadjusted
toreflectsocio-economicclass.(2020:smoothingparameter(Sk)valueof7.5appliedtoL&Gbespokepopulationdatato2018).
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.
7. Improvement table is MP2018 for Females and MP2019 for Males (2020: improvement table is MP2018).
Legal & General Group Plc Annual Report and Accounts 2021176 Financial statements
Balance sheet management continued
(ii) Valuation rates of interest and discount rates
Thevaluationinterestrateusedtodiscountthecashflowsforthepurposeofvaluinginsurancecontractliabilitiesisbasedontheyieldontheassets
backing the contract.
For annuity business, an explicit allowance for risk is deducted from the yield. The allowance for risk comprises long-term assumptions about defaults on
a prudent basis or, in the case of lifetime mortgage assets, a prudent expectation of losses arising from the No Negative Equity Guarantee. These allowances
vary by asset category and for some asset classes by rating. The allowance for risk for government backed bonds equated to 9bps (2020: 9bps) and 43bps
for corporate bonds and direct investments (2020: 45bps). This is equivalent to a default provision of £3.4 billion at 31 December 2021 (2020: £3.5 billion).
For lifetime mortgage business, the allowance for risk in respect of lifetime mortgage assets is equivalent to £0.6 billion at 31 December 2021
(2020: £0.6 billion).
For UK assurance business, a change in methodology was introduced in 2021, to allow for an illiquidity premium in the valuation interest rate calculation.
Different rates apply depending on whether the liabilities are positive or negative. An appropriate valuation interest rate is applied at all times during the
projection, i.e. when liabilities switch from being negative to positive the valuation interest rate will also switch from being high to low. The crossover point
at which the margin changes direction is assessed for broad product groups but applied at a policy by policy level.
For US assurance business, the valuation interest rate is derived by combining the risk free yield curve (based on US Treasuries) plus a risk adjusted
spread addition based on the portfolio of assets LGA invest in. It includes prudent adjustments for default and reinvestment risk.
Rate of interest/discount rates 2021 2020
UK Life assurances 1.40%–2.52% p.a. 0.72%–2.24%p.a.
UK Pension assurances 1.40%–2.52% p.a. 0.25%–2.15%p.a.
US Life assurances 1.20%–3.80% p.a. 0.80%–2.40%p.a.
UKAnnuities–Fixed 1.78% p.a. 1.28% p.a.
UKAnnuities–IndexLinked (1.88%) p.a. (1.85%) p.a.
US annuities 2.62% p.a. 2.29% p.a.
(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 by making prudent assumptions about expected long-term average persistency levels.
Whereexplicitpersistencyassumptionsarenotmade,prudenceisalsoincorporatedintotheliabilitiesbyensuringthattheyaresufficienttocover
the more onerous of the two scenarios where the policies either remain in-force until maturity or where they discontinue at the valuation date.
For UK term assurance business, the margin acts to increase the best estimate lapse rate in the early part of a policy’s lifetime (when it is treated as an
asset) but to reduce the best estimate lapse rate later in the policy’s lifetime (when it is treated as a liability). The crossover point at which the margin
changesdirectionisassessedforbroadproductgroupsbutappliedatapolicybypolicylevel.Anyliabilitytoreinsurersondiscontinuancewithinthefirst
fouryearsfrominceptionisallowedforexplicitlyinthecashflows,usingthevaluationlapsebasis,togetherwithaprudentallowanceforclawbackof
commission from agents upon lapse.
For US term assurance, a single margin is used across guaranteed period durations for a given policy. All US term assurance contracts are assumed to
lapse at the end of the guaranteed period. Policies past the guaranteed period as of the valuation date are assumed to lapse on the next premium due date.
Lapse rates 2021 2020
UK Level term 1.6%–34.5% 2.3%–25.7%
UK Decreasing term 5.3%–18.0% 6.1%–14.6%
UK Accelerated critical illness cover 2 .6%–37.3% 2.6%–26.4%
Pensions term 2.3%–3.8% 2.3%–3.8%
WholeofLife(conventionalnonprofit) 0.5%–6.1% 0.5%–6.1%
USterm–10yearguaranteeperiod 5.7%–6.5% 5.7%–6.5%
USterm–15yearguaranteeperiod 3.4%–4.6% 3.4%–4.6%
USterm–20yearguaranteeperiod 2.4%–4.9% 2.4%–4.9%
USterm–30yearguaranteeperiod 1.7%–5.2% 1.7%–5.2%
US Universal Life 1.9% 1.9%
(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’sbusinessplan,aswellasforchangesinallocations.AnallowanceforexpenseinflationinthefutureisalsomadeinlinewithRPI,takingaccount
ofbothsalaryandpriceinformation.Theexpenseassumptionsandexpenseinflationassumptionincludeanappropriateallowanceforprudence.
Strategic report Governance Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 177Balance sheet management
19 IFRS sensitivity analysis
Impact on
pre-tax
group profit
net of
reinsurance
2021
£m
Impact on
group equity
net of
reinsurance
2021
£m
Impact on
pre-tax
groupprofit
net of
reinsurance
2020
£m
Impact on
group equity
net of
reinsurance
2020
£m
Economic sensitivity
100bps increase in interest rates
1
55 188 260 350
50bps decrease in interest rates
1
(77) (139) (194) (227)
50bpsincreaseinfutureinflationexpectations (41) (60) (148) (119)
Credit spreads widen by 100bps with no change in expected defaults (311) (234) (304) (246)
25% rise in equity markets 513 423 482 399
25% fall in equity markets (513) (423) (482) (399)
15% rise in property values 1,299 1,084 1,111 903
15% fall in property values (1,368) (1,144) (1,187) (964)
10bps increase in credit default assumptions (765) (651) (856) (692)
10bps decrease in credit default assumptions 754 642 832 672
Non-economic sensitivity
1% increase in annuitant mortality 166 146 209 176
1% decrease in annuitant mortality (170) (150) (218) (183)
5% increase in assurance mortality (451) (357) (450) (356)
10% increase in maintenance expenses (254) (208) (254) (205)
1. Followingimprovementstothemodellingofmarketrisksensitivitiesduringthecurrentyear,the2020impactsonpre-taxgroupprofitnetofreinsuranceunderinterestratessensitivities
have been restated to be on a basis consistent with the 2021 results. These restatements do not impact any items reported in the Consolidated Income Statement or Consolidated
Balance Sheet.
Thetableaboveshowstheimpactsongrouppre-taxprofitandequity,netofreinsurance,undereachsensitivityscenario.Thegrouppre-taxprofitand
equityimpactsmayarisefromassetand/orliabilitymovementsunderthesensitivities.Thecurrentdisclosurereflectsmanagement’sviewofkeyrisks
in current economic conditions.
In calculating the alternative values, all other assumptions are left unchanged. In practice, items 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,
orless,significantimpactonthevalueoftheliabilities.Theanalysisalsoignoresanysecondordereffectsoftheassumptionchange,includingthe
potential impact on the group asset and liability position and any second order tax effects.
Thesensitivityofprofittochangesinassumptionsmaynotbelinear.Theyshouldnotbeextrapolatedtochangesofamuchlargerorder.
Thechangeininterestratestressassumesa100basispointincreaseanda50basispointdecreaseinthegrossredemptionyieldonfixedinterest
securities together with the same change in the real yields on variable securities. Valuation interest rates are assumed to move in line with market yields,
adjusted to allow for prudence calculated in a manner consistent with the base results.
Theinflationstressadoptedisa0.5%perannum(p.a.)increaseininflation,resultingina0.5%p.a.reductioninrealyieldandnochangetothenominal
yield.Inaddition,theexpenseinflationrateisincreasedby0.5%p.a.
In the sensitivity for credit spreads, corporate bond yields have increased by 100bps, gilt and approved security yields 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 above.
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. Rental income is assumed to be
unchanged. Where property is being used to back liabilities, valuation interest rates 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 their outstanding term using Moody’s global credit default rates.
The credit default stress assumes a +/-10bps stress to the current unapproved credit default assumption, which will have an impact on the valuation
interest rates used to discount liabilities. Other credit default allowances are unchanged. All lifetime mortgages are excluded, as their primary exposure
is to property risk, and therefore captured under the property stress above.
Legal & General Group Plc Annual Report and Accounts 2021178 Financial statements
Balance sheet management continued
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 expense in future years.
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 or changes to insurance liabilities as a result of severe weather events and longer-term shifts
in climate.
Climate change impacts will emerge through risks to which we are already exposed to, with the key existing risk exposures covered by the economic and
non-economic sensitivities shown in this section. In addition, given the uncertain nature of the risks from climate change, and the lack of historical data
tosupportdecisionmaking,aspecificscenariotestingapproachoveralongertermtimehorizonhasbeendevelopedbythegrouptomanagetherisks
from climate change. To understand our exposures and how these risks may emerge we have developed climate scenario modelling capabilities.
Possible climate pathways and their impact are considered in the climate scenario analysis detailed in the 2021 Climate Report (TCFD).
20 Insurance contract liabilities
Insurancecontractsarecontractswhichtransfersignificantinsurancerisktotheinsurerattheinceptionofthecontract.Thisisthecaseif,
andonlyif,aninsuredeventcouldcauseaninsurertomakesignificantadditionalpaymentsinanyscenario,otherthanascenariowhichlacks
commercial substance. Such contracts remain insurance contracts until all rights and obligations are extinguished or expire. Contracts can be
reclassifiedasinsurancecontractsafterinceptionifinsuranceriskbecomessignificant.Anycontractsnotconsideredtobeinsurancecontracts
underIFRSareclassifiedasinvestmentcontracts.
Long-term insurance
Deathclaimsareaccountedforonnotificationofdeath.Surrendersfornon-linkedpoliciesareaccountedforwhenpaymentismade.Criticalillness
claims are accounted for when admitted. All other long-term claims and surrenders are accounted for when payment is due. Claims payable
include the direct costs of settlement.
Thechangeintheinsuranceliabilityreflectsthereductioninliabilitiesasclaimsarepaidthroughouttheyear,offsetbyliabilitiesarisingfromnew
business.Themovementalsoreflectschangesinexpectationsoffutureclaimspaymentsandexpenses,pluschangesinvaluationinterestrates,
as set out in Note 18.
Under current IFRS requirements, insurance contract liabilities are measured using local Generally Accepted Accounting Principles (GAAP), as
permitted by IFRS 4, ‘Insurance Contracts’.
For non-participating insurance contracts, the liabilities are calculated on the basis of current information using the gross premium valuation
method. This brings into account the full premiums receivable under contracts written, having prudent regard to expected lapses and surrenders,
estimatedrenewalandmaintenancecosts,andcontractuallyguaranteedbenefits.Forunitlinkedinsurancecontractliabilitiestheprovisionis
based on the fund value together with an allowance for any excess of future expenses over charges where appropriate.
Reinsurance
The group’s insurance subsidiaries cede insurance premiums and risk in the normal course of business in order to limit the potential for losses
andtoprovidefinancing.Outwardsreinsurancepremiumsareaccountedforinthesameaccountingperiodastherelatedpremiumsforthedirect
or inwards reinsurance business being reinsured. Reinsurance assets include balances due from reinsurers for paid and unpaid losses and loss
adjustmentexpenses,cededunearnedpremiumsandcededfuturelifepolicybenefits.Amountsrecoverablefromreinsurersareestimated
in a manner consistent with the claim liability associated with the reinsured policy. Reinsurance is recorded as an asset in the Consolidated
Balance Sheet unless a right of offset exists, in which case the associated liabilities are reduced commensurately.
Contractswithreinsurersareassessedtodeterminewhethertheycontainsignificantinsurancerisk.Contractsthatdonotgiverisetosignificant
transferofinsurancerisktothereinsurerareconsideredtobefinancialreinsuranceandareaccountedforanddisclosedinamannerconsistent
withfinancialinstruments.
Strategic report Governance Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 179Balance sheet management
20 Insurance contract liabilities continued
(i) Analysis of non-participating insurance contract liabilities
Note
Gross
2021
£m
Reinsurance
2021
£m
Gross
2020
£m
Reinsurance
2020
£m
Non-participating insurance contracts 20(iii) 89,755 (7,138) 88,958 (6,936)
General insurance contracts 70 (42) 71 –
Insurance contract liabilities 89,825 (7,180) 89,029 (6,936)
(ii) Expected non-participating insurance contract liability cash flows
Undiscounted cash flows
Total
£m
As at 31 December 2021
0–5
years
£m
5–15
years
£m
15–25
years
£m
Over 25
years
£m
Non-participating insurance contract liabilities 18,603 35,185 23,439 22,039 99,266
As at 31 December 2020
Undiscountedcashflows
Total
£m
0–5
years
£m
5–15
years
£m
15–25
years
£m
Over 25
years
£m
Non-participating insurance contract liabilities 16,878 32,311 22,259 21,358 92,806
Non-participatinginsurancecontractundiscountedcashflowsarebasedontheexpecteddateofsettlement.
Amountsunderunitlinkedcontractsaregenerallyrepayableondemandandthegroupisresponsibleforensuringthereissufficientliquiditywithinthe
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
thedeferralofredemptionsforpredefinedperiodsincircumstanceswheretherearenotsufficientliquidassetswithinthefundtomeetthelevelof
requested redemptions. Accordingly, unit linked liabilities have been excluded from the table.
(iii) Movement in non-participating insurance contract liabilities
Gross
2021
£m
Reinsurance
2021
£m
Gross
2020
£m
Reinsurance
2020
£m
As at 1 January 88,958 (6,936) 78,715 (5,970)
New liabilities in the year 6,976 (1,296) 9,316 (1,223)
Liabilities discharged in the year (4,744) 390 (4,595) 652
Unwinding of discount rates 1,250 (141) 1,530 (102)
Effect of change in non-economic assumptions (787) 408 (835) 120
Effect of change in economic assumptions (1,971) 519 5,975 (492)
Foreign exchange adjustments (35) (12) (231) 51
Modelling and methodology changes 37 6 (49) 8
Other 71 (76) (31) (3)
Disposals – – (837) 23
As at 31 December 89,755 (7,138) 88,958 (6,936)
Expected to be settled within 12 months (net of reinsurance) 1,838 1,339
Expected to be settled after 12 months (net of reinsurance) 80,779 80,683
Legal & General Group Plc Annual Report and Accounts 2021180 Financial statements
Balance sheet management continued
21 Investment contract liabilities
Non-participating investment contract liabilities are measured at fair value. 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. For non-linked liabilities, fair value is
basedonadiscountedcashflowanalysiswhichincorporatesanappropriateallowanceforcreditdefaultrisk.
Deposits collected and claims are not included in the income statement but are added or deducted from investment contract liabilities.
(i) Analysis of non-participating investment contract liabilities
Gross
2021
£m
Reinsurance
2021
£m
Gross
2020
£m
Reinsurance
2020
£m
Non-participating investment contract liabilities 372,954 – 343,543 (3)
Expected to be settled within 12 months (net of reinsurance) 45,483 44,878
Expected to be settled after 12 months (net of reinsurance) 327,471 298,662
Amountsunderunitlinkedcontractsaregenerallyrepayableondemandandthegroupisresponsibleforensuringthereissufficientliquiditywithinthe
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
thedeferralofredemptionsforpredefinedperiodsincircumstanceswheretherearenotsufficientliquidassetswithinthefundtomeetthelevelof
requested redemptions.
Thepresentedfairvaluesofthenon-participatinginvestmentcontractliabilitiesreflectquotedpricesinactivemarketsandtheyhavebeenclassifiedas
Level 1 in the fair value hierarchy.
(ii) Movement in non-participating investment contract liabilities
Gross
2021
£m
Reinsurance
2021
£m
Gross
2020
£m
Reinsurance
2020
£m
As at 1 January 343,543 (3) 343,845 (149)
Reserves in respect of new business 55,434 – 43,407 (1)
Amounts paid on surrenders and maturities during the year (60,132) 3 (53,407) 4
Investmentreturnandrelatedbenefits¹ 34,206 – 30,579 (3)
Management charges (97) – (180) –
Disposals² – – (20,701) 146
Total as at 31 December 372,954 – 343,543 (3)
1. Investmentreturnandrelatedbenefitsisdisclosedonatotalbasisincludingdiscontinuedoperations.IntheConsolidatedIncomeStatement,theinvestmentreturnfordiscontinued
operationsisincludedwithin‘Profitaftertaxfromdiscontinuedoperations’.
2. Fullyear2020relatestotheMatureSavingsprofitondisposal,thesaleofwhichcompletedon7September2020.
Strategic report Governance Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 181Balance sheet management
22 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
rate method.
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
onspecificassets/cashflowsareincludedasnon-recourseborrowings.
(i) Analysis by type
Borrowings
excluding
unit linked
borrowings
2021
£m
Unit linked
borrowings
2021
£m
Total
2021
£m
Borrowings
excluding
unit linked
borrowings
2020
£m
Unit linked
borrowings
2020
£m
Total
2020
£m
Core borrowings 4,256 – 4,256 4,558 – 4,558
Operational borrowings 924 8 932 1,045 10 1,055
Total borrowings 5,180 8 5,188 5,603 10 5,613
£229m of interest expense was incurred during the year (2020: £233m) on borrowings excluding non-recourse and unit linked borrowings. The total
financecostsincurredintheyearwere£294m(2020:£305m),whichalsoincludes£10moffinancecostsonleaseliabilities(2020:£11m).
(ii) Analysis by nature
(a) Core borrowings
Carrying
amount
2021
£m
Coupon
rate
2021
%
Fair
value
2021
£m
Carrying
amount
2020
£m
Coupon
rate
2020
%
Fair
value
2020
£m
Subordinated borrowings
10%Sterlingsubordinatednotes2041(Tier2)¹ – – – 313 10.00 329
5.5% Sterling subordinated notes 2064 (Tier 2) 590 5.50 776 589 5.50 813
5.375% Sterling subordinated notes 2045 (Tier 2) 604 5.38 673 604 5.38 714
5.25% US Dollar subordinated notes 2047 (Tier 2) 635 5.25 694 628 5.25 703
5.55% US Dollar subordinated notes 2052 (Tier 2) 373 5.55 428 369 5.55 411
5.125% Sterling subordinated notes 2048 (Tier 2) 400 5.13 461 400 5.13 484
3.75% Sterling subordinated notes 2049 (Tier 2) 598 3.75 632 598 3.75 662
4.5% Sterling subordinated notes 2050 (Tier 2) 500 4.50 558 499 4.50 587
Client fund holdings of group debt (Tier 2)
2
(44) – (51) (42) – (51)
Total subordinated borrowings 3,656 – 4,171 3,958 – 4,652
Senior borrowings
Sterlingmedium-termnotes2031–2041 609 5.87 846 609 5.88 926
Client fund holdings of group debt
2
(9) – (11) (9) – (12)
Total senior borrowings 600 – 835 600 – 914
Total core borrowings 4,256 – 5,006 4,558 – 5,566
1. These notes were redeemed in full on 23 July 2021.
2. £53m(31December2020:£51m)ofthegroup’ssubordinatedandseniorborrowingsareheldbyLegal&Generalcustomersthroughunitlinkedproducts.Theseborrowingsareshown
as a deduction from total core borrowings in the table above.
Thepresentedfairvaluesofthegroup’scoreborrowingsreflectquotedpricesinactivemarketsandtheyhavebeenclassifiedasLevel1inthefair
value hierarchy.
Legal & General Group Plc Annual Report and Accounts 2021182 Financial statements
Balance sheet management continued
Subordinated borrowings
10% Sterling subordinated notes 2041
In2009,Legal&GeneralGroupPlcissued£300mof10%datedsubordinatednotes.Thesenoteswerecalledatparon23July2021.
5.5% Sterling subordinated notes 2064
In2014,Legal&GeneralGroupPlcissued£600mof5.5%datedsubordinatednotes.Thenotesarecallableatparon27June2044andeveryfiveyears
thereafter.Ifnotcalled,thecouponfrom27June2044willberesettotheprevailingfiveyearbenchmarkgiltyieldplus3.17%p.a.Thesenotesmature
on 27 June 2064.
5.375% Sterling subordinated notes 2045
In2015,Legal&GeneralGroupPlcissued£600mof5.375%datedsubordinatednotes.Thenotesarecallableatparon27October2025andeveryfive
yearsthereafter.Ifnotcalled,thecouponfrom27October2025willberesettotheprevailingfiveyearbenchmarkgiltyieldplus4.58%p.a.Thesenotes
mature on 27 October 2045.
5.25% US Dollar subordinated notes 2047
On21March2017,Legal&GeneralGroupPlcissued$850mof5.25%datedsubordinatednotes.Thenotesarecallableatparon21March2027
andeveryfiveyearsthereafter.Ifnotcalled,thecouponfrom21March2027willberesettotheprevailingUSDollarmid-swaprateplus3.687%p.a.
These notes mature on 21 March 2047.
5.55% US Dollar subordinated notes 2052
On24April2017,Legal&GeneralGroupPlcissued$500mof5.55%datedsubordinatednotes.Thenotesarecallableatparon24April2032andevery
fiveyearsthereafter.Ifnotcalled,thecouponfrom24April2032willberesettotheprevailingUSDollarmid-swaprateplus4.19%p.a.Thesenotes
mature on 24 April 2052.
5.125% Sterling subordinated notes 2048
On14November2018,Legal&GeneralGroupPlcissued£400mof5.125%datedsubordinatednotes.Thenotesarecallableatparon14November2028
andeveryfiveyearsthereafter.Ifnotcalled,thecouponfrom14November2028willberesettotheprevailingfiveyearbenchmarkgiltyieldplus4.65%p.a.
These notes mature on 14 November 2048.
3.75% Sterling subordinated notes 2049
On26November2019,Legal&GeneralGroupPlcissued£600mof3.75%datedsubordinatednotes.Thenotesarecallableatparon26November2029
andeveryfiveyearsthereafter.Ifnotcalled,thecouponfrom26November2029willberesettotheprevailingfiveyearbenchmarkgiltyieldplus4.05%p.a.
These notes mature on 26 November 2049.
4.5% Sterling subordinated notes 2050
On1May2020,Legal&GeneralGroupPlcissued£500mof4.5%datedsubordinatednotes.Thenotesarecallableatparon1November2030and
everyfiveyearsthereafter.Ifnotcalled,thecouponfrom1November2030willberesettotheprevailingfiveyearbenchmarkgiltyieldplus5.25%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
Between2000and2002Legal&GeneralFinancePlcissued£600mofseniorunsecuredSterlingmediumtermnotes2031-2041atcouponsbetween
5.75% and 5.875%. These notes have various maturity dates between 2031 and 2041.
Strategic report Governance Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 183Balance sheet management
22 Borrowings continued
(ii) Analysis by nature continued
(b) Operational borrowings
Carrying
amount
2021
£m
Interest
rate
2021
%
Fair
value
2021
£m
Carrying
amount
2020
£m
Interest
rate
2020
%
Fair
value
2020
£m
Short-term operational borrowings
Euro Commercial Paper 50 0.16 50 50 0.78 50
Bank loans and overdrafts – – – 54 – 54
Non-recourse borrowings
Cardiff Interchange Limited 45 2.29 45 – – –
Later Living portfolio – – – 72 2.77 72
CALA revolving credit facility 100 1.96 100 170 2.95 170
Class B Surplus Notes 664 1.72 664 639 2.45 639
Affordable Homes revolving credit facility 56 2.08 56 60 2.13 60
Homes Modular revolving credit facility 9 3.27 9 – – –
Operational borrowings
1
924 – 924 1,045 – 1,045
1 Unit linked borrowings with a carrying value of £8m (31 December 2020: £10m) are excluded from the analysis above as the risk is retained by policyholders. Operational borrowings
including unit linked borrowings are £932m (31 December 2020: £1,055m).
Non-recourse borrowings
• Cardiff Interchange Limited entered into a debt facility agreement with National Westminster Bank Plc. The facility is secured on the assets of Cardiff
Interchange Limited and LGCIL’s shares in, and intercompany debt owed by, Cardiff Interchange Limited.
• Loan facilities to Later Living portfolio had a charge on all assets of each individual SPV company.
• CALAGroup(Holdings)Limited’srevolvingcreditfacilityissecuredbywayofabondandfloatingcharge,andguaranteesandfixedchargesgranted
by CALA Group Limited and its main subsidiaries (CALA 1999 Limited, CALA Limited, and CALA Management Limited). A number of other bonds and
floatingcharges,fixedsecurities,debenturesandsharepledgesoverlandandassetshavebeengrantedbycertainsubsidiariesofCALAGroup
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.Thenoteswereissuedinexchangeforbondsofthesamevaluefromanunrelatedparty,includedwithinfinancialinvestmentsonthe
group’s Consolidated Balance Sheet.
• The revolving credit facility to Affordable Homes is subject to agreed covenants, the breach of which could result in a charge on the land and work
inprogressofLegal&GeneralAffordableHomes(Development2)Limited.
• Legal&GeneralHomesModularLimited’srevolvingcreditfacilityissecuredbywayoffixedchargesoverdevelopmentpropertiesownedbythe
companyandafixedchargeoverthesharesinthecompany.Therearealsofixedandfloatingchargesovertheotherassetsofthecompany.
Thecarryingvalueofoperationalborrowingsapproximatestheirfairvalue.Thepresentedfairvaluesreflectobservablemarketinformationandhave
beenclassifiedasLevel2inthefairvaluehierarchywiththeexceptionofAffordableHomesrevolvingcreditfacilitieswhichhavebeenclassifiedas
Level 3.
Legal & General Group Plc Annual Report and Accounts 2021184 Financial statements
Balance sheet management continued
(iii) Analysis by maturity
As at 31 December 2021
Carrying
amount
£m
Maturity profile of undiscounted cash flows
Within
1 year
£m
1–5
years
£m
5–15
years
£m
15–25
years
£m
Over
25 years
£m
Total
£m
Subordinated borrowings
5.5% Sterling subordinated notes 2064 (Tier 2) 590 – – – – (600) (600)
5.375% Sterling subordinated notes 2045 (Tier 2) 604 (6) – – (600) – (606)
5.25% US Dollar subordinated notes 2047 (Tier 2) 635 (9) – – – (628) (637)
5.55% US Dollar subordinated notes 2052 (Tier 2) 373 (4) – – – (370) (374)
5.125% Sterling subordinated notes 2048 (Tier 2) 400 (3) – – – (400) (403)
3.75% Sterling subordinated notes 2049 (Tier 2) 598 (2) – – – (600) (602)
4.5% Sterling subordinated notes 2050 (Tier 2) 500 (4) – – – (500) (504)
Senior borrowings
Sterlingmedium-termnotes2031–2041 609 (11) – (590) (10) – (611)
Client fund holdings of group debt (53) – – – – – –
Total core borrowings 4,256 (39) – (590) (610) (3,098) (4,337)
Short-term operational borrowings
Euro Commercial Paper 50 (50) – – – – (50)
Non-recourse borrowings
Cardiff Interchange Limited 45 – (45) – – – (45)
CALA revolving credit facility 100 (6) (94) – – – (100)
Class B Surplus Notes 664 – – (468) (198) – (666)
Affordable Homes revolving credit facility 56 (56) – – – – (56)
Homes Modular revolving credit facility 9 – (9) – – – (9)
Total operational borrowings 924 (112) (148) (468) (198) – (926)
Total borrowings excluding unit linked borrowings
1
5,180 (151) (148) (1,058) (808) (3,098) (5,263)
Contractual undiscounted interest payments (202) (924) (2,132) (1,840) (889) (5,987)
Total contractual undiscounted cash flows (353) (1,072) (3,190) (2,648) (3,987) (11,250)
1. Unit linked borrowings are excluded from the analysis above as the risk is retained by policyholders.
Strategic report Governance Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 185Balance sheet management
22 Borrowings continued
(iii) Analysis by maturity continued
As at 31 December 2020
Carrying
amount
£m
Maturityprofileofundiscountedcashflows
Within
1 year
£m
1–5
years
£m
5–15
years
£m
15–25
years
£m
Over
25 years
£m
Total
£m
Subordinated borrowings
10% Sterling subordinated notes 2041 (Tier 2) 313 (13) – – (300) – (313)
5.5% Sterling subordinated notes 2064 (Tier 2) 589 – – – – (600) (600)
5.375% Sterling subordinated notes 2045 (Tier 2) 604 (6) – – (600) – (606)
5.25% US Dollar subordinated notes 2047 (Tier 2) 628 (9) – – – (622) (631)
5.55% US Dollar subordinated notes 2052 (Tier 2) 369 (4) – – – (366) (370)
5.125% Sterling subordinated notes 2048 (Tier 2) 400 (3) – – – (400) (403)
3.75% Sterling subordinated notes 2049 (Tier 2) 598 (2) – – – (600) (602)
4.5% Sterling subordinated notes 2050 (Tier 2) 499 (4) – – – (500) (504)
Senior borrowings
Sterling medium-term notes 2031-2041 609 (11) – (590) (10) – (611)
Client fund holdings of group debt (51) – – – – – –
Total core borrowings 4,558 (52) – (590) (910) (3,088) (4,640)
Short-term operational borrowings
Euro Commercial Paper 50 (50) – – – – (50)
Bank loans and overdrafts 54 (54) – – – – (54)
Non-recourse borrowings
Later Living portfolio 72 (72) – – – – (72)
CALA revolving credit facility 170 (91) (80) – – – (171)
Class B Surplus Notes 639 (26) (91) (186) (338) – (641)
Affordable Homes revolving credit facility 60 (1) (60) – – – (61)
Total operational borrowings 1,045 (294) (231) (186) (338) – (1,049)
Total borrowings excluding unit linked borrowings
1
5,603 (346) (231) (776) (1,248) (3,088) (5,689)
Contractual undiscounted interest payments (223) (1,414) (2,489) (1,981) (885) (6,992)
Totalcontractualundiscountedcashflows (569) (1,645) (3,265) (3,229) (3,973) (12,681)
1. Unit linked borrowings are excluded from the analysis above as the risk is retained by policyholders.
Thematurityprofileaboveiscalculatedonthebasisthatafacilitytorefinanceamaturingloanisnotrecognisedunlessthefacilityandloanarerelated.
Ifrefinancingunderthegroup’screditfacilitieswasrecognised,thenallamountsshownasrepayablewithinoneyearwouldbereclassifiedasrepayable
betweenoneandfiveyears.
Undiscounted interest payments are estimated based on the year end applicable interest rate and spot exchange rates.
Syndicated Credit Facility
As at 31 December 2021, the group had in place a £1bn syndicated committed revolving credit facility provided by a number of its key relationship banks,
maturing in December 2024. No amounts were outstanding at 31 December 2021.
Legal & General Group Plc Annual Report and Accounts 2021186 Financial statements
Balance sheet management continued
(iv) Movement in borrowings
2021
£m
2020
£m
As at 1 January 5,613 5,140
Cash movements:
–Proceedsfromborrowings 503 1,022
–Repaymentofborrowings (798) (501)
–Net(decrease)/increaseinbankloansandoverdrafts (54) 64
Non-cash movements:
–Amortisation 3 2
–Foreignexchangeratemovements 10 (56)
–Other (89) (58)
Core and operational borrowings as at 31 December 5,188 5,613
23 Provisions
Provisionsarerecognisedwhenthegrouphasapresentlegalorconstructiveobligationasaresultofpastevents,itisprobablethatanoutflowof
resourcesembodyingeconomicbenefitswillberequiredtosettletheobligationandareliableestimateoftheamountoftheobligationcanbemade.
Where the group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate
assetbutonlywhenthereimbursementisvirtuallycertain.Thegrouprecognisesaprovisionforonerouscontractswhentheexpectedbenefits
to be derived from a contract are less than the unavoidable costs of meeting the obligations under the contract.
ThegroupoperatesanumberofdefinedbenefitanddefinedcontributionpensionschemesintheUKandoverseas.TheassetsofallUKdefined
benefitschemesareheldinseparatetrusteeadministeredfundswhicharesubjecttoregularactuarialvaluationseverythreeyears,updatedby
formal reviews at reporting dates. The actuarial assumptions used in the triennial valuation would normally be consistent or more prudent than
thoseusedforthepurposesofIAS19,‘EmployeeBenefits’reporting.
TheliabilityrecognisedintheConsolidatedBalanceSheetinrespectofthedefinedbenefitpensionschemesisthepresentvalueofthedefinedbenefit
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
excludetheinsurancecontractsissuedbythegroup.Thedefinedbenefitobligationiscalculatedactuariallyeachyearusingtheprojectedunit
method.Thepresentvalueofthedefinedbenefitobligationisdeterminedbydiscountingtheestimatedfuturecashoutflows.Thediscountrate
isbasedonmarketyieldsofhighqualitycorporatebondswhicharedenominatedinthecurrencyinwhichthebenefitswillbepaid,andthathave
terms to maturity which approximate to those of the related pension liability.
Thegrouppayscontractualcontributionsinrespectofdefinedcontributionschemes.Thegrouphasnofurtherpaymentobligationsoncethe
contributionshavebeenpaid.Thecontributionsarerecognisedasemployeebenefitexpenseswhentheyaredue.Prepaidcontributionsare
recognised as an asset to the extent that a cash refund or a reduction in future payments is available.
(i) Analysis of provisions
2021
£m
2020
£m
Other provisions 213 123
Retirementbenefitobligations 1,025 1,165
Provisions 1,238 1,288
(ii) Other provisions
IncludedwithinOtherprovisionsareamountsrelatingtonewandexistingM&Aandrestructuringtransactions.In2021,thegroupannouncedthatLegal
&GeneralInvestmentManagement(LGIM)isextendingitsexistingpartnershipwithStateStreet,toincreasetheuseofCharlesRivertechnologyacross
thefrontofficeandtodelivermiddleofficeservicesgoingforward.
As a result of this announcement, in line with the requirements of IAS 37, ‘Provisions, Contingent Liabilities and Contingent Assets’, a provision was
recognised,whichreflectsthecoststhatLGIMiscommittedtoincurinordertoimplementthenewarrangement.Thesecostsincludethetransfer
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 2021, the outstanding provision was £89m.
Strategic report Governance Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 187Balance sheet management
23 Provisions continued
(iii) Retirement benefit obligations
Defined contribution schemes
ThegroupoperatesthefollowingprincipaldefinedcontributionpensionschemesintheUKandoverseas:
• Legal&GeneralGroupPersonalPensionPlan(UK);
• Legal&GeneralStaffStakeholderPensionScheme(UK);
• Legal&GeneralAmericaInc.SavingsPlan(US);and
• CALAdefinedcontributionpensionscheme.
Contributionsof£82m(2020:£75m)weremadeduringtheyearinrespectofdefinedcontributionschemes.
Defined benefit schemes
ThegroupoperatesthefollowingdefinedbenefitpensionschemesintheUKandoverseas:
• Legal&GeneralGroupUKPensionandAssuranceFund(theFund).TheFundwasclosedtonewmembersfromJanuary1995;thelatesttriennial
valuation at 31 December 2018 was completed on 1 July 2020. The triennial valuation at 31 December 2021 is in progress;
• Legal&GeneralGroupUKSeniorPensionScheme(theScheme).TheSchemewas,withafewexceptions(principallytransfersfromtheFund),
closedtonewmembersfromAugust2000andfinallyclosedtonewmembersfromApril2007;thelatesttriennialvaluationat31December2018
was completed on 1 July 2020. The triennial valuation at 31 December 2021 is in progress;
• Legal&GeneralAmericaInc.CashBalancePlan(US);thelastfullactuarialvaluationwasasat31December2021;and
• CALARetirementandDeathBenefitsScheme(UK).Thisschemeclosedtonewmembersfrom31December2007andclosedtofutureaccrual
on 31 December 2018; the last triennial actuarial valuation was as at 6 April 2018. The triennial valuation at 6 April 2021 is in progress.
TheUKdefinedbenefitschemesoperatewithintheUKpensions’regulatoryframework.
CertainofthefollowingdisclosureshaveonlybeenpresentedinrelationtotheFundandScheme,astheyrepresentthemostsignificantdefinedbenefit
scheme obligations.
The UK Fund and Scheme were closed to future accrual on 31 December 2015. As part of this arrangement, payments to the Fund and Scheme in respect
offutureaccrualsceasedfromthisdateandwerereplacedwithacompanycontributionpaymentofbetween5%and15%intoadefinedcontribution
arrangement.Inaddition,aspartoftheclosure,thecompanywillcontributeanadditional£3mperannumuntil31December2024towardsthedeficit.
TheassetsofallUKdefinedbenefitschemesareheldinseparatetrusteeadministeredfundstomeetlong-termpensionobligationstopastandpresent
employees.Trusteesareappointedtotheschemesandhavearesponsibilitytoactinthebestinterestoftheschemebeneficiaries.Thetrustees’
long-termobjectivesaretominimisetheriskthatthereareinsufficientassetstomeettheliabilitiesoftheschemeoverthelongerterm,controlthe
on-goingoperationalcostsoftheschemesandtomaximiseinvestmentreturnsforthebeneficiarieswithinanacceptablelevelofrisk.
The total number of members of the Fund and Scheme was:
2021 2020
Employed deferreds 79 93
Deferreds 2,782 2,960
Pensioners 3,791 3,723
Total 6,652 6,776
The group works closely with the trustees to develop an investment strategy for each UK scheme in order to meet the long-term objectives of the
trustees as noted above.
Certain parts of the liabilities of the Fund and Scheme are secured by way of annuities purchased from the group. These annuities are not recognised
as an asset for IAS 19 purposes, but at 31 December 2021 the value of these annuities, on an IAS 19 basis, was £990m (2020: £1,051m).
The remainder of the liabilities of the Fund and Scheme are secured by cash or by the way of Assured Payment Policies (APPs), purchased from the
grouptomatchthemajorityoffutureexpectedcashflowsoftheremainingmembersoftheFundandScheme.TheAPPsarerecognisedasanasset
for IAS 19 purposes, and their value is included in the table summarising the plan assets. The APPs aim to match the changes in the value of the liabilities
duetochangesineconomicfactors,namelyinterestrates,creditspreadsandinflation.TheAPPsdonotaimtomatchchangesinthevalueofliabilities
due to the actual mortality experience of members being different from the assumptions made in the valuation basis.
The Fund and Scheme expose the group to a number of risks:
Risk Detail
Uncertainty in
benefitpayments
Thevalueofthegroup’sliabilitiesforpost-retirementbenefitswillultimatelydependontheamountofbenefitspaidout.Thisinturnwillprimarilydepend
onthelevelofinflationandhowlongindividualslive.
Volatility in
asset values
ThegroupisexposedtofuturemovementsinthevaluesofassetsheldintheFundandSchemetomeetfuturebenefitpayments.
Uncertainty in
cash funding
Movements in the values of the obligations or assets may result in the group being required to provide higher levels of cash funding, although changes
in the level of cash required can often be spread over a number of years. In addition, the group is also exposed to adverse changes in pension regulation.
Legal & General Group Plc Annual Report and Accounts 2021188 Financial statements
Balance sheet management continued
These risks are managed within the risk appetite of the Fund and Scheme. The sensitivity of the net obligations to changes in any of the variables are
monitored and action is taken if any risk moves outside of the appetite.
Full actuarial valuations are carried out for the Fund and Scheme every three years, updated by formal reviews at each anniversary date between. The actuarial
assumptions used in the triennial valuation would normally be more prudent than those used for the purposes of IAS 19 reporting. The latest triennial
valuation at 31 December 2018 was completed on 1 July 2020, and the 31 December 2021 triennial valuation is underway. Where the Fund or Scheme
areindeficitfollowingthetriennialvaluations,thegroupandthetrusteeagreeadeficitrecoveryplan.BoththeFundandSchemehaveformaldeficit
recoveryplanswhichaimtoeliminatethedeficitsoveracertainperiodoftime.Thetriennialvaluationat31December2018showedatotalfunding
deficitforboththeFundandSchemeof£541m.Asaresultofthis,arecoveryplanwasagreedof£77mperannumfrom1January2019to30June2020,
£98m per annum from 1 July 2020 to 31 December 2024 and a one-off catch-up payment of £33m by 31 July 2020.
The Fund and Scheme liabilities have an average duration of 17.8 years (2020: 19.0 years) and 16.9 years (2020: 18.4 years) respectively. The expected
undiscountedbenefitspaymentstomembersoftheFundandScheme,includingpensionsinpaymentsecuredbyannuitiespurchasedfromthegroup,
are shown in the unaudited chart below:
Annuity payments
Pensioner cash flows
Employed deferred and deferred member cash flows
Undiscounted benefit payments
120
100
80
60
40
20
0
Projected benefit payments (£m)
2022 2032 2042 2052 2062 2072 2082
Thebenefitspaidfromthedefinedbenefitschemesarebasedonpercentagesoftheemployees’finalpensionablesalaryforeachyearofcreditedservice.
Thegrouphasnoliabilityforretirementbenefitsotherthanforpensions.TheFundandSchemeaccountforalloftheUKandover90%ofworldwide
assetsofthegroup’sdefinedbenefitschemes.
TheprincipalactuarialassumptionsfortheFundandSchemearesetoutbelow.In2021,thecalculationofIAS19definedbenefitobligationswasperformed
within the group, having previously been performed by an external consultancy. The methodology underlying the assumption setting has remained
unchanged,butforinflationandmortalityimprovements,assumptionshavebeensetconsistentlywithassumptionsusedinthecalculationofother
insuranceliabilitieswithinthegroup.Theoverallimpactofthischangetoassumptionsisasmallincreaseindefinedbenefitobligation.
The higher mortality experience observed in 2021 as a result of Covid-19 is considered to be exceptional, and long-term mortality assumptions have not
beenrevisedtoreflectthisexperience.
Fund and
Scheme
2021
%
Fund and
Scheme
2020
%
Rate used to discount liabilities 1.84 1.25
Rate of increase in pensions in payment (pre-2006 service) 3.79 3.59
Rate of increase in deferred pensions (pre-2006 service) 3.97 3.63
Rateofgeneralinflation(RPI) 3.49 2.97
Strategic report Governance
Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 189Balance sheet management
23 Provisions continued
(iii) Retirement benefit obligations continued
Defined contribution schemes continued
Post retirement mortality 2021 2020
Fund 72.5% PCMA00/82.5% PCFA00 75% PCMA00/85% PCFA00
Scheme 67.5% PCMA00/ 77.5% PCFA00 70% PCMA00/80% PCFA00
Mortality Improvements (Fund and Scheme)
1, 2
CMI 2019, base date 2018
Sk = 7.5
CMI 2018, base date 2015
Sk = 7.5
1. Long-term rates of 1.5% for males, 1.0% for females, applying up to age 85, with tapering down to 0% by age 110 (2020: long-term rates of 1.5% males and 1.0% females to age 90, tapering
to nil by age 120).
2. In 2020, an approximation of the full longevity basis was used as the calculation of liabilities was outsourced. The full basis has been used in 2021.
This equates to average life expectancy as follows:
Fund and
Scheme
2021
1
years
Fund and
Scheme
2020
years
Normal retirement age 60.0 60.0
Male life expectancy at retirement age 87.2 87.5
Female life expectancy at retirement age 88.4 88.8
Male life expectancy at age 60, for a current 40-year old 89.3 89.6
Female life expectancy at age 60, for a current 40-year old 89.8 90.1
1. Differences between 2020 and 2021 life expectancies arise from the approximation in the 2020 longevity basis due to the outsourced liability calculation.
Fund and
Scheme
2021
£m
CALA Homes
and Overseas
2021
£m
Fund and
Scheme
2020
£m
CALA Homes
and Overseas
2020
£m
Movement in present value of defined benefit obligations
As at 1 January (2,615) (153) (2,375) (135)
Current service cost (2) (4) (2) (3)
Interest expense (32) (3) (48) (4)
Actuarial remeasurement (recognised in Consolidated Statement of Comprehensive Income)
–Changeinfinancialassumptions 194 11 (350) (17)
–Changeindemographicassumptions (19) – 24 –
–Experience 23 (1) 8 (2)
Benefitspaid 103 6 128 6
Exchange differences – (1) – 2
As at 31 December (2,348) (145) (2,615) (153)
Movement in fair value of plan assets
As at 1 January 1,477 126 1,292 111
Expected return on plan assets at liability discount rate 18 2 27 2
Actuarial remeasurement (recognised in Consolidated Statement of Comprehensive Income) (165) 10 159 10
Employer contributions 101 8 127 10
Benefitspaid (103) (6) (128) (6)
Exchange differences – – – (1)
As at 31 December 1,328 140 1,477 126
Gross pension obligations included in provisions (1,020) (5) (1,138) (27)
Annuity obligations insured by LGAS 990 – 1,051 –
Grossdefinedbenefitpensiondeficit (30) (5) (87) (27)
Deferredtaxondefinedbenefitpensiondeficit 8 1 17 5
Netdefinedbenefitpensiondeficit (22) (4) (70) (22)
During 2021 annuities were purchased from the group. A premium of £82m (2020: £50m) was paid from the assets of the Fund and the Scheme to purchase
these annuities. These annuities are not recognised as an asset for IAS 19 purposes and so the actuarial remeasurement recognised in the Consolidated
Statement of Comprehensive Income includes allowance for this premium payment as well as annuity receipts over 2021 of £53m (2020: £53m).
Legal & General Group Plc Annual Report and Accounts 2021190 Financial statements
Balance sheet management continued
The effect of assuming reasonable alternative assumptions in isolation is shown below for the Fund and Scheme combined. The effect is shown on the
definedbenefitobligation,netofannuitiesandtheAPPassets.Sensitivitiesarebroadlysymmetrical,butlargersensitivitiesarenotnecessarily
proportionate.In2021,alargeAPPassetwaspurchasedbytheFund,significantlyreducingthesensitivityofthedefinedbenefitobligationto
movementsindiscountratesandinflation.
2021
£m
2020
£m
1 year increase in life expectancy (76) (92)
0.1% p.a. decrease in discount rate (6) (27)
0.1% p.a. increase in RPI and CPI (3) (14)
The fair value of the plan assets at the end of the year is made up as follows:
As at 31 December 2021
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
Equities – 37 – –
Bonds – 12 – –
Investment funds – 59 – –
Properties – 16 – –
AssuredPaymentPolicy¹ – – 1,214 –
Cash and cash equivalents 114 16 – –
Fair value of plan assets 114 140 1,214 –
As at 31 December 2020
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
Equities 22 27 – –
Bonds – 12 – –
Investment funds 1,029 72 – –
Properties – 3 – –
Assured Payment Policy
2
– – 396 –
Cash and cash equivalents 30 12 – –
Fair value of plan assets 1,081 126 396 –
1. During the year, the Fund completed an APP transaction with Legal and General Assurance Society Limited (LGAS), a group company, resulting in a premium paid by the Fund of £925m.
Theplanassetrecognisedistransferableandthereforehasnotbeeneliminatedonconsolidationwithinthegroup’sfinancialstatements.
2. In 2020, the Scheme completed an APP transaction with LGAS, a group company, resulting in a premium paid by the Scheme of £397m. The plan asset recognised is transferable and
thereforehasnotbeeneliminatedonconsolidationwithinthegroup’sfinancialstatements.
The bond assets are all AAA rated as at 31 December 2021 (31 December 2020: AAA rated).
Employer contributions of £109m (2020: £137m) have been made during 2021. Employer contributions of £110m are expected to be paid to the plan
during 2022.
The following amounts have been charged to the income statement:
Fund and
Scheme
2021
£m
CALA Homes
and Overseas
2021
£m
Fund and
Scheme
2020
£m
CALA Homes
and Overseas
2020
£m
Current service costs 2 4 2 3
Net interest expense 14 1 21 2
Total amounts included in other expenses 16 5 23 5
Strategic report Governance
Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 191Balance sheet management
24 Payables and other financial liabilities
Derivativeliabilitiesandrepurchaseagreementsaremeasuredatfairvalue,withchangesinfairvaluerecognisedinprofitorloss.
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.
Repurchaseagreementsarevaluedbasedonthediscountedcashflowsexpectedtobepaid,usinganobservablemarketinterestrate,inlinewith
the value of the underlying security.
Collateralrepayableonshortpositionreverserepurchaseagreementsandotherfinancialliabilitiesbalances,includingFXspots,brokerandother
payables, are measured at amortised cost. The carrying value of these liabilities approximates their fair value.
Trail commission represents a liability for the present value of future commission costs on distribution agreements with intermediaries, recognised in
thebalancesheetoninceptionofthecontract.Ateachsubsequentreportingdatetheliabilityisremeasured,withchangesreflectedinprofitorloss.
2021
£m
2020
£m
Derivative liabilities 15,718 23,208
Repurchase agreements
1
46,331 53,853
Otherfinancialliabilities
2
12,215 14,881
Total payables and other financial liabilities 74,264 91,942
Due within 12 months 53,250 65,316
Due after 12 months 21,014 26,626
1. Repurchaseagreementsarepresentedgross,howevertheyandtheirrelatedassets(includedwithindebtsecurities)aresubjecttomasternettingarrangements.Thesignificantmajority
of repurchase agreements are unit linked.
2. Otherfinancialliabilitiesincludestrailcommission,leaseliabilities,FXspotsandthevalueofshortpositionstakenouttocoverreverserepurchaseagreements.Thevalueofshort
positions as at 31 December 2021 was £5,418m (2020: £5,147m).
Fair value hierarchy
As at 31 December 2021
Total
£m
Level 1
£m
Level 2
£m
Level 3
£m
Amortised
cost¹
£m
Derivative liabilities 15,718 331 15,316 71 –
Repurchase agreements 46,331 – 46,331 – –
Otherfinancialliabilities 12,215 5,438 55 – 6,722
Total payables and other financial liabilities 74,264 5,769 61,702 71 6,722
As at 31 December 2020
Total
£m
Level 1
£m
Level 2
£m
Level 3
£m
Amortised
cost¹
£m
Derivative liabilities 23,208 300 22,826 82 –
Repurchase agreements 53,853 – 53,853 – –
Otherfinancialliabilities
2
14,881 7,4 38 29 11 7,4 03
Totalpayablesandotherfinancialliabilities 91,942 7,73 8 76,708 93 7,4 03
1. Thecarryingvalueofpayablesandotherfinancialliabilitiesatamortisedcostapproximatesitsfairvalue.
2. For2020,£2,216mofOtherfinancialliabilitieshavebeenreclassifiedfromAmortisedcosttoLevel1intheFairvaluehierarchy,suchthattheyareconsistentwiththeirtreatmentinthe
current year.
Significant transfers between levels
TherehavebeennosignificanttransfersofliabilitiesbetweenLevels1,2and3fortheyearended31December2021(2020:nosignificanttransfers).
Legal & General Group Plc Annual Report and Accounts 2021192 Financial statements
Balance sheet management continued
25 Leases
Thegroupleasesoffices,vehicles,ITequipmentandinvestmentpropertiesundernon-cancellableoperatingleaseagreements.Thegrouphas
elected to make use of the recognition exemptions as permitted by the standard 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.
Asalessee,thegrouprecognisesleasesonthebalancesheetas‘right-of-use’assetsandleaseliabilities.Theright-of-useassetsareeitherclassified
as property, plant and equipment or investment property.
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
investmentpropertyunderIAS40,‘InvestmentProperty’.Thegroupalsoassessesright-of-useassetsclassifiedasproperty,plantandequipment
for impairment when such indicators exist.
Theinitialmeasurementoftheleaseliabilitiesismadeupofthepresentvalueofleasepaymentstobemadeovertheleaseterm,includingfixed
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.
Extensionandterminationoptionsareincludedinvariousleasesacrossthegroup.Thesearegenerallyusedtomaximiseoperationalflexibilityin
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.
The table below describes the nature of the group’s leasing activities by type of right-of-use asset recognised on balance sheet within property, plant
and equipment:
1
Carrying amount
Office
buildings
2021
£m
IT
2021
£m
Vehicles
2021
£m
Total
2021
£m
Office
buildings
2020
£m
IT
2020
£m
Vehicles
2020
£m
Total
2020
£m
As at 1 January 167 35 3 205 189 46 3 238
Additions 14 – – 14 7 1 1 9
Depreciation for the period (23) (13) (2) (38) (27) (12) (1) (40)
Disposals (1) – – (1) – – – –
Decrease due to currency translation – – – – (2) – – (2)
As at 31 December 157 22 1 180 167 35 3 205
1. Excludes investment property right-of-use assets, which are presented as part of the Investment property disclosure in Note 10.
Thematurityprofileofleaseliabilitiesispresentedinthetablebelow.LeaseliabilitiesareincludedwithinPayablesandotherfinancialliabilities(SeeNote24)
1
.
As at 31 December
Undiscounted
lease
payments
2021
£m
Unpaid
finance
charge
2021
£m
Present
value
2021
£m
Undiscounted
lease
payments
2020
£m
Unpaid
finance
charge
2020
£m
Present
value
2020
£m
Within 1 year 44 (9) 35 44 (10) 34
1–2years 35 (7) 28 43 (8) 35
2–3years 33 (6) 27 34 (7) 27
3–4years 27 (5) 22 31 (6) 25
4–5years 26 (4) 22 26 (5) 21
After 5 years 181 (106) 75 203 (110) 93
Total lease liabilities 346 (137) 209 381 (146) 235
1. Includes investment property lease liability.
Strategic report Governance Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 193Balance sheet management
25 Leases continued
Interestexpenseof£10m(2020:£11m)onleaseliabilitiesisincludedinfinancecosts.
The remaining terms on the group’s leases range from 1 to 236 years (2020: 1 to 237 years), with approximately 29% of the leases (2020: 36%) having
extension options and 72% of these leases (2020: 70%) having termination options. Extension and termination options are included in various leases
acrossthegroupandareusedtomaximiseoperationalflexibilityintermsofmanagingtheassetsusedinthegroup’soperations.Themajorityof
extension and termination options held are exercisable only by the group and not by the respective lessor.
At 31 December 2021 the group had committed to no additional leases which had not yet commenced (2020: committed to no additional leases).
Income from sub-leasing right-of-use assets is presented within Investment return (see Note 29).
26 Management of capital resources
Solvency II
TheSolvencyIIfinancialinformationinthisnoteisestimatedandunaudited.
The group calculates its Solvency II capital requirements using a Partial Internal Model. The vast 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
assessedusingtheStandardFormulabasisonmaterialitygrounds.Thegroup’sUSinsurancebusinessesandLegal&GeneralReinsuranceCompany
No.2(L&GRe2–anewsubsidiaryincorporatedin2021)arevaluedonalocalstatutorybasis,followingthePRA’sapprovaltousetheDeductionand
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) (recalculated as at 31 December 2021). The TMTP incorporates
impacts of 31 December 2021 economic conditions and changes during 2021 to the Internal Model and Matching Adjustment. This is in line with the
group’s management of the capital position on a dynamic TMTP basis.
Inpreviousyears,thecapitalpositionwasshownona“shareholderview”,wherethecontributionfromthefinalsalarypensionschemeswasexcluded
from the group position. The impact of excluding the contribution is now less than 1% and so the results below, which are on a proforma basis, include
theimpactofthefinalsalarypensionschemes.The2020resultshavebeenadjustedtobeconsistentwith2021.
The group is required to measure and monitor its capital resources on a regulatory basis and to comply with the minimum capital requirements of
regulatorsineachterritoryinwhichitoperates.Atagrouplevel,Legal&GeneralhastocomplywiththerequirementsestablishedbytheSolvencyII
Framework Directive, as adopted by the PRA.
As at 31 December 2021, and on the above basis, the group had a surplus of £8,185m (31 December 2020: £7,436m) over its Solvency Capital
Requirement, corresponding to a Solvency II capital coverage ratio of 187% (31 December 2020: 175%). The Solvency II capital position is as follows:
2021
£m
2020
1
£m
Unrestricted Tier 1 Own Funds 13,254 12,478
Restricted Tier 1 Own Funds
2
495 495
Tier 2 Subordinated liabilities
3
3,995 4,531
Eligibility restrictions (183) (188)
Solvency II Own Funds
4, 5
17,561 17,316
Solvency Capital Requirement (9,376) (9,880)
Solvency II surplus 8,185 7, 436
SCR coverage ratio 187% 175%
1. 2020figureshavebeenrestatedtoincludethecontributionfromthefinalsalarypensionschemes,replacingthe“shareholderview”fromprioryears’disclosures.
2. Restricted Tier 1 Own Funds represent restricted Tier 1 contingent convertible notes.
3. £300m of Tier 2 subordinated liabilities were redeemed in full on 23 July 2021.
4. SolvencyIIOwnFundsdonotincludeanaccrualforthefinaldividendof£790m(31December2020:£754m)declaredafterthebalancesheetdate.
5. Solvency II Own Funds allow for a Risk Margin of £5,488m (2020: £6,064m) and TMTP of £4,736m (2020: £5,564m).
Legal & General Group Plc Annual Report and Accounts 2021194 Financial statements
Balance sheet management continued
A reconciliation of the group’s IFRS shareholders’ equity to Solvency II Own Funds is given below:
2021
£m
2020
£m
IFRS equity
1
10,981 9,997
Remove DAC, goodwill and other intangible assets and associated liabilities (406) (391)
Add IFRS carrying value of subordinated borrowings
2
3,700 4,000
Insurance contract valuation differences
3
4,132 4,495
Difference in value of net deferred tax liabilities (716) (638)
Other 53 41
Eligibility restrictions (183) (188)
Solvency II Own Funds
4
17,561 17,316
1. IFRS equity represents equity attributable to owners of the parent and restricted Tier 1 convertible notes as per the Consolidated Balance Sheet.
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. SolvencyIIOwnFundsdonotincludeanaccrualforthefinaldividendof£790m(31December2020:£754m)declaredafterthebalancesheetdate.
Capital management policies and objectives
Thegroupaimstomanageitscapitalresourcestomaintainfinancialstrength,policyholdersecurityandrelativeexternalratingsadvantage.Thegroup
alsoseekstomaximiseitsfinancialflexibilitybymaintainingstrongliquidityandbyutilisingarangeofalternativesourcesofcapitalincludingequity,
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
ManagementusefinancialinformationpreparedonbothanIFRSandEconomicCapitalbasistomanagecapitalandcashflowusageandtodetermine
dividend paying capacity.
The group maintains a risk-based capital model that is used to calculate the group’s Economic Capital position and 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. Our Economic
Capital model has not been reviewed by the Prudential Regulatory Authority (PRA), nor will it be.
Regulatory bases
Thefinancialstrengthofthegroup’sinsurancesubsidiariesismeasuredundervariouslocalregulatoryrequirements(seebelow).
Basis of regulatory capital and corresponding regulatory capital requirements
Ineachcountryinwhichthegroupoperates,thelocalinsuranceregulatorspecifiesrulesandguidancefortheminimumamountandtypeofcapital
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,stressedfinancialconditions,orbyapplyingfixedpercentagestotheinsurancecompany’sliabilitiesandriskexposures.Therequirements
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&GeneralReinsuranceCompanyNo.2(L&GRe2)arevaluedonalocalstatutorybasis,followingPRAapprovalofthegroup’sapplicationtouse
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
EEAinsurancefirms,includingLegalandGeneralAssuranceSocietyLimited,andLegalandGeneralAssurance(PensionsManagement)Limited
(LGIM’s insurance subsidiary) are required to hold eligible own funds in excess of their Solvency Capital Requirement, calculated on an Internal Model
basis.Thesefirms,aswellasthenon-EEAinsurancefirm(Legal&GeneralReinsuranceCompanyLimited(LGRe)basedinBermuda)contributeover
93% 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,takingintoaccountitssizeandriskprofile.Thecalculationisbasedonapplyingfactorstovariousasset,premium,claims,expenseand
reserve items, with higher factors used for those items with greater underlying risk and lower factors for less risky items.
Strategic report Governance Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 195Balance sheet management
26 Management of capital resources continued
Solvency II continued
Bermudan regulatory basis
Bermudanregulatedinsurersarerequiredtoholdsufficientcapitaltomeet120%oftheBermudanSolvencyCapitalRequirement(BSCR).TheBSCR
modelfollowsastandardformulaframework;capitalattributedtoeachriskiscalculatedbyapplyingspecifiedstressestotheassetsandliabilities.
The individual risk elements (excluding operational risk) are combined using a covariance matrix and then added to an operational risk charge.
27 Disposals
During 2021, the group made the following disposals, the impacts of which are recognised in other operational income in the Consolidated
Income Statement:
• On3August2021,thegroupenteredintoa15yearjointventurearrangementwithNatWestGroupPensionTrusteeLimited(NWPTL),thedefined
benefitpensionschemeofNatWestGroup,inordertoinvestupto£500mofequityintolaterlivingcommunitieswhichwillbedevelopedandoperated
by Inspired Villages Group, a group subsidiary. As part of the transaction, the group sold a 50% stake in the entities which own the portfolio of property
sites to NWPTL for £127m, and its interest in such entities reduced from 100% to 50%. This resulted in a change of control for a number of
subsidiaries, which have been deconsolidated and are now equity accounted. The group has recognised a pre-tax gain on disposal, net of transaction
costs, of £23m, which includes £13m related to the portion of the gain attributable to remeasuring the remaining interests to fair value as at the date
of the transaction.
• On 2 November 2021, the group completed the disposal of its 10% stake in Current Health Limited to Best Buy for £30m, which resulted in a pre-tax
gain on disposal, net of transaction costs, of £21m.
• On 3 November 2021, the group completed the disposal of its 50% stake in Peel Holdings (Media) Limited (MediaCity) to LandSec for £141m, which
resulted in a pre-tax gain on disposal, net of transaction costs, of £7m.
Legal & General Group Plc Annual Report and Accounts 2021196 Financial statements
Balance sheet management continued
28 Segmental analysis
Thegroupprovidesasegmentalanalysistoenhancetheunderstandingofthefinancialstatements.
Under the requirements of IFRS 8, ‘Operating segments’, operating and reportable segments are presented in a manner consistent with the internal
reportingprovidedtothechiefoperatingdecisionmaker,whichhasbeenidentifiedastheBoardofLegal&GeneralGroupPlc.
In2021,thegroupoperatedfivecorebusinessesacrossfourreportablesegmentsthatarecontinuingoperations,withLegal&GeneralRetirementRetail
(LGRR)andLegal&GeneralRetirementInstitutional(LGRI)combinedintoasinglesegmentforreportingpurposes,beingLegal&GeneralRetirement.
From 1 January 2022, the group has announced changes to the business unit responsibilities within the Executive Committee. Andrew Kail will become
theChiefExecutiveOfficerofLGRI,succeedingLauraMasonwhohaspreviouslymovedtobecomeCEOofLegal&GeneralCapital(LGC).Ourtworetail
businesses, LGRR and LGI, will come together under the leadership of Bernie Hickman. As noted on page 14 of the strategic report, this will enable the
creation of a single interface for the group’s UK retail customers.
Asaresultofthesechanges,from1January2022thegroupwillalignitsreportablesegmentstothefivecorebusinesses,comprisingLGRI,LGRR,LGI,
LGIM, and LGC. Group central expenses and debt costs will continue to be reported separately.
In 2021, management of the Workplace Savings business has transferred from LGIM to LGRR, where it complements their retirement solutions offering
andretailcustomerfocus.Thechangeinreportingstructurehasnoimpactontheprofitorloss,ornetassets,ofthegroup.Toenablecomparison,
segmental information for prior year has been restated accordingly.
In 2020, continuing operations exclude the results of the Mature Savings business, the sale of which was completed on 7 September 2020.
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.
(i) Profit/(loss) for the year
For the year ended 31 December 2021
LGR
1
£m
LGIM
1
£m
LGC
£m
LGI
£m
Group
expenses and
debt costs
2
£m
Total
continuing
operations
£m
Adjusted operating profit/(loss) 1,506 422 461 268 (395) 2,262
Investment and other variances 242 (11) 19 111 (128) 233
Losses attributable to non-controlling interests – – – – (7) (7)
Profit/(loss) before tax attributable to equity holders 1,748 411 480 379 (530) 2,488
Tax (expense)/credit attributable to equity holders (276) (79) (93) (59) 62 (445)
Profit/(loss) for the year 1,472 332 387 320 (468) 2,043
For the year ended 31 December 2020
LGR
1
£m
LGIM
1
£m
LGC
£m
LGI
£m
Group
expenses and
debt costs
2
£m
Total
continuing
operations
£m
Adjustedoperatingprofit/(loss) 1,728 407 275 189 (415) 2,184
Investment and other variances 15 1 (299) (459) 24 (718)
Losses attributable to non-controlling interests – – – – (36) (36)
Profit/(loss)beforetaxattributabletoequityholders 1,743 408 (24) (270) (427) 1,430
Tax (expense)/credit attributable to equity holders (228) (65) (8) 58 94 (149)
Profit/(loss)fortheyear 1,515 343 (32) (212) (333) 1,281
1. LGRincludestheWorkplaceSavingsbusinesswhichwaspreviouslyreportedinLGIM.Prioryearcomparativeshavebeenrestatedtoreflectthechangeinreportingstructure.
2. Group expenses and debt costs include £nil of incremental costs incurred as a result of Covid-19 (2020: £27m).
Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 197
Additional financial information
Additionalfinancialinformation
28 Segmental analysis continued
(ii) Revenue
Revenue comprises of the following:
Net premiums earned
Revenue from insurance and investment contracts has been described in section (e) of this Note.
Investment return
Investment return has been described in Note 29 of this report.
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.
Revenuegeneratedoninvestmentcontractsisrecognisedasservicesareprovided.Nosignificantjudgementsareappliedonthetimingor
transaction price. In the instances of performance fees where revenue is subject to meeting a certain performance threshold, such revenue is not
recogniseduntiltheconditionhasbeenmet,anditishighlyprobablethatnosignificantreversalofamountswouldoccur.Variablecostsdirectly
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.
House building*
House building revenue arises from the sale of residential properties and land, and is recognised net of discounts and sales incentives. Sales of
private houses are recognised on legal completion. Following the implementation of IFRS 15, ‘Revenue from Contracts with Customers’, the sale
proceeds of part exchange properties are also included in revenue. 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.
Warrantiesareprovidedonallpropertiesandrangefrom2–10years.Duetotheirfeatures,thesedonotrepresentseparateperformanceobligations.
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
basedonanagreement/contractandcouldbeTieredbasedonvolume.Theobligationinsuchinstancesissatisfiedoncompletionofthe
mortgage/service,atwhichpointtherevenueisrecognised.Thereisnosignificantjudgementappliedonthetimingoramountoffeerecognised.
Insurance broker*
Fees are charged on each performance obligation offered to the customer as per agreed structure. Revenue for placement services is recognised
atthepointintimewhentheintermediaryhassatisfieditsperformanceobligation,thatiswhenthetermsoftheinsurancepolicyhavebeen
agreedcontractuallybytheinsurerandpolicyholder,andtheinsurerhasapresentrighttopaymentfromthepolicyholder.Nosignificant
judgements are applied on the timing or transaction price.
*Contractsareeitherexpectedtolastoneyearorless,orreflecttherighttoconsiderationfromacustomerinanamountthatcorrespondsdirectlywiththevalueoftheperformance
completedtodate.AspermittedunderIFRS15,thetransactionpriceallocatedtoanyunsatisfiedcontractsisnotdisclosed.
Legal & General Group Plc Annual Report and Accounts 2021198 Financial statements
Additional financial information continued
(a) Total revenue
Note
2021
£m
2020
£m
Total income 45,450 50,231
Adjusted for:
Shareof(profit)/lossfromassociatesandjointventures,netoftax 43 (25) 28
Gains on disposal of subsidiaries, associates and joint ventures, and other operations
1
(149) –
Total revenue from continuing operations 45,276 50,259
1. For further information on the gains on disposal refer to Note 2 (iv) and Note 27.
(b) Total income
For the year ended 31 December 2021
LGR
£m
LGIM
1,2
£m
LGI
£m
LGC and
other
3
£m
Total
continuing
operations
£m
Internal income – 179 – (179) –
External income 5,959 35,738 2,029 1,724 45,450
Total income 5,959 35,917 2,029 1,545 45,450
For the year ended 31 December 2020
LGR
£m
LGIM
1,2
£m
LGI
£m
LGC and
other
3
£m
Total
continuing
operations
£m
Internal income – 201 – (201) –
External income 15,057 20,878 1,799 12,497 50,231
Total income 15,057 21,079 1,799 12,296 50,231
1. LGIM internal income relates to investment management services provided to other segments.
2. LGIM external income primarily includes fees from fund management and investment returns on unit linked funds.
3. LGC and other includes LGC income, intra-segmental eliminations and group consolidation adjustments.
(c) Fees from fund management and investment contracts
For the year ended 31 December 2021
LGR
1
£m
LGIM
1
£m
LGI
£m
LGC and
other
2
£m
Total
continuing
operations
£m
Investment contracts 97 – – – 97
Investment management fees – 1,009 – (179) 830
Transaction fees – 32 – – 32
Total fees from fund management and investment contracts
3
97 1,041 – (179) 959
For the year ended 31 December 2020
LGR
1
£m
LGIM
1
£m
LGI
£m
LGC and
other
2
£m
Total
continuing
operations
£m
Investment contracts 79 – 1 – 80
Investment management fees – 954 – (188) 766
Transaction fees – 27 – – 27
Total fees from fund management and investment contracts
3
79 981 1 (188) 873
1. LGRincludestheWorkplaceSavingsbusinesswhichwaspreviouslyreportedinLGIM.Prioryearcomparativeshavebeenrestatedtoreflectthechangeinsegmentation.
2. LGC and other includes LGC income, intra-segmental eliminations and group consolidation adjustments.
3. Fees from fund management and investment contracts are a component of Total revenue from continuing operations disclosed in Note 28 (ii)(a).
Strategic report Governance Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 199Additionalfinancialinformation
28 Segmental analysis continued
(ii) Revenue continued
(d) Other operational income from contracts with customers
For the year ended 31 December 2021
LGR
£m
LGI
£m
LGC and
other
£m
Total
continuing
operations
£m
House building – – 1,314 1,314
Professional services fees 5 89 – 94
Insurance broker – 11 – 11
Total other operational income from contracts with customers¹ 5 100 1,314 1,419
For the year ended 31 December 2020
LGR
£m
LGI
£m
LGC and
other
£m
Total
continuing
operations
£m
House building – – 748 748
Professional services fees 1 83 – 84
Insurance broker – 16 – 16
Total other operational income from contracts with customers
1
1 99 748 848
1. TotalotheroperationalincomefromcontractswithcustomersisacomponentofTotalrevenuefromcontinuingoperationsdisclosedinNote28(ii)(a)andexcludestheshareofprofit/loss
from associates and joint ventures, and the gain on disposal of subsidiaries, associates and joint ventures.
(e) Gross written premiums on insurance contracts
Gross written premium represents the total premiums written by the group before deductions for reinsurance.
Long-term insurance premiums are recognised as revenue when due for payment. General insurance premiums are accounted for in the period
inwhichtheriskcommences.Estimatesareincludedforpremiumsnotnotifiedbytheyearendandprovisionismadefortheanticipatedlapseof
renewalsnotyetconfirmed.Thoseproportionsofpremiumswritteninayearwhichrelatetoperiodsofriskextendingbeyondtheendoftheyear
are carried forward as unearned premiums.
Premiums received relating to investment contracts are not recognised as income, but are included in the balance sheet investment contract liability.
Outward reinsurance premiums from continuing operations are accounted for in the same accounting period as the related premiums for the
direct or inwards reinsurance business being reinsured.
For the year ended 31 December 2021
LGR
£m
LGI
1
£m
Total
continuing
operations
£m
Gross written premiums 7,36 4 3,011 10,375
For the year ended 31 December 2020
LGR
£m
LGI
1
£m
Total
continuing
operations
£m
Gross written premiums 9,582 2,963 12,545
1. Includes £109m (2020: £114m) of gross written premiums relating to a residual reinsurance treaty following the disposal of the General Insurance business in 2019.
Legal & General Group Plc Annual Report and Accounts 2021200 Financial statements
Additional financial information continued
29 Investment return
Investment return includes fair value gains and losses, excluding fair value movements attributable to available-for-sale (AFS) investments, dividends,
rentandinterest.Dividendsareaccruedonanex-dividendbasis.Interestandrentareincludedonanaccrualsbasis.Interestincomeforfinancial
assetswhicharenotclassifiedasfairvaluethroughprofitorloss(FVTPL)isrecognisedusingtheeffectiveinterestmethod.
Thegroupearnsaninvestmentreturnfromholdingsinfinancialinstrumentsandpropertyinvestments,heldtoeitherbackinsuranceandinvestment
contracts on behalf of policyholders or deliver returns on group capital.
2021
£m
2020
£m
Dividend income 4,437 4,098
Interestincomeonfinancialinvestmentsatfairvaluethroughprofitorloss 4,837 5,172
Other investment income
1
219 110
Gainsonfinancialinvestmentsdesignatedatfairvaluethroughprofitorloss 25,066 28,545
(Losses)/gains on derivative instruments designated as held for trading (30) 42
Realised(losses)/gainsonfinancialassetsdesignatedasavailable-for-sale (1) 16
Financial investment return 34,528 37,9 8 3
Rental income 375 387
Net fair value gains/(losses) on properties 1,024 (79)
Property investment return 1,399 308
Total investment return 35,927 38,291
Investment return from discontinued operations – 877
Investment return from continuing operations 35,927 39,168
1. Otherinvestmentincomecomprisesinterest,gainsandlossesfromloans,receivablesandotherfinancialinstrumentsincludingthoseheldatamortisedcost.£11m(2020:£13m)ofOther
investmentincomeisfromfinancialinvestmentsdesignatedasavailable-for-sale.Therewasnoimpairmentonassetsclassifiedasavailable-for-saleduringtheyear.
Strategic report Governance Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 201Additionalfinancialinformation
30 Tax
The tax shown in the Consolidated Income Statement and Consolidated Statement of Comprehensive Income comprises current and deferred tax.
Current tax
Currenttaxcomprisestaxpayableoncurrentyearprofits,adjustedfornon-taxdeductibleornon-taxableitems,andanyadjustmentstotax
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.
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
recognisedinrespectofunusedtaxlossestotheextentitisprobablethatfuturetaxableprofitswillariseagainstwhichthelossescanbeutilised.
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.
Thishasbeensplitbetweentaxattributabletopolicyholders’returnsandequityholders’profits.Policyholdertaxcomprisesthetaxsufferedon
policyholderinvestmentreturns,whileequityholdertaxiscorporationtaxchargedonequityholderprofit.Theseparatepresentationisintended
toprovidemorerelevantinformationaboutthetaxthatthegrouppaysontheprofitsthatitmakes.
Use of estimates
Tax balances include the use of estimates and assumptions which affect items reported in the Consolidated Balance Sheet and Consolidated
Income Statement. 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.
Theassessmentofuncertaintaxpositionsissubjectiveandsignificantmanagementjudgementisrequired.Thisjudgementisbasedon
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
inthenextfinancialyearwouldnothaveamaterialimpacttotheresultsofthegroup.
Tax rates
The table below provides a summary of the standard corporate income tax rates of the main territories we operate in.
2021 2020
UK 19.0% 19.0%
USA 21.0% 21.0%
Bermuda 0.0% 0.0%
Ireland 12.5% 12.5%
Legal & General Group Plc Annual Report and Accounts 2021202 Financial statements
Additional financial information continued
(i) Tax expense in the Consolidated Income Statement
2021
£m
2020
£m
Current tax 531 333
Deferred tax
–Originationorreversaloftemporarydifferencesintheyear (24) (163)
–Impactofrevaluationofdeferredtaxbalances 58 16
Total deferred tax 34 (147)
Adjustment to equity holders’ tax in respect of prior years 24 (42)
Total tax expense
1
589 144
Less: tax attributable to policyholder returns
–Continuingoperations (144) (69)
–Discontinuedoperations – 142
(144) 73
Total tax charge attributable to equity holders 445 217
Less: tax from discontinued operations attributable to equity holders – (68)
Tax from continuing operations attributable to equity holders 445 149
1. In 2021, the total tax expense of £589m is attributable to continuing operations (2020: £218m tax expense attributable to continuing operations and £74m tax credit attributable
to discontinued operations).
ThetaxexpenseattributabletoequityholdersdiffersfromthetaxcalculatedonprofitbeforetaxatthestandardUKcorporationtaxrateasfollows:
Total
2021
£m
Continuing
operations
2020
£m
Total
2020
£m
Profitbeforetaxattributabletoequityholders 2,488 1,430 1,788
Tax calculated at 19.00% 473 272 340
Adjusted for the effects of:
Recurring reconciling items:
(Lower)/higherrateofprofitstaxedoverseas¹ (104) (111) (111)
Income not subject to tax – (1) (1)
Non-deductible expenses 6 11 11
Differences between taxable and accounting investment gains (13) (10) (10)
Foreign tax – 1 1
Unrecognised tax losses 1 14 14
Non-recurring reconciling items:
Adjustments in respect of prior years² 24 (42) (42)
Impact of the revaluation of deferred tax balances³ 58 16 16
Other – (1) (1)
Tax expense/(credit) attributable to equity holders 445 149 217
Equity holders’ effective tax rate 17.9% 10.4% 12.1%
1. Thelowerrateoftaxonoverseasprofitsisprincipallydrivenbythe0%rateoftaxationarisinginourBermudanreinsurancecompany,whichprovidesthegroupwithregulatorycapital
flexibilityforbothourPRTbusinessandourUSterminsurancebusiness.ThisalsoincludestheimpactofourUSoperationswhicharetaxedat21%.
2. Adjustments in respect of prior years relate to revisions of prior estimates.
3. 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 remained at 19%. The future 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.
TheUKstandardrateofcorporationtaxisusedintheabovereconciliationasasignificantproportionofthegroup’sprofitsareearnedandaretaxable
in the UK, which is also the main domicile for the group.
Strategic report Governance Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 203Additionalfinancialinformation
30 Tax continued
(ii) 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
assetsinrespectoftemporarydifferencesandtaxlossesaresupportedbymanagement’sbestestimateoffuturetaxableprofitstoabsorbthelosses
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:
Net tax
liability as at
1 January
2021¹
£m
Tax
(charged)/
credited to
the income
statement
£m
Tax
(charged)/
credited
to OCI
or equity
£m
Acquisitions/
disposals
£m
Net tax
liability as at
31 December
2021
£m
Deferred acquisition expenses 85 10 – – 95
–Overseas 85 10 – – 95
Difference between the tax and accounting value of insurance contracts (557) (135) (3) – (695)
–UK (207) (58) (4) – (269)
–Overseas (350) (77) 1 – (426)
Realised and unrealised gains on investments
4
(113) 23 – 7 (83)
Excess of depreciation over capital allowances 18 5 – (1) 22
Excess expenses 1 (1) – – –
Accounting provisions and other
4
54 1 – – 55
Trading losses
1
289 60 – (1) 348
Pensionfunddeficit 22 (6) (7) – 9
Acquired intangibles (1) 1 – – –
Total net deferred tax liabilities (202) (42) (10) 5 (249)
Less: net deferred tax liabilities transferred on disposal
2
– 5 – (5) –
Net deferred tax liabilities (202) (37) (10) – (249)
Presented on the Consolidated Balance Sheet as:
–Deferredtaxassets
3
5 (3) – – 2
–UKdeferredtaxliabilities (168) (36) (11) – (215)
–Overseasnetdeferredtaxliabilities (39) 2 1 – (36)
1. Trading losses include deferred tax on UK trade and US operating losses of £2m (2020: £5m) and £346m (2020: £284m) respectively. Overseas net deferred tax liabilities include a deferred
tax asset of £346m (2020: £284m) on accumulated losses in our US insurance business. These 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,temporarydifferencesthatareexpectedtogeneratefutureprofitsagainstwhichthedeferredtaxcanbeoffset,managementactions,andfutureprofitforecasts.Therecoverability
of deferred tax assets is routinely reviewed by management.
2. Deferred tax assets and liabilities transferred on disposal relate to the deconsolidation of a number of subsidiaries following the Inspired Villages Group joint venture agreement with
Natwest Group Pension Trustee Limited in August 2021 (see Note 27 for further details).
3. The deferred tax asset recognised separately in the consolidated balance sheet refers to deferred tax assets against which there are no appropriate deferred tax liabilities to offset the asset.
Theclosingamountof£2m(2020:£5m)arerestrictedlosseswhichcannotbeoffsetagainstprofitsarisingelsewhereinthegroup.
4. TheUSdeferredtaxliabilityof£102minrespectofUSbondcontractshasbeenreclassifiedfromAccountingprovisionsandothertoRealisedandunrealisedgainsoninvestments.Thenet
impact on the total balance is £nil.
Legal & General Group Plc Annual Report and Accounts 2021204 Financial statements
Additional financial information continued
Net tax
liability as at
1 January
2020
£m
Tax
(charged)/
credited to
the income
statement
£m
Tax
(charged)/
credited
to OCI
or equity
£m
Acquisitions/
disposals
£m
Net tax
liability as at
31 December
2020
£m
Deferred acquisition expenses 35 50 – – 85
–UK (40) 40 – – –
–Overseas 75 10 – – 85
Difference between the tax and accounting value of insurance contracts (524) (34) 1 – (557)
–UK (198) (12) 3 – (207)
–Overseas (326) (22) (2) – (350)
Realised and unrealised gains on investments
4
(224) 84 – 27 (113)
Excess of depreciation over capital allowances 15 3 – – 18
Excess expenses 20 (9) – (10) 1
Accounting provisions and other
4
(4) 58 – – 54
Trading losses
1
217 72 – – 289
Pensionfunddeficit 28 (54) 48 – 22
Acquired intangibles (2) 1 – – (1)
Total net deferred tax liabilities (439) 171 49 17 (202)
Less:netdeferredtaxliabilitiesofoperationsclassifiedasheldforsale² 182 (165) – (17) –
Net deferred tax liabilities (257) 6 49 – (202)
Presented on the Consolidated Balance Sheet as:
–Deferredtaxassets 8 (3) – – 5
–UKdeferredtaxliabilities (189) (30) 51 – (168)
–Overseasdeferredtaxliabilities
3
(76) 39 (2) – (39)
1. TradinglossesreflectdeferredtaxonUKtradeandUSoperatinglossesof£5m(2019:£4m)and£284m(2019:£213m)respectively.
2. LiabilitiesofoperationsclassifiedasheldforsalerelatetotheMatureSavingsbusiness,thesaleofwhichcompletedon7September2020.
3. Overseas deferred tax liability is wholly comprised of US balances as at 31 December 2020.
4. TheUSdeferredtaxliabilityof£40minrespectofUSbondcontractshasbeenreclassifiedfromAccountingprovisionsandothertoRealisedandunrealisedgainsoninvestments.Thenet
impact on the total balance is £nil.
Unrecognised deferred tax assets
The group has the following unrelieved tax losses and deductible temporary differences carried forward as at 31 December 2021. No deferred tax asset
hasbeenrecognisedinrespectoftheseasat31December2021(or31December2020),asitisnotprobablethattherewillbesuitabletaxableprofits
emerginginfutureperiodsagainstwhichtorelievethem.Thesetaxassetswillonlyberecognisedifitbecomesprobablethatsuitabletaxableprofitswill
arise in future periods.
Gross
2021
£m
Tax
2021
£m
Gross
2020
£m
Tax
2020
£m
Trading losses
1
172 36 190 31
Capital losses 74 19 70 13
Excess management expense 9 2 60 12
Unrelieved interest payments on debt instruments 14 4 14 3
Unrecognised deferred tax assets² 269 61 334 59
1. Trading losses includes £14m (2020: £13m) related to the US business which are expected to expire between 2026 and 2032.
2. Unrecognised deferred tax assets include UK balances of £39m (2020: £39m) and trade losses arising overseas of £22m (2020: £20m).
Strategic report Governance Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 205Additionalfinancialinformation
30 Tax continued
(iii) Current tax – Consolidated Balance Sheet
2021
£m
2020
£m
Tax recoverable within 12 months 46 363
Tax recoverable after 12 months 624 271
Current tax assets 670 634
2021
£m
2020
£m
Tax due within 12 months 4 –
Tax due after 12 months 80 61
Current tax liabilities 84 61
1. Of the total current tax asset of £670m, £619m (2020: £572m) relates to amount recoverable in respect of withholding tax reclaims attributable to funds.
(iv) Tax charged directly in equity
Note
2021
£m
2020
£m
Current tax 4 (2)
Deferred tax 30(ii) (3) (11)
Tax charge/(credit) recognised directly in equity 1 (13)
31 Auditors’ remuneration
2021
£m
2020
£m
Remunerationreceivablebythecompany’sauditorsfortheauditoftheconsolidatedandcompanyfinancialstatements 1.5 1.4
Remuneration receivable by the company’s auditors and its associates for the supply of other services to the company and its associates,
includingremunerationfortheauditofthefinancialstatementsofthecompany’ssubsidiaries:
The audit of the company’s subsidiaries 7.8 8.7
Auditrelatedassuranceservices–requiredbynationalorEUlegislation 1.3 1.4
Auditrelatedassuranceservices–other 1.2 0.6
Other assurance services 0.1 0.6
Total remuneration 11.9 12.7
32 Employee information
2021 2020
Monthly average number of staff employed during the year:
UK 9,705 9,083
USA 927 874
Europe 43 33
Other 66 56
Worldwide employees 10,741 10,046
Note
2021
£m
2020
£m
Wages and salaries 789 732
Social security costs 89 82
Share-based incentive awards 33 33 43
Definedbenefitpensioncosts
1
23 21 28
Definedcontributionpensioncosts 23 82 75
Total employee related expenses 1,014 960
1. Definedbenefitpensioncosts,includedwithinTotalotherexpenses,representthesumofcurrentservicecostandnetinterestexpense,andnotthecontributionspaidtothedefinedbenefit
schemes,aspreviouslydisclosed.For2020,theamountshavebeenupdatedtoreflecttheappropriatecostsandtobeonabasisconsistentwith2021.Thereisnoimpactonthe
Consolidated Income Statement or Consolidated Balance Sheet.
Legal & General Group Plc Annual Report and Accounts 2021206 Financial statements
Additional financial information continued
33 Share-based payments
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.
(i) Description of plans
The group provides a number of equity settled share-based long-term incentive plans for directors and eligible employees.
TheSavingsRelatedShareOptionPlan(ShareSave)allowsemployeestoenterintoaregularsavingscontractoverthreeand/orfiveyears,coupledwith
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.
Fair value is calculated using the Black-Scholes model.
Nil Cost Options can be granted to senior managers under the Performance Share Plan (PSP), based upon individual and company performance.
Pre the 2014 award, the number of performance shares transferred to the individual at the end of the three year vesting period was dependent on the
group’s relative Total Shareholder Return (TSR). New performance conditions attached to awards from 2014 result in the number of options that vest
being equally dependent on the group’s relative TSR and Earnings per Share (EPS)/Dividend per Share (DPS) growth. In addition, the awards vest after
theendofthethreeyearperformanceperiodandbecomeexercisableinthirdsoverthree,fourandfiveyears.Furtherchangesweremadetothe
performance conditions for awards granted in 2018. The number of options that vest in respect of these awards 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
becomeexercisableinthirdsinyearthree,fourandfive.AwardsgrantedtoExecutiveDirectorsandPersonsDeliveringManagerialResponsibilitiesvest
afterthreeyearsbutanyoptionsthatvestwillnotbecomeexercisableuntilyearfive.
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-paid options. Recipients of restricted shares are entitled to both vote and receive dividends. Fair value is calculated as
themarketvalueonthegrantdate,adjustedtoreflecttheeligibilityfordividendpayments.ConditionalShareawards,whichincludeawardstoExecutive
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
purchaseduptothefirst£20oftheemployees’contributionsandonefreematchingshareforeverytwosharespurchasedwithcontributionsbetween
£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 options and awards granted during the year, estimated by using Monte Carlo simulations were 61.9p and 197.3p for
the SAYE options and PSP awards respectively.
The fair values of the share awards made during the year have been calculated using the following assumptions:
SAYE PSP
Award date 09 April 2021 13 April 2021
Weighted average share price (pence) 296.4 294.2
Weighted average exercise price (pence) 230.0 n/a
Expected volatility 38% 44%
Expected life 3 – 5 years 3 – 5 years
Risk free investment rate 0.13 – 0.36% 0.09%
Dividend yield 7.7% 6.0%
Strategic report Governance
Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 207Additionalfinancialinformation
33 Share-based payments continued
(ii) Total recognised expense
The total recognised expense relating to share-based payments in 2021 was £33m (2020: £43m) before tax, all of which related to equity settled share
schemes. This is broken down between the group’s plans as detailed below:
2021
£m
2020
£m
Share Bonus Plan (SBP) 24 27
Performance Share Plan (PSP) 5 13
Employee Share Plan (ESP) 2 2
Savings related share option scheme (SAYE) 2 1
Total share-based payment expense 33 43
(iii) Outstanding share options
SAYE
options
2021
Weighted average
exercise price
2021
p
CSOP
options
2021
Weighted average
exercise price
2021
p
SBP
options
2021
Weighted average
exercise price
2021
p
Outstanding at 1 January 18,232,974 204 3,957,155 246 586,514 –
Granted during the year 6,186,694 230 1,369,409 125 152,723 –
Forfeited during the year (1,265,946) 212 – – – –
Exercised during the year (3,057,038) 202 (1,089,506) 269 (134,231) –
Expired during the year (890,090) 208 (273,302) 255 (36,869) –
Outstanding at 31 December 19,206,594 212 3,963,756 256 568,137 –
Exercisable at 31 December 12,969 194 – – 52,410 –
Weighted average remaining contractual life (years) 3 9 8
SAYE
options
2020
Weighted average
exercise price
2020
p
CSOP
options
2020
Weighted average
exercise price
2020
p
SBP
options
2020
Weighted average
exercise price
2020
p
Outstanding at 1 January 13,316,235 210 3,570,864 267 418,327 –
Granted during the year 11,119,385 199 1,716,010 204 208,276 –
Forfeited during the year (2,835,918) 210 – – – –
Exercised during the year (2,009,106) 203 – – (1,203) –
Expired during the year (1,35 7,622) 210 (1,329,719) 248 (38,886) –
Outstanding at 31 December 18,232,974 204 3,95 7,155 245 586,514 –
Exercisable at 31 December 39,424 221 3,252 118 109,358 –
Weighted average remaining contractual life (years) 3 9 8
Exercised during the year includes 1,202 options, which were predominantly CSOP options linked to SBP which have been settled using employee
scheme shares.
(iv) Total options
Options over 23,738,488 shares (2020: 22,776,643 shares) are outstanding under CSOP, SAYE and SBP as at 31 December 2021. These options have
a range of exercise prices between 0p and 295p (2020: 0 and 287p) and maximum remaining contractual life up to 2031 (2020: 2030).
Legal & General Group Plc Annual Report and Accounts 2021208 Financial statements
Additional financial information continued
34 Share capital, share premium and employee scheme treasury shares
Anequityinstrumentisanycontractwhichevidencesaresidualinterestinthenetassetsofanentity.Itfollowsthatafinancialinstrument
is treated as equity if:
• thereisnocontractualobligationtodelivercashorotherfinancialassetsortoexchangefinancialassetsorliabilitiesonunfavourableterms;and
• the instrument is either a non-derivative which contains no contractual obligation to deliver a variable number of own equity instruments, or is
aderivativewhichwillbesettledonlybythegroupexchangingafixedamountofcash,orotherfinancialassets,forafixednumberofitsown
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.
(i) Share capital and share premium
Authorised share capital
2021
Number
of shares
2021
£m
2020
Number
of shares
2020
£m
At 31 December: ordinary shares of 2.5p each 9,200,000,000 230 9,200,000,000 230
Issued share capital, fully paid
Number
of shares
Share
capital
£m
Share
premium
£m
As at 1 January 2021 5,967,358,713 149 1,006
Options exercised under share option schemes 3,057,104 – 6
As at 31 December 2021 5,970,415,817 149 1,012
Issued share capital, fully paid
Number
of shares
Share
capital
£m
Share
premium
£m
As at 1 January 2020 5,965,349,607 149 1,000
Options exercised under share option schemes 2,009,106 – 6
As at 31 December 2020 5,967,358,713 149 1,006
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
ThegroupusestheEmployees’ShareOwnershipTrust(ESOT)andtheLegal&GeneralGroupEmployeeSharePlan(ESP)topurchaseandholdshares
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.
2021
Number of
shares
2021
£m
2020
Number of
shares
2020
£m
As at 1 January 35,306,671 75 31,190,048 65
Shares purchased 11,862,090 34 10,054,526 23
Shares vested (4,468,703) (10) (5,937,903) (13)
As at 31 December 42,700,058 99 35,306,671 75
Strategic report Governance
Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 209Additionalfinancialinformation
35 Restricted Tier 1 convertible notes
On24June2020,Legal&GeneralGroupPlcissued£500mof5.625%perpetualrestrictedTier1contingentconvertiblenotes.Thenotesarecallableat
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
from24September2031willberesettotheprevailingfiveyearbenchmarkgiltyieldplus5.378%.
Thenoteshavenofixedmaturitydate.Optionalcancellationofcouponpaymentsisatthediscretionoftheissuerandmandatorycancellationisupon
the occurrence of certain conditions. The Tier 1 notes are therefore treated as equity and coupon payments are recognised directly in equity. During the
year coupon payments of £28m were made (2020: £7m). The notes rank junior to all other liabilities and senior to equity attributable to shareholders.
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.
36 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 2021, non-controlling interests primarily represent third party ownership in Thorpe Park Holdings, a mixed residential/commercial
retail space in which the group holds 50%.
Nootherindividualnon-controllinginterestisconsideredtobematerialonthebasisoftheyearendcarryingvalueorshareofprofitorloss.
37 Other liabilities
2021
£m
2020
£m
Accruals 454 410
Deferred income 26 2
Other 445 344
Total other liabilities 925 756
Due within 12 months 887 715
Due after 12 months 38 41
38 Reconciliation of assets under management to Consolidated Balance Sheet
2021
£bn
2020
£bn
Assetsundermanagement¹ 1,421 1,279
Derivativenotionals¹
,
² (383) (340)
Thirdpartyassets¹
,
³ (480) (419)
Other¹
,
4 7 33
Total financial investments, investment property and cash and cash equivalents 565 553
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. Otherincludesassetsthataremanagedbythirdpartiesonbehalfofthegroup,otherassetsandliabilitiesrelatedtofinancialinvestments,derivativeassetsandpooledfunds.
Legal & General Group Plc Annual Report and Accounts 2021210 Financial statements
Additional financial information continued
39 Related party transactions
(i) Key management personnel transactions and compensation
TherewerenomaterialtransactionsbetweenkeymanagementandtheLegal&Generalgroupofcompaniesduringtheperiod.Alltransactionsbetween
the group and its key management are on commercial terms which are no more favourable than those available to employees in general. Contributions
tothepost-employmentdefinedbenefitplanswere£109m(31December2020:£137m)forallemployees.
At31December2021and31December2020therewerenoloansoutstandingtoofficersofthecompany.
The aggregate compensation for key management personnel, including executive and non-executive directors, is as follows:
2021
£m
2020
£m
Salaries 10 8
Share-based incentive awards 5 5
Key management personnel compensation 15 13
(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.
Loans and commitments to related parties are made in the normal course of business.
The group has entered into the following material related party transactions during the year:
• Annuity contracts issued by Legal and General Assurance Society Limited for consideration of £82m (2020: £50m) have been purchased by the
group’sUKdefinedbenefitpensionschemes,pricedonanarm’slengthbasis.
• TheLegal&GeneralGroupUKPensionandAssuranceFund(theFund)completedanAssuredPaymentPolicy(APP)transactionwithLegaland
General Assurance Society Limited (LGAS), a group company. An APP is an investment contract product sold by LGR which, issued to a pension
scheme,providestheschemewithafixedorinflationlinkedscheduleofpaymentstomatchthescheme’sexpectedliabilities.InJune2021,£925m
was paid by the Fund to LGAS, and LGAS and the Fund recognised an investment contract liability and an APP plan asset of the same amount,
respectively.
As at 31 December 2021, LGAS recognised a liability related to this APP transaction with the Fund of £882m which is included in the group’s non-participating
investmentcontractliabilities.Followingasimilartransactionin2020betweentheLegal&GeneralGroupUKSeniorPensionScheme(theScheme)and
LGAS, a further £332m (2020: £396m) is included in the group’s non-participating investment contract liabilities as at 31 December 2021. The Fund and
Scheme hold transferable plan assets of the same amounts which do not eliminate on consolidation.
• Loans outstanding from related parties at 31 December 2021 of £15m (2020: £89m), with a further commitment of £2m.
• The group has total other commitments of £1,158m to related parties (2020: £1,207m), of which £726m has been drawn at 31 December 2021
(2020: £772m).
40 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
ofpolicyholdercontracts,orthecircumstancesinwhichpolicyholdershaveenteredintothem.Theextentoftheseliabilitiesisinfluencedbyanumberof
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,theextentandthetimingofthefinancialimpactoftheseclaims,litigationorissues.
Group companies have given warranties, indemnities and guarantees as a normal part of their business and operating activities or in relation to capital
markettransactionsorcorporatedisposals.Legal&GeneralGroupPlchasprovidedindemnitiesandguaranteesinrespectoftheliabilitiesofgroup
companies in support of their business activities including Pension Protection Fund compliant guarantees in respect of certain group companies’
liabilities under the group pension Fund and Scheme. 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.
Strategic report Governance Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 211Additionalfinancialinformation
41 Commitments
(i) Capital commitments
2021
£m
2020
£m
Authorised and contracted commitments not provided for in respect of investment property development, payable after 31 December:
–Long-termbusiness 680 570
(ii) Lease commitment receivable – payments to be received under operating leases
Under certain lease agreements, the group, as the lessor, is considered to substantially retain all the risks and reward of ownership of the underlying
asset,thereforethesecontractshavebeenclassifiedasoperatingleases.
The future undiscounted minimum lease payments under such arrangements are disclosed below:
Total
future
payments
2021
£m
Total
future
payments
2020
£m
Within 1 year 342 310
1–2years 330 310
2–3years 311 301
3–4years 298 288
4–5years 287 275
After 5 years 3,391 4,124
Total lease commitment receivable 4,959 5,608
Lease commitments payable are disclosed as part of the lease disclosure in Note 25.
42 Subsidiaries
TheCompaniesAct2006requiresdisclosureofinformationaboutthegroup’ssubsidiaries,associates,jointventuresandothersignificant
holdings.Acompletelistofthegroup’ssubsidiaries,associates,jointventuresandsignificantholdingsisprovidedinNotes42and43.
Subsidiaries are those entities (including special purpose entities, mutual funds and unit trusts) over which the group directly or indirectly has the
powertogoverntheoperatingandfinancialpoliciesinordertogaineconomicbenefits.Profitsorlossesofsubsidiaryundertakingssoldoracquired
during the year are included in the consolidated results up to the date of disposal or from the date of gaining control. The interests of parties, other
thanthegroup,ininvestmentvehicles,suchasunittrusts,areclassifiedasliabilitiesandappearas‘Netassetvalueattributabletounitholders’
intheConsolidatedBalanceSheet.Thebasisbywhichsubsidiariesareconsolidatedinthegroupfinancialstatementsisoutlinedinthebasisof
preparation (Note 1).
The particulars of the company’s subsidiaries, mutual funds and partnerships that have been consolidated as at 31 December 2021 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.
TheregisteredofficeofallsubsidiariesinEnglandandWalesisOneColemanStreet,LondonEC2R5AA,UnitedKingdom,andinIrelandisDillonEustace,
33SirJohnRogerson’sQuay,Dublin2,Ireland,unlessotherwisenoted.Allsubsidiariesareheldthroughintermediateholdingcompaniesunlessnoted
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.
Legal & General Group Plc Annual Report and Accounts 2021212 Financial statements
Additional financial information continued
Company name Nature of business Share class
Year end
reporting
date
% of equity
shares held
by the group
Country of incorporation: England and Wales
245 Hammersmith Road (General Partner) Limited Development of building projects Ordinary 31-Dec 50.0
245 Hammersmith Road Nominee 1 Limited Dormant company Ordinary 31-Dec 50.0
245 Hammersmith Road Nominee 2 Limited Dormant company Ordinary 31-Dec 50.0
245 HR GP LLP Limited liability partnership Members capital 31-Dec 50.0
Accelerated Digital Ventures Limited Venture capital investing Ordinary 31-Dec 100.0
ADV (GP) LLP Limited liability partnership Ordinary 31-Dec 100.0
ADV ECF LP Limited partnership Ordinary 31-Dec 100.0
ADV Management Limited Fund management activities Ordinary 31-Dec 100.0
ADV Nominees Limited Activities of venture and development
capital companies
Ordinary 31-Dec 100.0
Antham 1 Limited Investment vehicle Ordinary 31-Dec 100.0
Banner (Spare) Limited
1
Domestic building construction Ordinary 31-Dec 100.0
Banner Construction Limited
1
Domestic building construction Ordinary 31-Dec 100.0
Banner Developments Limited
1
Domestic building construction Ordinary 31-Dec 100.0
Banner Freehold Limited
1
Letting and operating of leased real estate Ordinary 31-Dec 100.0
Banner Homes Bentley Priory Limited
1
Domestic building construction Ordinary 31-Dec 100.0
Banner Homes Central Limited
1
Domestic building construction Ordinary 31-Dec 100.0
Banner Homes Group
1
Domestic building construction Ordinary 31-Dec 100.0
Banner Homes Limited
1
Dormant company Ordinary 31-Dec 100.0
Banner Homes Midlands Limited
1
Domestic building construction Ordinary 31-Dec 100.0
Banner Homes Southern Limited
1
Domestic building construction Ordinary 31-Dec 100.0
Banner Homes Ventures Limited
1
Domestic building construction Ordinary 31-Dec 100.0
Banner Management Limited
1
Domestic building construction Ordinary 31-Dec 100.0
Begbroke Oxford Limited Construction of commercial buildings Ordinary 31-Dec 100.0
BQNLimited Development of building projects Ordinary 31-Dec 100.0
Bucklers Park Estate Management Company Limited Management of real estate Limited by guarantee 31-May 100.0
CALA (ESOP) Trustees Limited
1
Financial intermediation Ordinary 31-Dec 100.0
CALA 1 Limited
1
Domestic building construction Ordinary 31-Dec 100.0
CALA Group (Holdings) Limited
1
Domestic building construction Ordinary 31-Dec 100.0
CALA Homes (Chiltern) Limited
1
Domestic building construction Ordinary 31-Dec 100.0
CALA Homes (Midlands) Limited
1
Domestic building construction Ordinary 31-Dec 100.0
CALA Homes (North Home Counties) Limited
1
Domestic building construction Ordinary 31-Dec 100.0
CALA Homes (South Home Counties) Limited
1
Domestic building construction Ordinary 31-Dec 100.0
CALA Homes (Southern) Limited
1
Non-trading company Ordinary 31-Dec 100.0
CALA Homes (Thames) Limited
1
Non-trading company Ordinary 31-Dec 100.0
CALA Homes (Yorkshire) Limited
1
Domestic building construction Ordinary 31-Dec 100.0
CALA Properties Banbury Limited
1
Dormant company Ordinary 31-Dec 100.0
Cardiff Interchange Limited Development of building projects Ordinary 31-Dec 100.0
Cardiff Interchange ManCo Limited Management company Ordinary 31-Jan 66.0
Care Secured Limited
1
Dormant company Ordinary 31-Dec 100.0
City&UrbanDevelopmentsLimited Holding company Ordinary 31-Dec 100.0
CleverMover Limited Provision of services Ordinary 31-Dec 100.0
Court Place Gardens Oxford Limited Activities of other holding companies
notelsewhereclassified
Ordinary 31-Dec 100.0
Cross Trees Park (Shrivenham) Management Company Limited Residents property management Limited by guarantee 31-Dec 100.0
ECV Partnerships Tattenhall Limited
2
Limited partnership Ordinary 31-Dec 50.0
Finchwood Park Management Company Limited Residents property management Limited by guarantee 31-Dec 100.0
Finovation UK Limited
3
Pension tracing and transfer service Ordinary 31-Dec 100.0
GO ETF Solutions LLP Investment management Partnership 31-Dec 100.0
Haut Investments 2 Limited Holding company Ordinary 31-Dec 100.0
Haut Investments Limited Holding company Ordinary 30-Dec 100.0
Inspired Villages Group Limited Activities of other holding companies
notelsewhereclassified
Ordinary 31-Dec 54.6
1. Registeredoffice:CalaHouse,54TheCauseway,Surrey,TW183AX
2. Registeredoffice:TheStanleyBuilding,7StPancrasSquare,LondonN1C4AG
3. Registeredoffice:OneColemanStreet,LondonEC2R5AA
Strategic report Governance Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 213Additionalfinancialinformation
Company name Nature of business Share class
Year end
reporting
date
% of equity
shares held
by the group
Interchange Central Square (General Partner) Limited General Partner Ordinary 31-Dec 100.0
Interchange Central Square Limited Partnership Limited liability partnership Partnership 31-Dec 100.0
Investment Discounts On Line Limited Insurance agents and brokers Ordinary 31-Dec 100.0
IPIF Trade General Partner Limited General Partner Ordinary 31-Dec 100.0
IPIF Trade Nominee Limited Dormant company Ordinary 31-Dec 100.0
Jimcourt Limited
1
Domestic building construction Ordinary 31-Dec 100.0
L&GBristolTempleIslandLimited Construction of commercial buildings Ordinary 31-Jan 100.0
L&GCashTrust Unit trust Unit 31-Dec 50.7
L&GDiversifiedFund Unit trust Unit 15-Feb 74.3
L&GEuropeanEquityIncomeFund Unit trust Unit 30-Apr 10.4
L&GFutureWorldESGUKIndexFund Unit trust Unit 30-Sep 76.3
L&GFutureWorldSustainableGlobalEquityFocusFund Unit trust Unit 15-Nov 25.0
L&GFutureWorldSustainableOpportunitiesFund Unit trust Unit 31-Dec 92.3
L&GGlobalDevelopedFourFactorScientificBetaIndexFund Authorised contractual schemes Ordinary 31-Dec 34.6
L&GGlobalEmergingMarketsIndexFund Unit trust Unit 31-Jul 10.3
L&GGlobalHighYieldFund Unit trust Unit 5-Sep 21.7
L&GGlobalInfrastructureFund Unit trust Unit 31-Dec 11.9
L&GGlobalRealEstateDividendIndexFund Unit trust Unit 20-Apr 13.6
L&GGlobalThematicFund Unit trust Unit 31-Mar 29.1
L&GMSCIWorldSociallyResponsibleInvestment(SRI)Fund Unit trust Unit 12-Dec 11.7
L&GMulti-AssetTargetReturnFund Unit trust Unit 31-Dec 35.5
L&GShortDatedSterlingCorporateBondIndexFund Unit trust Unit 15-Feb 14.2
L&GUKEquityIncomeFund Unit trust Unit 24-Jan 19.1
L&GUKSmallerCompaniesTrust Unit trust Unit 31-Dec 27.1
Legal&GeneralResidential(BTR)1LLP Investment management Ordinary 31-Dec 100.0
Legal&GeneralResidential(BTR)2LLP Investment management Ordinary 31-Dec 100.0
Legal&General(PMCTrustee)Limited Dormant company Ordinary 31-Dec 100.0
Legal&General(PortfolioManagementServices)Limited Institutional fund management Ordinary 31-Dec 100.0
Legal&General(PortfolioManagementServices)NomineesLimited Dormant company Ordinary 31-Dec 100.0
Legal&General(StrategicLandHarpenden)Limited Activities of other holding companies
notelsewhereclassified
Ordinary 31-Dec 100.0
Legal&General(StrategicLandNorthHorsham)Limited Holding company Ordinary 31-Dec 100.0
Legal&General(StrategicLand)Limited Holding company Ordinary 31-Dec 100.0
Legal&General(UnitTrustManagers)Limited Unit trust management Ordinary 31-Dec 100.0
Legal&General(UnitTrustManagers)NomineesLimited Non-trading company Ordinary 31-Dec 100.0
Legal&GeneralAffordableHomes(AR)LLP Limited liability partnership Ordinary 31-Dec 100.0
Legal&GeneralAffordableHomes(Capital)Limited Dormant company Ordinary 31-Dec 100.0
Legal&GeneralAffordableHomes(Development2)Limited Domestic building construction Ordinary 31-Dec 100.0
Legal&GeneralAffordableHomes(Development3)Limited Domestic building construction Ordinary 31-Dec 100.0
Legal&GeneralAffordableHomes(Development)Limited Domestic building construction Ordinary 31-Dec 100.0
Legal&GeneralAffordableHomes(Operations)Limited Development of building projects Ordinary 31-Dec 100.0
Legal&GeneralAffordableHomes(SO)LLP Limited liability partnership Ordinary 31-Dec 100.0
Legal&GeneralAffordableHomesLimited Development of building projects Ordinary 31-Dec 100.0
Legal&GeneralCapitalInvestmentsLimited Holding company Ordinary 31-Dec 100.0
Legal&GeneralCoSecLimited Dormant company Ordinary 31-Dec 100.0
Legal&GeneralDevelopmentAssetsHoldingsLimited Holding company Ordinary 31-Dec 100.0
Legal&GeneralDigitalSolutionsLimited Technology services Ordinary 31-Dec 100.0
Legal&GeneralEmployeeBenefitsAdministrationLimited Non-trading company Ordinary 31-Dec 100.0
Legal&GeneralEstateAgenciesLimited Mortgagefinancecompanies Ordinary 31-Dec 100.0
Legal&GeneralFinancePLC Treasury operations Ordinary 31-Dec 100.0
Legal&GeneralFinancialAdviceLimited Mortgagefinancecompanies Ordinary 31-Dec 100.0
Legal&GeneralFXStructuring(SPV)Limited Special Purpose Vehicle Ordinary 31-Dec 100.0
Legal&GeneralGPLLP Development of building projects Ordinary 31-Dec 100.0
42 Subsidiaries continued
1. Registeredoffice:CalaHouse,54TheCauseway,Surrey,TW183AX
Legal & General Group Plc Annual Report and Accounts 2021214 Financial statements
Additional financial information continued
Company name Nature of business Share class
Year end
reporting
date
% of equity
shares held
by the group
Legal&GeneralHoldingsNo.2Limited Holding company Ordinary 31-Dec 100.0
Legal&GeneralHomeFinanceAdministrationServicesLimited Provision of services Ordinary 31-Dec 100.0
Legal&GeneralHomeFinanceHoldingCompanyLimited Holding company Ordinary 31-Dec 100.0
Legal&GeneralHomeFinanceLimited Mortgagefinancecompanies Ordinary 31-Dec 100.0
Legal&GeneralHomes(ServicesCo)Limited Provision of services Ordinary 31-Dec 100.0
Legal&GeneralHomesCommunities(Arborfield)Limited Development of building projects Ordinary 31-Dec 100.0
Legal&GeneralHomesCommunities(Crowthorne)Limited Development of building projects Ordinary 31-Dec 100.0
Legal&GeneralHomesCommunities(Didcot)Limited Other specialised construction activities
notelsewhereclassified
Ordinary 31-Dec 100.0
Legal&GeneralHomesCommunities(Shrivenham)Limited Development of building projects Ordinary 31-Dec 100.0
Legal&GeneralHomesCommunitiesLimited Development of building projects Ordinary 31-Dec 100.0
Legal&GeneralHomesHoldingsLimited Holding company Ordinary 31-Dec 100.0
Legal&GeneralHomesModularLimited Development of modular housing Ordinary 31-Dec 100.0
Legal&GeneralInsuranceHoldingsLimited Holding company Ordinary 31-Dec 100.0
Legal&GeneralInsuranceHoldingsNo.2Limited Holding company Ordinary 31-Dec 100.0
Legal&GeneralInvestmentManagement(Holdings)Limited Holding company Ordinary 31-Dec 100.0
Legal&GeneralInvestmentManagementFundsICVC Open ended investment company Ordinary 31-Dec 100.0
Legal&GeneralInvestmentManagementLimited Institutional fund management Ordinary 31-Dec 100.0
Legal&GeneralLaterLivingLimited Holding company Ordinary 31-Oct 100.0
Legal&GeneralLeisureFundTrusteeLimited Trustee – 31-Dec 100.0
Legal&GeneralLifeFundLimitedPartnership Limited partnership Ordinary 31-Dec 100.0
Legal&GeneralLTMStructuring(SPV)Limited Special Purpose Vehicle Ordinary 31-Dec 100.0
Legal&GeneralMiddleEastLimited Holding company Ordinary 31-Dec 100.0
Legal&GeneralOverseasOperationsLimited Holding company Ordinary 31-Dec 100.0
Legal&GeneralPartnershipHoldingsLimited Holding company Ordinary 31-Dec 100.0
Legal&GeneralPartnershipServicesLimited Provision of services Ordinary 31-Dec 100.0
Legal&GeneralPensionFundTrusteeLimited Dormant company Ordinary 31-Dec 100.0
Legal&GeneralPensionSchemeTrusteeLimited Dormant company Ordinary 31-Dec 100.0
Legal&GeneralPensionsLimited Limited company Ordinary 31-Dec 100.0
Legal&GeneralPropertyLimited Development of building projects Ordinary 31-Dec 100.0
Legal&GeneralPropertyPartners(IndustrialFund)Limited General Partner Ordinary 31-Dec 100.0
Legal&GeneralPropertyPartners(Industrial)NomineesLimited Dormant company Ordinary 31-Dec 100.0
Legal&GeneralPropertyPartners(IPIFGP)LLP General Partner Partnership 31-Dec 100.0
Legal&GeneralPropertyPartners(LeisureGP)LLP General Partner Partnership 31-Dec 100.0
Legal&GeneralPropertyPartners(Leisure)Limited General Partner Ordinary 31-Dec 100.0
Legal&GeneralPropertyPartners(LifeFund)Limited Investment vehicle Ordinary 31-Dec 100.0
Legal&GeneralPropertyPartners(LifeFund)NomineeLimited Investment vehicle Ordinary 31-Dec 100.0
Legal&GeneralPropertyPartners(UKPIFGearedTwo)Limited Investment in UK real estate Ordinary 31-Dec 100.0
Legal&GeneralPropertyPartners(UKPIFGeared)Limited General Partner Ordinary 31-Dec 100.0
Legal&GeneralPropertyPartners(UKPIFTwo)Limited Investment in UK real estate Ordinary 31-Dec 100.0
Legal&GeneralPropertyPartners(UKPIF)Limited General Partner Ordinary 31-Dec 100.0
Legal&GeneralReHoldingsLimited Holding company Ordinary 31-Dec 100.0
Legal&GeneralResidential(Holdco)Limited Holding company Ordinary 31-Dec 100.0
Legal&GeneralResourcesLimited Provision of services Ordinary 31-Dec 100.0
Legal&GeneralRetailInvestments(Holdings)Limited Holding company Ordinary 31-Dec 100.0
Legal&GeneralSeniorLivingLimited Holding company Ordinary 31-Dec 100.0
Legal&GeneralSuburbanBTR(Development2)Limited Development of building projects Ordinary 31-Dec 100.0
Legal&GeneralSuburbanBTR(Development)Limited Domestic building construction Ordinary 31-Dec 100.0
Legal&GeneralSuburbanBTR(Operations)Limited Development of building projects Ordinary 31-Dec 100.0
Legal&GeneralSuburbanBTR(Property)LLP Limited liability partnership – 31-Dec 100.0
Legal&GeneralSurveyingServicesLimited Provision of services Ordinary 31-Dec 100.0
Legal&GeneralTrusteesLimited Fund trustee Ordinary 31-Dec 100.0
Legal&GeneralUKBTRGPFiveLLP Limited liability partnership Partnership 31-Dec 100.0
Legal&GeneralUKBTRGPFourLLP Limited liability partnership Partnership 31-Dec 100.0
Legal&GeneralUKBTRGPSixLLP Limited liability partnership Partnership 31-Dec 100.0
Strategic report Governance
Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 215Additionalfinancialinformation
Company name Nature of business Share class
Year end
reporting
date
% of equity
shares held
by the group
Legal&GeneralUKBTRGPThreeLLP Limited liability partnership Partnership 31-Dec 100.0
Legal&GeneralUKBTRGPTwoLLP Limited liability partnership Partnership 31-Dec 100.0
Legal&GeneralUKBTRInvestmentGPLLP Limited liability partnership Ordinary 31-Dec 100.0
Legal&GeneralUKPIFTwoGPLLP Limited liability partnership Partnership 31-Dec 100.0
Legal&GeneralAssurance(PensionsManagement)Limited Long-term business Ordinary 31-Dec 100.0
Legal&GeneralAssuranceSocietyLimited Long-term and general insurance Ordinary 31-Dec 100.0
LGIM Commercial Lending Limited Commercial lending Ordinary 31-Dec 100.0
LGIM Corporate Director Limited Non-trading company Ordinary 31-Dec 100.0
LGIM Global Corporate Bond Fund Open ended investment company Ordinary 31-Dec 73.0
LGIM International Limited Institutional fund management Ordinary 31-Dec 100.0
LGIM Real Assets (Operator) Limited Development of building projects Ordinary 31-Dec 100.0
LGIM Real Assets Limited Development of building projects Ordinary 31-Dec 100.0
LGP Newco Limited Dormant company Ordinary 31-Dec 100.0
LGPL No 2 Limited Fund management activities Ordinary 30-Sep 100.0
Life and Mind Building Oxford Limited Construction of commercial buildings Ordinary 31-Dec 100.0
Maltby Street Properties Limited Development of building projects Ordinary 31-Dec 100.0
NSC Building A Limited Real estate trading Ordinary 31-Dec 100.0
NSC Building B Limited Real estate trading Ordinary 31-Dec 100.0
Performance Retail (General Partner) Limited Development of building projects Ordinary 31-Dec 100.0
Performance Retail (Nominee) Limited Dormant company Ordinary 31-Dec 100.0
PRLP GP LLP Limited partnership Ordinary 31-Dec 100.0
Rowley Lane Borehamwood Limited Construction of commercial buildings Ordinary 31-Dec 100.0
Sapphire Campus Management Company Limited Investment vehicle Ordinary 31-Dec 9.5
Senior Living Medici Holdco Limited
2
Dormant company Ordinary 31-Dec 100.0
Senior Living Medici Limited
2
Dormant company Ordinary 31-Dec 100.0
Senior Living Tattenhall (Holdco) Limited Activities of other holding companies
notelsewhereclassified
Ordinary 31-Dec 100.0
Senior Living Urban (Bath) Limited Buying and selling of own real estate Ordinary 31-Oct 100.0
Senior Living Urban (Epsom) Limited Buying and selling of own real estate Ordinary 31-Dec 100.0
Senior Living Urban (Uxbridge) Limited Buying and selling of own real estate Ordinary 31-Oct 100.0
Senior Living Urban (Walton) Limited Buying and selling of own real estate Ordinary 31-Dec 100.0
Senior Living Warwick (Holdco) Limited Activities of other holding companies
notelsewhereclassified
Ordinary 31-Dec 100.0
StratfordCityOffices(No.2)GeneralPartnerLimited General Partner Ordinary 31-Dec 100.0
StratfordCityOffices(No.2)LimitedPartnership Limited partnership Partnership 31-Dec 100.0
Sunderland Vaux 1 Limited Construction of commercial buildings Ordinary 31-Dec 100.0
Terminus Road (Nominee 1) Limited Dormant company Ordinary 31-Dec 100.0
Terminus Road (Nominee 2) Limited Dormant company Ordinary 31-Dec 100.0
The Advantage Collection Limited
1
Domestic building construction Ordinary 31-Dec 100.0
Thorpe Park 3175 Limited
4
Buying and selling of own real estate Ordinary 31-Dec 50.0
Thorpe Park A2 Limited
4
Other letting and operating of own
or leased real estate
Ordinary 31-Dec 50.0
Thorpe Park Developments Limited
4
Property development company Ordinary 31-Dec 50.0
Thorpe Park Holdings Limited
4
Holding company Ordinary 31-Dec 50.0
TP Property Services Limited
4
Property services Ordinary 31-Dec 50.0
UKPIF Two Founder Partner LP Limited partnership Partnership 31-Dec –
Venturemarket.org Limited Activities of venture and development
capital companies
Ordinary 31-Dec 100.0
West Bar Square Limited Construction of commercial buildings Ordinary 31-Dec 100.0
Country of incorporation: Hong Kong
Legal&GeneralInvestmentManagementAsiaLimited
5
Institutional fund management Ordinary 31-Dec 100.0
42 Subsidiaries continued
1. Registeredoffice:CalaHouse,54TheCauseway,Surrey,TW183AX
2. Registeredoffice:TheStanleyBuilding,7StPancrasSquare,LondonN1C4AG
4. Registeredoffice:EuropaHouse,20Esplanade,Scarborough,NorthYorkshire,YO112AQ
5. Registeredoffice:Room902,9thFloor,ChinachemTower,34-37ConnaughtRoadCentral,HongKong,HongKong
Legal & General Group Plc Annual Report and Accounts 2021216 Financial statements
Additional financial information continued
Company name Nature of business Share class
Year end
reporting
date
% of equity
shares held
by the group
Country of incorporation: Ireland
Euro Liquidity Fund OEUIC
6
Ordinary 31-Dec 41.4
Finovation Limited
7
Pension tracing and transfer service Ordinary and convertible 31-Dec 100.0
L&GAsiaPacificexJapanEquityIndexFund ICAV
8
Ordinary 31-Dec 49.0
L&GAsiaPacificexJapanEquityUCITSETF
9
Exchange Traded Funds Ordinary 30-Jun 13.9
L&GESGChinaCNYBondUCITSETF
9
Exchange Traded Funds Ordinary 31-Dec 46.5
L&GESGEmergingMarketsGovernmentBond(USD)0-5YearUCITSETF
9
Exchange Traded Funds Ordinary 31-Dec 85.2
L&GESGGBPCorporateBond0-5YearUCITSETF
9
Exchange Traded Funds Ordinary 31-Dec 81.0
L&GESGGBPCorporateBondUCITSETF
9
Exchange Traded Funds Ordinary 31-Dec 72.9
L&GESGParisAlignedWorldEquityIndexFund
11
CCF
10
Ordinary 30-Sep 100.0
L&GESGUSDCorporateBondUCITSETF
9
Exchange Traded Funds Ordinary 30-Jun 79.8
L&GEuropeexUKEquityUCITSETF
9
Exchange Traded Funds Ordinary 31-Dec 64.3
L&GFrontierMarketsEquityFund ICAV
8
Ordinary 31-Dec 54.4
L&GFutureWorldGlobalCreditFund-UK QIAIF
12
Ordinary 31-Dec 100.0
L&GGlobalEquityUCITSETF
9
Exchange Traded Funds Ordinary 31-Dec 68.9
L&GGlobalSustainableMulti-FactorEquityIndexFund UCITS investment fund
13
Ordinary 3-Oct 100.0
L&GHeitmanGlobalPropertySecuritiesIndexFund UCITS investment fund
13
Ordinary 4-Oct 18.7
L&GIndiaINRGovernmentBondUCITSETF
9
Exchange Traded Funds Ordinary 30-Jun 27.2
L&GJapanEquityUCITSETF
9
Exchange Traded Funds Ordinary 31-Dec 69.0
L&GLifesightAlternativeAssetsFund
11
QIAIFICAV
14
Ordinary 31-Dec 69.0
L&GMFGAMGlobalCoreInfrastructureEquityIndexFund UCITS investment fund
13
Ordinary 5-Oct 100.0
L&GMultiAssetCore20Fund ICAV
8
Ordinary 31-Dec 100.0
L&GMultiAssetCore20Fund Unit trust Unit 31-Dec 87.4
L&GMultiAssetCore45Fund ICAV
8
Ordinary 31-Dec 100.0
L&GMultiAssetCore45Fund Unit trust Unit 31-Dec 87.4
L&GMultiAssetCore75Fund ICAV
8
Ordinary 31-Dec 100.0
L&GMultiAssetCore75Fund Unit trust Unit 31-Dec 87.8
L&GRafiMulti-FactorClimateTransitionIndexFund
11
CCF
10
Ordinary 30-Sep 100.0
L&GUKGilt0-5YearUCITSETF
9
Exchange Traded Funds Ordinary 31-Dec 79.5
Legal&GeneralCCF UCITS investment fund
13
Ordinary 30-Sep 100.0
Legal&GeneralFundManagers(Ireland)Limited
15
Institutional fund management Ordinary 31-Dec 100.0
Legal&GeneralICAV OEUIC
6
Ordinary 31-Dec 100.0
Legal&GeneralUCITSManagers(Ireland)Limited Institutional fund management Ordinary 31-Dec 100.0
LGIM (Ireland) Risk Management Solutions Plc Management company Ordinary 31-Dec 100.0
LGIM 2024 Leveraged Index Linked Gilt Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2025 Fixed Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM2025InflationFund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2025 Real Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2030 Fixed Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM2030InflationFund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2030 Leveraged Index Linked Gilt Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2030 Real Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2034 Leveraged Index Linked Gilt Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2035 Fixed Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM2035InflationFund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2035 Real Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2037 Leveraged Index Linked Gilt Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2038 Leveraged Gilt Fund QIAIF
12
Ordinary 31-Dec 100.0
6. Open Ended Umbrella Investment Company
7. Registeredoffice:DillonEustace,33SirJohnRogerson’sQuay,Dublin2,Ireland
8. Irish Collective Asset-management Vehicle
9. Registeredoffice:2GrandCanalSquare,Dublin2,D02A342
10. Common Contractual Fund
11.Registeredoffice:70SirJohnRogerson’sQuay,Dublin2,Ireland,D02XK09
12.QualifyingInvestorAlternativeInvestmentFund
13. Undertakings for Collective Investment in Transferable Securities investment fund
14.QualifyingInvestorAlternativeInvestmentFundIrishCollectiveAsset-managementVehicle
15.Registeredoffice:GrandCanalHouse,1UpperGrandCanalStreet,Dublin4,Ireland
Strategic report Governance Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 217Additionalfinancialinformation
Company name Nature of business Share class
Year end
reporting
date
% of equity
shares held
by the group
LGIM 2040 Fixed Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM2040InflationFund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2040 Leveraged Index Linked Gilt Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2040 Real Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2042 Leveraged Gilt Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2042 Leveraged Index Linked Gilt Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2045 Fixed Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM2045InflationFund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2045 Leveraged Gilt Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2045 Real Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2047 Leveraged Index Linked Gilt Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2049 Leveraged Gilt Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2050 Fixed Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM2050InflationFund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2050 Leveraged Index Linked Gilt Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2050 Real Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2055 Fixed Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2055 Leveraged Gilt Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2055 Leveraged Index Linked Gilt Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM2060InflationFund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2060 Leveraged Gilt Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2060 Real Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2062 Leveraged Index Linked Gilt Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2068 Leveraged Gilt Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM 2068 Leveraged Index Linked Gilt Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM Bespoke Active Credit Fund BP QIAIF
12
Ordinary 31-Dec 100.0
LGIM Credit and Liquidity - Fund BN QIAIF
12
Ordinary 31-Dec 100.0
LGIM Credit and Liquidity - Fund BM QIAIF
12
Ordinary 31-Dec 100.0
LGIM ETF Managers Limited
9
Investment management Ordinary 31-Dec 100.0
LGIM Euro 2030 Real Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM Fixed Long Duration Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM Fixed Short Duration Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund A QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund AC QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund AK QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund AR QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund AS QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund AU QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund AV QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund AW QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund AY QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund AZ QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund B QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund BH QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund BJ QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund C QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund DC QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund L QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund O QIAIF
12
Ordinary 31-Dec 100.0
LGIMHedgingFundQ QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund R QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund V QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund WH QIAIF
12
Ordinary 31-Dec 100.0
42 Subsidiaries continued
9. Registeredoffice:2GrandCanalSquare,Dublin2,D02A342
12.QualifyingInvestorAlternativeInvestmentFund
Legal & General Group Plc Annual Report and Accounts 2021218 Financial statements
Additional financial information continued
Company name Nature of business Share class
Year end
reporting
date
% of equity
shares held
by the group
LGIM Hedging Fund WS QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund WT QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund ZZ QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund AE QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund AI QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund AT QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund BG QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund BI QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund BL QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund BT QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund BU QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund BV QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund CI QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund CJ QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund CK QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund CL QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund DJ QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund DK QIAIF
12
Ordinary 31-Dec 100.0
LGIM Hedging Fund DO QIAIF
12
Ordinary 31-Dec 100.0
LGIM Leveraged Gilt Plus Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM Leveraged Index Link Gilt Plus Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM Leveraged Synthetic Equity Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM Synthetic Leveraged Equity Fund - GBP Currency Hedged Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM Liquidity Fund plc OEUIC
6
Ordinary 31-Dec 100.0
LGIM Managers (Europe) Limited QIAIF
12
Ordinary 31-Dec 100.0
LGIMMaturingBuy&MaintainCreditFund2030-2034 QIAIF
12
Ordinary 31-Dec 100.0
LGIMMaturingBuy&MaintainCreditFund2020-2024 QIAIF
12
Ordinary 31-Dec 100.0
LGIMMaturingBuy&MaintainCreditFund2025-2029 QIAIF
12
Ordinary 31-Dec 100.0
LGIMMaturingBuy&MaintainCreditFund2035-2039 QIAIF
12
Ordinary 31-Dec 100.0
LGIMMaturingBuy&MaintainCreditFund2040-2054 QIAIF
12
Ordinary 31-Dec 100.0
LGIM Real Long Duration Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM Real Short Duration Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund M QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund AO QIAIF
12
Ordinary 31-Dec 100.0
LGIMSolutionsFundAQ QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund BA QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund BB QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund BF QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund BK QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund BW QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund BX QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund BY QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund BZ QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund CA QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund CB QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund CC QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund CD QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund CE QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund CF QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund CG QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund CH QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund CP QIAIF
12
Ordinary 31-Dec 100.0
LGIMSolutionsFundCQ QIAIF
12
Ordinary 31-Dec 100.0
6. Open Ended Umbrella Investment Company
12.QualifyingInvestorAlternativeInvestmentFund
Strategic report Governance Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 219Additionalfinancialinformation
42 Subsidiaries continued
Company name Nature of business Share class
Year end
reporting
date
% of equity
shares held
by the group
LGIM Solutions Fund CS QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund CT QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund CU QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund CW QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund DB QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund DD QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund DE QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund DF QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund DH QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund DI QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund CM QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund CN QIAIF
12
Ordinary 31-Dec 100.0
LGIMSolutionsFundDQ QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund DR QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund DU QIAIF
12
Ordinary 31-Dec 100.0
LGIM Solutions Fund P QIAIF
12
Ordinary 31-Dec 100.0
LGIM Synthetic Leveraged Credit Fund QIAIF
12
Ordinary 31-Dec 100.0
LGIM Unlev Defensive Synthetic Equity Fund QIAIF
12
Ordinary 31-Dec 100.0
LifeSight Alternative Assets Fund QIAIF
12
Ordinary 5-Jan 100.0
LifeSight Credit Fund QIAIF
12
Ordinary 7-Jan 100.0
LifeSight Equity Fund QIAIF
12
Ordinary 1-Jan 100.0
LifeSight ESG Equity Fund QIAIF
12
Ordinary 2-Jan 100.0
LifeSightHigherTargetReturnDiversifiedFund QIAIF
12
Ordinary 4-Jan 100.0
LifeSightMediumTargetReturnDiversifiedFund QIAIF
12
Ordinary 3-Jan 100.0
LifeSight Pre-Retirement Fund QIAIF
12
Ordinary 6-Jan 100.0
Sterling Liquidity Fund OEUIC
6
Ordinary 31-Dec 55.8
Sterling Liquidity Plus Fund OEUIC
6
Ordinary 31-Dec 25.4
US Dollar Liquidity Fund OEUIC
6
Ordinary 31-Dec 44.8
Country of incorporation: Japan
Legal&GeneralInvestmentManagementJapanKK
16
Investment management Ordinary 31-Dec 100.0
Country of incorporation: Jersey
Access Development General Partner Limited
17
Fund general partner Ordinary 31-Dec 100.0
Bishopsgate Long Term Property Fund General Partner Limited
18
Fund general partner Ordinary 31-Dec 25.0
Bishopsgate Long-term Property Fund Nominees No 1 Limited
18
Real estate operator Ordinary 31-Dec 100.0
Bishopsgate Long-term Property Fund Nominees No 2 Limited
18
Real estate operator Ordinary 31-Dec 100.0
Borehamwood Property Unit Trust
18
Unit trust Unit 31-Dec 100.0
Canary Property Unit Trust
19
Unit trust Unit 31-Dec 100.0
Chineham Shopping Centre Unit Trust
20
Unit trust Unit 31-Dec 100.0
Gresham Street Unit Trust
20
Unit trust Unit 31-Dec 100.0
SCBD S6 Trust
19
Unit trust Unit 31-Dec 100.0
SheffieldVulcanHouseSPVLimited
18
Limited Company (Jersey) Ordinary 30-Jun 100.0
StratfordCityOfficesJerseyUnitTrust
19
Unit Trust Unit 31-Dec 100.0
Synergy Gracechurch Holdings Limited
19
Investment vehicle Ordinary 31-Dec 100.0
Vantage General Partner Limited
17
Fund general partner Ordinary 31-Dec 100.0
Country of incorporation: Luxembourg
L&GAbsoluteReturnBondFund
22
SICAV
21
Ordinary 31-Dec 83.6
L&GAbsoluteReturnBondPlusFund
22
SICAV
21
Ordinary 31-Dec 31.4
L&GBuy&MaintainCreditFund
22
SICAV
21
Ordinary 31-Dec 99.4
6. Open Ended Umbrella Investment Company
12.QualifyingInvestorAlternativeInvestmentFund
16.Registeredoffice:22FToranomonKotohiraTower,1-2-8Toranomon,Minato-ku,Tokyo,105-0001,Japan
17.Registeredoffice:11-15SeatonPlaceStHelierJersey,JE40QH
18.Registeredoffice:12CastleStreetStHelierJersey,JE23RT
19.Registeredoffice:LimeGroveHouse,GreenStreet,StHelier,JE12ST,Jersey
20.Registeredoffice:47Esplanade,StHelier,Jersey
21. Société d’investissement à capital variable
22.Registeredoffice:2-4,RueEugeneRuppert,Luxembourg,L-2453Luxembourg
Legal & General Group Plc Annual Report and Accounts 2021220 Financial statements
Additional financial information continued
Company name Nature of business Share class
Year end
reporting
date
% of equity
shares held
by the group
L&GCommodityIndexFund
22
SICAV
21
Ordinary 31-Dec 78.4
L&GEmergingMarketsBondFund
22
SICAV
21
Ordinary 31-Dec 26.6
L&GEmergingMarketsShortDurationBondFund
22
SICAV
21
Ordinary 31-Dec 34.0
L&GEuroHighAlphaCorporateBondFund
22
SICAV
21
Ordinary 31-Dec 28.2
L&GFutureWorldGlobalCreditFund
22
SICAV
21
Ordinary 31-Dec 91.1
L&GFutureWorldGlobalEquityFocusFund
22
SICAV
21
Ordinary 31-Dec 71.2
L&GUKCorePlusBondFund
22
SICAV
21
Ordinary 31-Dec 100.0
Legal&GeneralSICAV
22
Umbrella company for sub funds Ordinary 31-Dec 100.0
Country of incorporation: Scotland
CALA 1999 Limited
23
Holding company Ordinary 31-Dec 100.0
CALA Group Limited
23
Domestic building construction Ordinary 31-Dec 100.0
CALA Homes (East) Limited
24
Domestic building construction Ordinary 31-Dec 100.0
CALA Homes (North) Limited
24
Domestic building construction Ordinary 31-Dec 100.0
CALA Homes (Scotland) Limited
24
Non-trading company Ordinary 31-Dec 100.0
CALA Homes (West) Limited
24
Domestic building construction Ordinary 31-Dec 100.0
CALA Homes Limited
24
Domestic building construction Ordinary 31-Dec 100.0
CALA Land Investments (Bearsden) Limited
23
Domestic building construction Ordinary 31-Dec 100.0
CALA Land Investments Limited
23
Development of building projects Ordinary 31-Dec 100.0
CALA Limited
23
Headoffice Ordinary 31-Dec 100.0
CALA Management Limited
23
Domestic building construction Ordinary 31-Dec 100.0
CALA Properties (Holdings) Limited
24
Non-trading company Ordinary 31-Dec 100.0
CALA Ventures Limited
23
Domestic building construction Ordinary 31-Dec 100.0
UK PIF FGP LLP
25
Fund general partner Ordinary 31-Dec 100.0
UKPIF Two Founder GP Limited
25
Fund general partner Ordinary 31-Dec 100.0
Country of incorporation: USA
Banner Life Insurance Company
26
Long-term business Ordinary 31-Dec 100.0
Chesapeake Ventures, LLC
27
Limited company Ordinary 31-Dec 100.0
FBV Financing-1, LLC
27
Limited company Ordinary 31-Dec 100.0
FBV Financing-2, LLC
27
Limited company Ordinary 31-Dec 100.0
FBV Financing-3, LLC
27
Limited company Ordinary 31-Dec 100.0
First British Vermont Reinsurance Company II, Limited
28
Reinsurance Ordinary 31-Dec 100.0
First British Vermont Reinsurance Company III, Limited
27
Reinsurance Ordinary 31-Dec 100.0
Global Index Advisors Inc.
29
Investment advisory Ordinary 31-Dec 100.0
Legal&GeneralAmericaInc.
30
Holding company Ordinary 31-Dec 100.0
Legal&GeneralInvestmentManagementAmericaInc.
30
Institutional fund management Ordinary 31-Dec 100.0
Legal&GeneralInvestmentManagementUnitedStates(Holdings),Inc.
30
Holding company Ordinary 31-Dec 100.0
William Penn Life Insurance Company of New York Inc.
31
Long-term business Ordinary 31-Dec 100.0
Country of incorporation: Bermuda
First British Bermuda Reinsurance Company III Limited
32
Reinsurance Ordinary 31-Dec 100.0
Legal&GeneralReinsuranceCompanyLimited
33
Reinsurance Ordinary 31-Dec 100.0
Legal&GeneralReinsuranceCompanyNo.2Limited
33
Reinsurance Ordinary 31-Dec 100.0
Legal&GeneralResourcesBermudaLimited
33
Provision of services Ordinary 31-Dec 100.0
Legal&GeneralSACLimited
33
Reinsurance Ordinary 31-Dec 100.0
Country of incorporation: China
Legal&GeneralBusinessConsulting(Shanghai)Limited
34
Business information consultancy – 31-Dec 100.0
21. Société d’investissement à capital variable
22.Registeredoffice:2-4,RueEugeneRuppert,Luxembourg,L-2453Luxembourg
23.Registeredoffice:AdamHouse,5MidNewCultins,Edinburgh,EH114DU
24.Registeredoffice:JohnstoneHouse,52-54RoseStreet,Aberdeen,AB101HA
25.Registeredoffice:50LothianRoad,FestivalSquare,Edinburgh,EH39WJ
26.Registeredoffice:1701ResearchBoulevard,Rockville,Maryland,20850,USA
27.Registeredoffice:850NewBurtonRoad,Suite201,Dover,Delaware,19904,USA
28.Registeredoffice:MarshManagementServices,100BankStreet,Suite610,Burlington,VT,05402,USA
29.Registeredoffice:29NorthParkSquare,Ste.201,Marietta,GA,30060,USA
30.Registeredoffice:CorporationTrustCentre,1209OrangeStreet,Wilmington,NewCastle,DE,19801,USA
31.Registeredoffice:100QuentinRooseveltBlvd,POBox519,GardenCityNewYork,11530,USA
32.Registeredoffice:ClarendonHouse,2ChurchStreet,Hamilton,Bermuda,HM11,Bermuda
33.Registeredoffice:CrownHouse,4ParLaVilleRoad,Hamilton,Bermuda,HM08,Bermuda
34.Registeredoffice:SouthwestROOM,Floor3,No.2123PudongAvenue,China(Shanghai)PilotFreeTradeZone(BondedArea),PudongDistrict,Shanghai
Strategic report Governance Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 221Additionalfinancialinformation
43 Associates and joint ventures
Associatesareentitiesoverwhichthegrouphassignificantinfluencebutwhichitdoesnotcontrol.Itispresumedthatthegrouphassignificant
influencewhereithasbetween20%and50%ofthevotingrightsintheinvesteeunlessindicatedotherwise.Jointventuresareentitieswherethe
group and other parties have joint control over their activities. The basis by which associates and joint ventures are consolidated in the group
financialstatementsisoutlinedinthebasisofpreparation(Note1).
Thegrouphasthefollowingsignificantholdingsclassifiedasassociatesandjointventureswhichhavebeenincludedasfinancialinvestments,investments
in associates or investments in joint ventures. The gross assets of these companies are in part funded by borrowings which are non-recourse to the group.
Company name
Country of
incorporation
Accounting
treatment
Investment
type
Year end
reporting
date
Share
class
% of equity
shares held
by the group
245 Hammersmith Road Limited Partnership
1
England and Wales FVTPL Joint Venture 31-Dec Partnership 50.0
Access Development Limited Partnership
2
Jersey Equity Method Joint Venture 31-Dec Ordinary 50.0
Austin Heath Management Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Bracknell Property Unit Trust
4, 5
Jersey FVTPL Joint Venture 31-Dec Units 50.9
Bramshott Place Management Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Bruntwood SciTech Limited
6
England and Wales Equity Method Joint Venture 30-Sep Ordinary 50.0
CALA Evans Restoration Limited
7
England and Wales Equity Method Joint Venture 30-Jun Ordinary 50.0
Central St Giles Unit Trust
5
Jersey FVTPL Joint Venture 31-Dec Units 25.0
Congencia Limited
8
Scotland Equity Method Associate 5-Apr Ordinary 7.5
Durrants Management Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
ECV Partnerships Warwick Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Elderswell Management Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
English Cities Fund
1
England and Wales FVTPL Associate 31-Dec Units 35.4
ECV Partnerships Tattenhall Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Gifford Lea Management Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Great Alne Park Management Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Household Capital Pty Limited
9
Australia Equity Method Associate 4-Apr Ordinary 20.0
Kao Data Limited
10
England and Wales FVTPL Associate 31-Dec Ordinary 40.0
Kensa Group Limited
11
England and Wales FVTPL Associate 31-Dec Ordinary 36.0
Ledian Gardens Management Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Millbrook Village Management Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Newcastle Science Central Developments LLP
12
England and Wales FVTPL Associate 31-Dec Ordinary 33.0
NTR Wind Management Limited
13
Ireland FVTPL Associate 31-Mar Ordinary 25.0
Oxford University Property Development Limited
14
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Pemberton Asset Management Holdings Limited
15
Jersey FVTPL Associate 31-Dec Ordinary 40.0
Salary Direct Holdings Limited
16
England and Wales FVTPL Associate 1-Apr Ordinary 45.4
Senior Living (Aylesbury) Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Senior Living (Bramshott Place) Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Senior Living (Broadbridge Heath) Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Senior Living (Caddington) Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Senior Living (Chandlers Ford) Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Senior Living (Comberton) Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Senior Living (Dore) Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Senior Living (Durrants) Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
1. Registeredoffice:OneColemanStreet,EC2R5AA
2. Registeredoffice:11-15SeatonPlace,StHelier,JE40QH,Jersey
3. Registeredoffice:Unit3EdwaltonBusinessPark,LandmereLane,Edwalton,Nottingham,UnitedKingdom,NG124JL
4. BracknellPropertyUnitTrustisclassifiedasaJointVenturebecausethegroupdoesnotcontroltheentity.
5. Registeredoffice:47Esplanade,StHelier,Jersey,JE10BD
6. Registeredoffice:Union,AlbertSquare,Manchester,England,M26LW
7. Registeredoffice:52-54RoseStreet,Aberdeen,AB101HA
8. Registeredoffice:BiodataInnovationCentre,WellcomeGenomeCampus,Hinxton,CambridgeCB101DR
9. Registeredoffice:Level12/1NicholsonSt,EastMelbourneVIC3000
10.Registeredoffice:KaoDataCampus,LondonRoad,Harlow,UnitedKingdom,CM179NA
11.Registeredoffice:MountWellington,Fernsplatt,Chacewater,Truro,Cornwall,TR48RJ
12.Registeredoffice:FinanceAndPlanning,NewcastleUniversity,King’sGate,NewcastleUponTyne,UnitedKingdom,NE17RU
13.Registeredoffice:BurtonCourt,BurtonHallDrive,Sandyford,DublinD18Y2T8
14.Registeredoffice:UniversityOffices,WellingtonSquare,Oxford,UnitedKingdom,OX12JD
15.Registeredoffice:44Esplanade,StHelier,JerseyJE49WG
16.Registeredoffice:35-37NewStreet,StHelier,Jersey,JE23RA
Legal & General Group Plc Annual Report and Accounts 2021222 Financial statements
Additional financial information continued
Senior Living (Exeter) Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Senior Living (Freelands) Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Senior Living (Great Leighs) Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Senior Living (Horndean) Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Senior Living (Knowle) Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Senior Living (Ledian Farm) Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Senior Living (Liphook) Limited
17
Jersey Equity Method Joint Venture 31-Dec Ordinary 50.0
Senior Living (Matchams) Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Senior Living (Sonning Common) Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Senior Living (Sunbury-on-Thames) Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Senior Living (Tattenhall) Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Senior Living (Tunbridge Wells) Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Senior Living (Turvey) Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Senior Living (Warwick Gates) Limited
(formerlyLegal&General(WarwickGates)Limited)
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Senior Living Finance 1 Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Senior Living (Halstead) Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Senior Living (Walkern) Limited
3
England and Wales Equity Method Joint Venture 31-Dec Ordinary 50.0
Sennen Finance Designated Activity Company
18
Ireland Equity Method Joint Venture 31-Dec – –
Smartr365 Finance Limited
19
England and Wales FVTPL Associate 31-Mar Ordinary 42.5
Smugglers Way Unit Trust
2
Jersey Equity Method Associate 31-Dec Units 16.7
Swandon Way Unit Trust
2
Jersey Equity Method Associate 31-Dec Units 16.7
Winchburgh Developments (Holdings) Limited
20
Scotland Equity Method Joint Venture 31-Dec Ordinary 50.0
2. Registeredoffice:11-15SeatonPlace,StHelier,JE40QH,Jersey
3. Registeredoffice:Unit3EdwaltonBusinessPark,LandmereLane,Edwalton,Nottingham,UnitedKingdom,NG124JL
17.Registeredoffice:3rdFloor,OneTheEsplanade,StHelier,Jersey,JE23QA
18.Registeredoffice:1-2VictoriaBuildings,HaddingtonRoad,Dublin,Ireland,4D04XN32
19.Registeredoffice:1QueenCarolineStreet,Hammersmith,London,UnitedKingdom,W69YN
20.Registeredoffice:MarathonHouseOlympicBusinessPark,DrybridgeRoad,Dundonald,Kilmarnock,UnitedKingdom,KA29AE
On 4 November 2021, EDF Energy EV Limited (Pod Point) began trading on the London Stock Exchange and on that date the group’s shareholding in the
companydecreasedfrom22.3%to14.6%.Asaresult,thegrouphaslostsignificantinfluenceoverPodPointandtheinvestmentisnolongerclassified
as an associate.
Summarisedfinancialinformationforassociatesandjointventuresaccountedforundertheequitymethodisshownbelow:
Associates
2021
£m
Joint
ventures
2021
£m
Associates
2020
£m
Joint
ventures
2020
£m
Current assets 15 557 7 213
Non-current assets 184 906 153 1,233
Current liabilities 10 184 51 145
Non-current liabilities 27 448 2 766
(Loss)/Profitfromcontinuingoperations–total (33) 60 (20) (44)
(Loss)/Profitfromcontinuingoperations–group’sshare (5) 30 (4) (24)
Totalcomprehensiveincome–total (33) 60 (20) (44)
Totalcomprehensiveincome–group’sshare (5) 30 (4) (24)
Theassociatesandjointventureshavenosignificantcontingentliabilitiestowhichthegroupisexposed.Thegrouphasnocommitmentstoprovide
funding to associates and joint ventures other than the ones included in Note 41.
(ii) Other significant holdings
Thegrouphasthefollowingothersignificantholdingswhichhavebeenincludedasfinancialinvestments.
Company name
Country of
incorporation
Year end
reporting
date Share class
% of equity
shares held
by the group
Bishopsgate Long-Term Property Limited Partnership
1
Jersey 31-Dec Limited Partner 25.0
1. Thenetassetvalueat31December2021was£87.1m(2020:£87.4m)andtheregisteredofficeis12CastleStreet,StHelier,Jersey,JE23RT.
Strategic report Governance Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 223Additionalfinancialinformation
44 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
hasinterestsininvestmentvehicleswhich,dependingupontheirstatus,areclassifiedaseitherconsolidatedorunconsolidatedstructuredentitiesas
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),
Societesd’InvestissementaCapitalVariables(SICAVs),SpecialisedInvestmentFunds(SIFs),QualifyingInvestorAlternativeInvestmentFund(QIAIF),
Liquidity funds, Common Contractual Fund (CCF), ICAVs, 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
fortheirservices.Suchcompensationgenerallyconsistsofanasset-basedfeeandaperformancerelatedincentivefee,andisreflectedinthevaluation
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,andhasnointentiontoprovide,financialorothersupporttoanyotherstructuredentitieswhichitdoesnotconsolidate.
(b) Interests in unconsolidated structured entities
As part of its investment activities, the group also invests in unconsolidated structured entities. As at 31 December 2021, the group’s interest in such
entitiesreflectedonthegroup’sConsolidatedBalanceSheetandclassifiedasfinancialinvestmentsheldatfairvaluethroughprofitorlosswas
£21,216m (2020: £16,230m). A summary of the group’s interests in unconsolidated structured entities is provided below:
Financial
investments
2021
£m
Financial
investments
2020
£m
Debt securities
Analysed as:
Asset backed securities 2,752 2,801
Securitisations and debentures 136 130
CDOs 81 84
Investment funds and Specialised Investment Vehicles
Analysed as:
Unit trusts 16,423 11,520
Property limited partnerships 710 669
Exchange traded funds 21 27
ICAVs 59 85
OEICs 333 390
SICAVs 284 205
QIAIFICAVs 1 3
SIFs 1 2
Property unit trusts 416 314
Total 21,217 16,230
Legal & General Group Plc Annual Report and Accounts 2021224 Financial statements
Additional financial information continued
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’s Consolidated Balance Sheet. Where the group does manage these investments, the maximum exposure is the underlying balance
sheet value, together with future management fees.
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.
AUM
2021
£m
Investment
management
fees
2021
£m
AUM
2020
£m
Investment
management
fees
2020
£m
Investment funds 95,889 168 85,535 162
Specialised Investment Vehicles 26,687 60 19,221 39
Analysed as:
OEICs 492 1 487 1
SICAVs 1,074 2 1,158 2
Property limited partnerships 5,178 27 4,363 20
ETF 8,771 21 5,314 10
ICAV 10,207 8 7,79 4 6
QIAIF 395 – 105 –
Liquidity funds 338 1 – –
CCF 232 – – –
Total 122,576 228 104,756 201
Nosignificantsponsorshiphasbeenprovidedtoanyoftheaboveentities.Thegrouphasnot,andhasnointention,toprovideanysignificantfinancial
or other support to any other structured entities which it does not consolidate.
Inadditiontotheabove,thegrouphasanexposureof£300m(2020:£316m)relatedtospecialpurposevehiclesclassifiedasjointventuresandaccounted
for using the equity method, with a carrying value on the group’s Consolidated Balance Sheet as at 31 December 2021 of £nil (2020: £nil).
Strategic report Governance Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 225Additionalfinancialinformation
Company Balance Sheet
As at 31 December 2021 Notes
2021
£m
Restated
2020
1
£m
Non-current assets
Investments in subsidiaries 6 9,522 9,204
Loans to subsidiaries 6 702 702
Receivables: amounts due after more than one year 6 188 156
Current assets
Receivables: amounts due within one year 7 1,705 2,287
Derivative assets 10 46 25
Otherfinancialinvestments 53 21
Cash and cash equivalents 10 11
Total assets 12,226 12,406
Non-current liabilities
Payables: amounts falling due after more than one year 8 4,583 4,871
Current liabilities
Payables: amounts falling due within one year 9 283 264
Derivative liabilities 10 105 114
Total liabilities 4,971 5,249
Net assets 7,255 7,157
Equity
Share capital 12 149 149
Share premium 1,012 1,006
Revaluation reserve 2,459 2,459
Capital redemption and other reserves 151 153
Retained earnings 2,989 2,895
Attributable to ordinary shareholders 6,760 6,662
Restricted Tier 1 convertible notes 13 495 495
Total equity 7,255 7,157
1. AmountsreceivablerelatedtotheEmployeeShareOwnershipTrustareexpectedtobemorethanoneyear.Accordingly,for2020anamountof£156mhasbeenreclassifiedfromCurrent
assets to Non-current assets (1 January 2020: £136m), consistent with their treatment in 2021.
Thenotesonpages228to233formanintegralpartofthesefinancialstatements.
Thefinancialstatementsonpages226to233wereapprovedbythedirectorson8March2022andweresignedontheirbehalfby:
Sir John Kingman
Chairman
Sir Nigel Wilson
GroupChiefExecutiveOfficer
Stuart Jeffrey Davies
GroupChiefFinancialOfficer
Legal & General Group Plc Annual Report and Accounts 2021226 Financial statements
Company financial statements
Company Statement of Changes in Equity
For the year ended 31 December 2021
Called up
share
capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Hedging
reserve
£m
Share–based
payment
reserve
£m
Revaluation
reserve
£m
Retained
earnings
£m
Total equity
attributable
to ordinary
shareholders
£m
Restricted
Tier 1
convertible
notes
£m
Total
equity
£m
As at 1 January 2021 149 1,006 17 35 101 2,459 2,895 6,662 495 7,157
Profitforthefinancialyear – – – – – – 1,172 1,172 – 1,172
Netmovementincross–currencyhedge – – – 13 – – – 13 – 13
Options exercised under share
option schemes – 6 – – – – – 6 – 6
Shares vested and transferred from
share–basedpaymentreserve – – – – (48) – 8 (40) – (40)
Employee scheme treasury shares:
–Valueofemployeeservices – – – – 33 – – 33 – 33
Dividends – – – – – – (1,063) (1,063) – (1,063)
Restricted Tier 1 convertible notes – – – – – – – – – –
Coupon payable in respect of restricted
Tier 1 convertible notes net of tax relief – – – – – – (23) (23) – (23)
As at 31 December 2021 149 1,012 17 48 86 2,459 2,989 6,760 495 7,255
For the year ended 31 December 2020
Called up
share
capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Hedging
reserve
£m
Share–based
payment
reserve
£m
Revaluation
reserve
£m
Retained
earnings
£m
Total equity
attributable
to ordinary
shareholders
£m
Restricted
Tier 1
convertible
notes
£m
Total
equity
£m
As at 1 January 2020 149 1,000 17 32 85 2,459 2,815 6,557 – 6,557
Profitforthefinancialyear – – – – – – 1,122 1,122 – 1,122
Netmovementincross–currencyhedge – – – 3 – – – 3 – 3
Options exercised under share
option schemes – 6 – – – – – 6 – 6
Shares vested and transferred from
share–basedpaymentreserve – – – – (27) – 12 (15) – (15)
Employee scheme treasury shares:
–Valueofemployeeservices – – – – 43 – – 43 – 43
Dividends – – – – – – (1,048) (1,048) – (1,048)
Restricted Tier 1 convertible notes – – – – – – – – 495 495
Coupon payable in respect of restricted
Tier 1 convertible notes net of tax relief – – – – – – (6) (6) – (6)
As at 31 December 2020 149 1,006 17 35 101 2,459 2,895 6,662 495 7,157
Strategic report Governance
Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 227Companyfinancialstatements
1 Accounting policies
Basis of preparation
ThesefinancialstatementshavebeenpreparedinaccordancewiththeCompaniesAct2006asapplicabletocompaniesusingFinancialReporting
Standard101,‘ReducedDisclosureFramework’(FRS101).Thefinancialstatementshavebeenpreparedunderthehistoricalcostconvention,as
modifiedbytherevaluationoflandandbuildingsandderivativefinancialassetsandfinancialliabilitiesmeasuredatfairvaluethroughprofitandloss.
Therewerenomaterialcriticalaccountingestimatesusedorjudgementsmadebymanagementinthepreparationofthesefinancialstatements.
ThefollowingexemptionsfromtherequirementsofIFRShavebeenappliedinthepreparationofthesefinancialstatements,inaccordancewithFRS101:
• Paragraphs45(b)and46to52ofIFRS2,‘Share–basedpayment’(detailsofthenumberandweighted–averageexercisepriceofshareoptions,and
how the fair value of goods or services received was determined).
• Therequirementofparagraphs91to99ofIFRS13,‘Fairvaluemeasurement’,whereequivalentdisclosuresareincludedintheconsolidatedfinancial
statements of the group.
• ThefollowingparagraphsofIAS1,‘Presentationoffinancialstatements’:
– 10(d),(statementofcashflows),
– 10(f) and 40A (presentation of a third balance sheet),
– 16 (a statement of compliance with all IFRS),
– 38 in respect of paragraph 79(a)(iv) (outstanding shares comparative),
– 38A(requirementforminimumoftwoprimarystatements,includingcashflowstatements),
– 38B–D(additionalcomparativeinformation),
– 111(cashflowstatementinformation),and
– 134–136(capitalmanagementdisclosures);
• IAS7,‘Statementofcashflows’;
• 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);
• 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.
Thecompany’sfinancialstatementshavebeenpreparedincompliancewithSection394and396oftheCompaniesAct2006adoptingtheexemption
of omitting the income statement conferred by Section 408 of that Act.
Thecompany’sfinancialstatementshavebeenpreparedonagoingconcernbasis.SeeNote1ofthegroupconsolidatedfinancialstatementsforfurther
information on the Directors’ assessment of the going concern basis.
Financial assets
Oninitialrecognition,financialassetsaremeasuredatfairvalue.Subsequently,theycanbemeasuredatamortisedcost,fairvaluethroughother
comprehensiveincome(FVOCI)orfairvaluethroughprofitorloss(FVTPL).Theclassificationdependsontwocriteria:
(i) thebusinessmodelwithinwhichfinancialassetsaremanaged;and
(ii)theircontractualcashflowcharacteristics(whetherthecashflowsrepresent‘solelypaymentsofprincipalandinterest’(SPPI)).
A debt instrument is measured at amortised cost if it meets the following conditions:
(i) itisheldwithinabusinessmodelthathasanobjectivetoholdfinancialassetstocollectcontractualcashflows;and
(ii)thecontractualtermsofthefinancialassetresultincashflowsthataresolelypaymentsofprincipalandinterestontheprincipalamount
outstanding (SPPI).
A debt security is measured at FVOCI if it meets the following conditions:
(i) itisheldforcollectionofcontractualcashflowsandforsellingthefinancialassets;and
(ii)theasset’scashflowsrepresentsolelypaymentsofprincipalandinterest.
Movements in the carrying amount are recognised in other comprehensive income except for the recognition of impairment gains or losses and interest
revenuewhicharerecognisedintheincomestatement.Whenthefinancialassetisderecognised,thecumulativegainorlosspreviouslyrecognisedin
othercomprehensiveincomeisreclassifiedfromequitytotheincomestatement.
AssetsthatareheldatFVTPLincludederivativeassetswhichareheldfortrading(HFT)andfinancialassetsthatfailboththebusinessmodeland
SPPI tests. A gain or loss on a debt investment that is subsequently measured at FVTPL is recognised in the income statement.
The company has no equity instruments other than investments in subsidiaries.
Loans and receivables are initially recognised at fair value and subsequently held at amortised cost using the effective interest method.
Legal & General Group Plc Annual Report and Accounts 2021228 Financial statements
Company financial statements continued
Impairment
ForfinancialassetsheldatamortisedcostorFVOCIthecompanyreviewsthecarryingvalueofitsassetsateachbalancesheetdate.Forsuchassets,
thecompanydeterminesforwardlookingexpectedcreditlosses(ECL),basedonthedifferencebetweenthecontractualcashflowsdueinaccordance
withthecontractandallthecashflowsthatthecompanyexpectstoreceive.Theshortfallisthendiscountedatanapproximationtotheasset’soriginal
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
reportingdateandotherdebtsecuritiesforwhichcreditriskhasnotincreasedsignificantlysinceinitialrecognition.Inthesecases,ECLsarebasedon
the12–monthECL,whichistheECLthatresultsfromapossibledefaultupto12monthsafterthereportingdate.Thecompanyusesrelevantquantitative
andqualitativeinformationandanalysisbasedonhistoricalexperience,andinformedcreditassessmentincludingforward–lookinginformationinorder
toevaluatethecredit–worthinessofeachsecurityateachreportingdate,todeterminewhetherasignificantincreaseincreditrisksinceorigination
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
referencetothirdpartyinformationonavailablecompanies,orusingqualitativeinformationavailabletothecompany,anddependsonwhetherafinancial
assetrequiresdeterminationofa12–monthECLorlifetimeECL.TheLGDisdeterminedwithreferencetoanyexposurereducinginstrumentssuchas
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.
Investment income
Investment income includes dividends and interest. Dividends receivable from group companies are recognised in the period in which the dividends are
declared and approved at the general meeting or paid. Interest income 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
Interestexpensereflectstheunderlyingcostofborrowing,basedontheeffectiveinterestmethodandincludespaymentsandreceiptsmadeunder
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.
Derivative financial instruments
Thecompany’sactivitiesexposeittothefinancialrisksofchangesinforeignexchangeratesandinterestrates.Thecompanyusesderivativessuch
as foreign exchange forward contracts and interest rate swap contracts to hedge these exposures.
Changes in the fair value of any derivative instruments are recognised immediately in the income statement.
Borrowings
Borrowingsarerecognisedinitiallyatfairvalue,netoftransactioncosts.Borrowingsclassifiedasliabilitiesaresubsequentlystatedatamortisedcost.
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
morelikelythannotthattherewillbesuitabletaxableprofitsagainstwhichtorecovercarriedforwardtaxlossesandfromwhichthefuturereversalof
underlying temporary differences can be deducted.
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–monetaryitemsaremaintainedathistoricrates.Exchangegainsorlossesarerecognisedintheincomestatement.
Strategic report Governance Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 229Companyfinancialstatements
1 Accounting policies continued
Pension costs
Thecompanyparticipatesinthegroupdefinedbenefitschemes,whicharedefinedbenefitplansthatsharerisksbetweenentitiesundercommon
control.Thereisnocontractualagreementorstatedpolicyforchargingthenetdefinedbenefitcostfortheplansasawholetoindividualgroupentities,
thereforethecompany’scostofparticipationhasbeentreatedasthatofdefinedcontributionschemesforreportingpurposes.Thenetdefinedbenefit
costhasbeenrecognisedintheseparatefinancialstatementsofLegal&GeneralResourcesLimited,thesponsoringemployerfortheplans.
Inadditiontotheseschemesthecompanyalsocontributestodefinedcontributionschemes.Thecompanychargesthecostsofitspensionschemes
againstprofitasincurred.Anydifferencebetweenthecumulativeamountschargedagainstprofitsandcontributionamountspaidisincludedas
a provision or prepayment in the balance sheet.
Theassetsofthedefinedbenefitschemesandthedefinedcontributionschemesareheldinseparatetrusteeadministeredfunds,whichhavebeen
subjecttoregularvaluationeverythreeyearsandupdatedbyformalreviewsatreportingdatesbyqualifiedactuaries.
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 33 of the
groupconsolidatedfinancialstatements.Thecostsassociatedwiththeseplansarebornebyalltheparticipatinggroupbusinesseswheretheyrelate
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
Dividend
2021
£m
Per share
2021
p
Dividend
2020
£m
Per share
2020
p
Ordinary dividends paid and charged to equity in the year:
Final 2019 dividend paid in June 2020 – – 754 12.64
Interim 2020 dividend paid in September 2020 – – 294 4.93
Final 2020 dividend paid in June 2021 754 12.64 – –
Interim 2021 dividend paid in September 2021 309 5.18 – –
Total dividends 1,063 17.82 1,048 17.57
Ordinary share dividend proposed
1
790 13.27 754 12.64
1. The dividend proposed has not been included as a liability in the balance sheet.
3 Directors’ emoluments and other employee information
FulldisclosuresofLegal&GeneralGroupPlcdirectors’emolumentsarecontainedwithinthosepartsoftheDirectors’ReportonRemunerationwhichare
described as having been audited. At 31 December 2021 there were no remuneration payments outstanding with directors of the company (2020: £nil).
The company has no other employees (2020: nil).
For purposes of the disclosure required by Schedule 5 to the Companies Act 2006, the total aggregate emoluments of the directors in respect of 2021
was £4.0m (2020: £4.2m). The aggregate net value of share awards granted to the directors in the period was £4.2m (2020: £8.3m). During the year, the
aggregate gains made by directors on the exercise of share options was £1.8m (2020: £2.2m).
Legal & General Group Plc Annual Report and Accounts 2021230 Financial statements
Company financial statements continued
4 Pensions
The company participates in the following pension schemes in the UK, which are operated by the group:
• Legal&GeneralGroupPersonalPensionPlan;
• Legal&GeneralStaffStakeholderPensionScheme;
• Legal&GeneralGroupUKPensionandAssuranceFund(theFund).TheFundwasclosedtonewmembersfromJanuary1995;thelatesttriennial
valuation at 31 December 2018 was completed on 1 July 2020. The triennial valuation at 31 December 2021 is in progress;
• Legal&GeneralGroupUKSeniorPensionScheme(theScheme).TheSchemewas,withafewexceptions(principallytransfersfromtheFund),closed
tonewmembersfromAugust2000andfinallyclosedtonewmembersfromApril2007;thelatesttriennialvaluationat31December2018was
completed on 1 July 2020. The triennial valuation at 31 December 2021 is in progress.
These schemes operate within the UK pensions’ regulatory framework.
There were no contributions prepaid or outstanding at either 31 December 2021 or 31 December 2020 in respect of these schemes.
TheFundandSchemewereclosedtofutureaccrualon31December2015.ThesponsoringemployerisLegal&GeneralResourcesLimitedand
adeficitinrespectoftheseschemesfortheyearended31December2021of£22m(2020:£70m)isrecognisedonthatcompany’sbalancesheet.
FurtherinformationisgiveninNote23ofthegroup’sconsolidatedfinancialstatements.
5 Auditor’s remuneration
Remunerationreceivablebythecompany’sauditorsfortheauditofthecompany’sfinancialstatementsisnotpresented.Thegroup’sconsolidated
financialstatementsdisclosetheaggregateremunerationreceivablebythecompany’sauditorsfortheauditofthegroup’sfinancialstatements,which
includethecompany’sfinancialstatements(Note31).
Thedisclosureoffeespayabletotheauditorsanditsassociatesforother(non–audit)serviceshasnotbeenmadebecausethegroup’sconsolidated
financialstatementsarerequiredtodisclosesuchfeesonaconsolidatedbasis.
6 Non-current assets
Investments
in subsidiaries
2021
£m
Loans to
subsidiaries
2021
£m
Receivables
amounts due
after more
than one year
2021
£m
Total
2021
£m
Investments
in subsidiaries
2020
£m
Loans to
subsidiaries
2020
£m
Receivables
amounts due
after more
than one
year
2
2020
£m
Total
2020
£m
As at 1 January 9,204 702 156 10,062 8,950 702 136 9,788
Additions
1
318 – – 318 254 – – 254
Transfer from/(to) current assets – – 32 32 – – 20 20
As at 31 December 9,522 702 188 10,412 9,204 702 156 10,062
1. Additions represent capital injections into group undertakings.
2. For 2020, receivables related to the Employee Share Ownership Trust have been reallocated from Current assets to Non-current assets, consistent with their treatment in 2021.
Fulldisclosureofthecompany’sinvestmentsinsubsidiaryundertakingsiscontainedinNote42oftheGroup’sconsolidatedfinancialstatements.
Strategic report Governance Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 231Companyfinancialstatements
7 Receivables
2021
£m
2020
£m
Amounts owed by group undertakings
1, 2
1,489 2,099
Corporation tax 94 75
Deferred tax 37 32
Other debtors 85 81
Receivables 1,705 2,287
1. Amounts owed by group undertakings are repayable at the request of either party and include a £1,079m (2020: £1,768m) interest bearing balance with a current interest rate of
SONIA+CAS-12.5bps,flooredatzero.
2. For 2020, receivables related to the Employee Share Ownership Trust have been reallocated from Current assets to Non-current assets, consistent with their treatment in 2021.
8 Payables: amounts falling due after more than one year
Note
2021
£m
2020
£m
Subordinated borrowings 11 3,672 3,959
Amounts owed to group undertakings
1
911 912
Payables: amounts falling due after more than one year 4,583 4,871
1. Amounts owed to group undertakings falling due after more than one year are unsecured and include £901m (2020: £901m) of interest bearing balances with current interest rates between
2.39% and 6.12% (2020: 2.39% and 6.12%).
9 Payables: amounts falling due within one year
Note
2021
£m
2020
£m
Amounts owed to group undertakings
1
180 140
Accrued interest on subordinated borrowings 11 28 41
Other payables 75 83
Payables: amounts falling due within one year 283 264
1. Amounts owed to group undertakings falling due within one year are interest free and repayable at the request of either party.
10 Derivative assets and liabilities
Fair values
Assets
2021
£m
Liabilities
2021
£m
Currencyswapcontracts–heldfortrading 46 105
Derivative assets and liabilities 46 105
Fair values
Assets
2020
£m
Liabilities
2020
£m
Currencyswapcontracts–heldfortrading 25 114
Derivative assets and liabilities 25 114
AdescriptionofeachtypeofderivativeisgiveninNote12ofthegroup’sconsolidatedfinancialstatements.
Legal & General Group Plc Annual Report and Accounts 2021232 Financial statements
Company financial statements continued
11 Borrowings
Carrying
amount
2021
1
£m
Coupon
rate
2021
%
Fair
value
2021
1
£m
Carrying
amount
2020
1
£m
Coupon
rate
2020
%
Fair
value
2020
1
£m
Subordinated borrowings
2
10% Sterling subordinated notes 2041 (Tier 2) – – – 313 10.00 329
5.5% Sterling subordinated notes 2064 (Tier 2) 590 5.50 776 589 5.50 813
5.375% Sterling subordinated notes 2045 (Tier 2) 604 5.38 673 604 5.38 714
5.25% US Dollar subordinated notes 2047 (Tier 2) 635 5.25 694 628 5.25 703
5.55% US Dollar subordinated notes 2052 (Tier 2) 373 5.55 428 369 5.55 411
5.125% Sterling subordinated notes 2048 (Tier 2) 400 5.13 461 400 5.13 484
3.75% Sterling subordinated notes 2049 (Tier 2) 598 3.75 632 598 3.75 662
4.5% Sterling subordinated notes 2050 (Tier 2) 500 4.50 558 499 4.50 587
Total subordinated borrowings 3,700 4,222 4,000 4,703
1. Includes accrued interest on subordinated borrowings of £28m (2020: £41m).
2. FurtherdetailsonthesubordinatedborrowingsofthecompanyareprovidedinNote22ofthegroup’sconsolidatedfinancialstatements.
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 34
ofthegroup’sconsolidatedfinancialstatements.
13 Restricted Tier 1 convertible notes
On24June2020,Legal&GeneralGroupPlcissued£500mof5.625%perpetualrestrictedTier1contingentconvertiblenotes.Thenotesarecallableat
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
from24September2031willberesettotheprevailingfiveyearbenchmarkgiltyieldplus5.378%.
Thenoteshavenofixedmaturitydate.Optionalcancellationofcouponpaymentsisatthediscretionoftheissuerandmandatorycancellationisupon
the occurrence of certain conditions. The Tier 1 notes are therefore treated as equity and coupon payments are recognised directly in equity. During the
year coupon payments of £28m were made (2020: £7m). The notes rank junior to all other liabilities and senior to equity attributable to shareholders.
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.
Strategic report Governance Financial statements Other information
Legal & General Group Plc Annual Report and Accounts 2021 233Companyfinancialstatements
The Directors’ report required under the Companies Act 2006 comprises
this Directors’ report, and certain other disclosures in the Strategic Report
andtheNotestothegroupconsolidatedfinancialstatements,including:
• An outline of important events that have occurred during the year
(pages 30 to 51)
• An indication of likely future developments (pages 30 to 51)
• Employee engagement (pages 49 to 50 and 74)
• Directors’ biographies (pages 62 to 63)
• Workforce engagement (page 74)
• Stakeholders (pages 16 to 17)
• Section 172 statement (pages 68 to 72)
• The Board’s activities in relation to assessing and monitoring culture
(page 80)
• AsummaryofourDiversity&Inclusionpolicycanbefoundonpages84
to 85 and the full policy can be found on the website: group.
legalandgeneral.com/en/about-us/corporate-governance/diversity
• There are no post balance sheet events
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)
ofconflictsofinterest,andthesehavebeenfollowedduring2021.
Powers of directors
The directors (as detailed on pages 62 to 63) may exercise all powers
of the Company subject to applicable legislation and regulation and the
Company’s Articles of Association.
Appointment and replacement of directors
With regards to the appointment and replacement 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
thatdirector’speriodofoffice.TheCompany’sArticlesofAssociation(in
line with the UK Corporate Governance Code) require all the directors to
retirefromofficeateachAnnualGeneralMeetingoftheCompany.
Share capital
As at 31 December 2021, the Company’s issued share capital comprised
5,970,415,817 ordinary shares each with a nominal value of 2.5 pence.
Details of the ordinary share capital can be found in Note 34 to the group
consolidatedfinancialstatements.
At the 2021 AGM, the Company was granted authority by shareholders to
purchase up to 596,759,391 ordinary shares, being 10% of the issued share
capital of the Company as at 31 March 2021. In the year to 31 December
2021, no shares were purchased by the Company. This authority will expire
at the 2022 AGM. As such, a resolution is proposed in the Notice of AGM
seeking shareholder approval to renew this authority.
At the 2021 AGM, the directors were given the power to allot shares up to
an amount of £49,729,949, being 33% of the issued share capital of the
Company as at 31 March 2021. This authority will also expire at the 2022
AGM. As such, a resolution is proposed in the Notice of AGM seeking
shareholder approval to renew this authority.
Directors’ report
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
at31March2022forcashwithoutofferingthesharesfirsttoexisting
shareholders in proportion to their holdings.
Detailed explanatory notes to these resolutions are set out in the Notice
of AGM.
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) 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
2021,theCompanyhadbeenadvisedofthefollowingsignificantdirect
and indirect interests in the issued share capital of the Company:
Number
of ordinary
shares of 2.5p
% of
capital
1
Total
interest
in issued
share capital
BlackRock Inc. 298,315,445 5.00 Indirect
RBC 181,825,498 3.045 Indirect
1. Usingthevotingrightsfigureasat31December2021,asannouncedtotheLondonStock
Exchange on 4 January 2022, of 5,970,415,817.
No material changes to the interests have been disclosed between
31 December 2021 and 4 March 2022.
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
directorsproposeafinaldividendfortheyearended31December2021
of 13.27 pence per ordinary share which, together with the interim dividend
of 5.18 pence per ordinary share paid to shareholders on 20 September
2021, will make a total dividend for the year of 18.45 pence (2020: 17.57
pence).SubjecttoshareholderapprovalattheAGM,thefinaldividendwill
be paid on 1 June 2022 to shareholders on the share register on 22 April
2022 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.
Related party transactions
Details of related party transactions are set out in Note 39 to the group
consolidatedfinancialstatements.
234 Other informationLegal & General Group Plc Annual Report and Accounts 2021
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
registeredoffice.
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
paidshare.Inaddition,registrationofatransferofanuncertificatedshare
mayberefusedinthecircumstancessetoutintheuncertificated
securities rules and where the number of joint holders exceeds four.
TheBoardmayalsorefusetoregisterthetransferofacertificatedshare
unless:
a) the instrument of transfer is duly stamped and is left at the Company’s
registeredofficeorsuchotherplaceastheBoardmayfromtimeto
timedetermine,accompaniedbythecertificateforthesharetowhich
it relates and such evidence as the Board may reasonably require to
show the right of the transfer or to make the transfer.
b) the instrument of transfer is in respect of only one class of share; and
c) 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,
astrusteeoftheLegal&GeneralEmployees’ShareOwnershipTrust,held
0.69% of the issued share capital of the Company as at 4 March 2022 in
trustforthebenefitoftheexecutivedirectors,seniorexecutivesand
employeesofthegroup.ThetrusteeofLegal&GeneralEmployees’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
acceptorrejectanyofferrelatingtoshares,inanywayitseesfit,without
incurring any liability and without being required to give reasons for its
decision.UndertherulesoftheLegal&GeneralGroupEmployeeShare
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 0.28% of the issued share capital
of the Company as at 4 March 2022. 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.
Change of control
There are no agreements between the Company and its directors or
employeesprovidingforcompensationforlossofofficeoremployment
(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 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 8 March 2022, 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.
Use of financial instruments
Information on the group’s risk management process is set out on pages
52to59.Moredetailsonriskmanagementandthefinancialinstruments
usedaresetoutinNotes15to17ofthegroupconsolidatedfinancial
statements.
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
ofactsoromissionsarisinginthecourseoftheiroffice.Qualifyingpension
schemeindemnities(asdefinedinsection235oftheCompaniesAct
2006) apply, to the extent permitted by law, to certain directors of the
Company’s pension schemes. The indemnities were in force throughout
2021 and remain so. Copies of the deeds containing the relevant indemnity
areavailableforinspectionattheCompany’sregisteredofficeandwillalso
be available at the AGM.
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 Page
LR 9.8.4R (12) 235
LR 9.8.4R (13) 235
Political donations
No political donations were made during 2021.
Insurance
TheCompanyhasarrangedappropriatedirectors’andofficers’liability
insurance for directors. This is reviewed annually.
Directors’ report 235Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Greenhouse gas (GHG) disclosures
Global GHG emissions data
Emissions source (tCO2e)
Jan–Dec
2021
Jan–Dec
2020
1
Scope 1
–UK
–International
*13,350
13,324
26
12,407
12,365
42
Scope 2 – Location
–UK
–International
*17,356
16,537
819
19,233
18,295
938
Scope 2 – Market
–UK
–International
*2,700
1,881
819
1,122
184
938
Fugitive emissions (included in Scope 1) 127 188
Scope 3 – Operations
–Businesstravel
–Homeworking
–Servicedoffices
5,466
2,070
3,025
371
4,946
3,045
1,817
84
Scope 3 – Investments (million tCO2e) 7.0 8.3
Intensity ratio: tCO2e emissions per employee
(Scope 1 and 2) 2.86 3.11
Global energy data
Energy (MWh)
Jan–Dec
2021
Jan–Dec
2020
1
Total Electricity
–UK
–International
80,204
77,60 4
2,600
78,781
75,793
2,988
Gas
–UK
–International
44,970
44,908
62
53,923
53,694
229
On-site fuel (UK only)
18,121 32,929
Total energy use 143,295 165,633
* Our total Scope 1, Scope 2 (location) and Scope 2 (Market) emissions have been
subject to independent limited assurance by PwC. The basis of preparation
(or reporting criteria) for our group carbon footprint is available at
group.legalandgeneral.com/sustainabilityreports and PwC’s assurance
report is available on page 45 of our 2021 climate 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: group.legalandgeneral.com/
sustainabilityreports.
Scope 1: All direct emissions from the activities under control.
Scope 2: Emissions from purchased or acquired electricity, steam, heat and cooling.
• Locationbased–reflectstheaverageemissionsintensityofgridsonwhichenergy
consumption occurs.
• Marketbased–reflectsemissionsfromelectricitypurposefullychosen.Itderivesemission
factors from contractual instruments.
Scope 3: Indirect emissions from our value chain.
• Businesstravel:Includesbusinessmileage,flightsandtrainjourneysforEuropean
and US operations.
• Homeworking: Assessment of the impact of employees working from home, based
on EcoAct’s White Paper: https://bit.ly/Homeworking2020.
• Servicedoffices:EnergydataestablishedfromREEBbenchmarks.
• Investments: Scope 3 investment absolute carbon footprint associated with our portfolio
of proprietary assets on the group balance sheet.
Methodology
We have reported on the emission sources required under the Companies
Act 2006 Strategic Report and Directors’ Report Regulations 2013 and
havefollowedtherequirementsoftheStreamlinedEnergy&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.
Ouremissions,showninthetableopposite,cover100%ofLegal&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
2
orwherewehavesignificant
control over energy use.
Please refer to the Sustainable Business section of this report, our 2021
climate report, as well as our sustainability report (available later in the
year) and CDP Disclosure for an overview of the types of measures taken
to manage and improve our management of energy.
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.
Independent auditors
TheCompany’sauditorhasexpresseditswillingnesstocontinueinoffice
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 to determine its remuneration are
proposed for the forthcoming AGM.
Directors’ interests
The Directors’ report on remuneration on pages 94 to 117 provides details
of the share interests of each director, including details of current incentive
schemes and long-term incentive schemes as at 8 March 2022.
Annual General Meeting
The Company intends to hold this year’s AGM on Thursday, 26 May 2022
at 11am at The British Medical Association, BMA House, Tavistock Square,
Bloomsbury, London, WC1H 9JP. Shareholders will also be able to join and
vote virtually. Full details of the business to be considered at the meeting
and any special arrangements that will be in place in light of the UK
government’s prevailing restrictions regarding Covid-19 will be included
in the Notice of Annual General Meeting.
Statement of directors’ responsibilities
The directors are responsible for preparing the Annual Report and
Accounts (group and parent company), including the Directors’ report on
remunerationandthefinancialstatements,inaccordancewithapplicable
law and regulations.
Company law requires the directors to prepare group and parent company
financialstatementsforeachfinancialyear.Underthatlawthedirectors
havepreparedthegroupfinancialstatementsinaccordancewith
UK-adopted international accounting standards and applicable law and
Directors’ report
continued
1. 2020 has been restated to account for an amendment in the CALA Homes
2020 footprint (as previously disclosed, 2020 Scope 1: 15,163 tCO2e, 2020 Scope 2:
20,319 tCO2e).
2. Joint ventures are included in our footprint where we are the majority shareholder,
or have operational control.
236 Other informationLegal & General Group Plc Annual Report and Accounts 2021
haveelectedtopreparetheparentCompanyfinancialstatementsin
accordance with UK accounting standards and applicable law, including
FRS 101 Reduced Disclosure Framework.
Undercompanylaw,thedirectorsmustnotapprovethefinancial
statementsunlesstheyaresatisfiedthattheygiveatrueandfairviewof
thestateofaffairsofthegroupandtheCompanyandoftheprofitorloss
ofthegroupandtheCompanyforthatperiod.Inpreparingthesefinancial
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.
• forthegroupfinancialstatements,statewhethertheyhavebeen
prepared in accordance with UK-adopted international accounting
standards.
• fortheparentCompanyfinancialstatements,statewhetherapplicable
UK accounting standards have been followed, subject to any material
departuresdisclosedandexplainedintheparentCompanyfinancial
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
thataresufficienttoshowandexplaintheparentCompany’stransactions
anddisclosewithreasonableaccuracyatanytimethefinancialposition
oftheparentCompanyandenablethemtoensurethatitsfinancial
statements comply with the Companies Act 2006. They are responsible
for such internal control as they determine is necessary to enable the
preparationoffinancialstatementsthatarefreefrommaterialmisstatement,
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’ Remuneration
Report and Corporate Governance Statement that complies with that law
and those regulations.
The directors are responsible for the maintenance and integrity of the
corporateandfinancialinformationincludedontheCompany’swebsite.
Legislation in the UK governing the preparation and dissemination of
financialstatementsmaydifferfromlegislationinotherjurisdictions.
Responsibility statement of the directors in respect of the
annual financial report
Weconfirmthattothebestofourknowledge:
• thefinancialstatements,preparedinaccordancewiththeapplicable
set of accounting standards, give a true and fair view of the assets,
liabilities,financialpositionandprofitorlossoftheCompanyand
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.
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 is fair, balanced and
understandable. We describe these processes and procedures on page 88.
On the advice of the Audit Committee, the Board considers that the annual
report, 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
Ourcriticalaccountingestimates,keyjudgementsandsignificant
accounting policies conform with UK-adopted international accounting
standardsandaresetoutonpage139oftheconsolidatedfinancial
statements. The directors have reviewed these policies and applicable
estimationtechniquesandhaveconfirmedthemtobeappropriatefor
thepreparationofthe2021consolidatedfinancialstatements.
Disclosure of information to auditors
AsfaraseachofthedirectorsinofficeatthedateofthisDirectors’Report
isaware,thereisnorelevantauditinformation(asdefinedbysection418
(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 24 to 27 includes information
onthegroupfinancialresults,financialoutlook,cashflowandbalance
sheetposition.Theconsolidatedfinancialstatementsincludeinformation
onthegroupfinancialinvestmentsandinvestmentproperty(Note10),
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).
InlinewithIAS1‘Presentationoffinancialstatements’,andrevisedFRC
guidanceon‘riskmanagement,internalcontrolandrelatedfinancialand
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
ofapprovalofthefinancialstatementswhenassessingthegroup’sability
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 59.
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
concernbasisofaccountingwhenpreparingthefinancialstatements.
The Directors’ report and Strategic report were approved by the Board
and signed on its behalf.
By order of the Board
G J Timms
Company Secretary
Directors’ report 237Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Annual General Meeting
The 2022 AGM will be held on Thursday, 26 May at 11am at The British
Medical Association, BMA House, Tavistock Square, Bloomsbury, London
WC1H 9JP. The AGM provides the Board with the opportunity to engage
with shareholders and will be held as a hybrid event to allow shareholders
to join in person or via live video link. 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 and any special
arrangements that will be in place in light of Covid-19 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.
Dividend information
Dividend per share
Thisyearthedirectorsarerecommendingthepaymentofafinaldividend
of 13.27 pence per share. If you add this to your interim dividend of
5.18 pence per share, the total dividend recommended for 2021 will be
18.45 pence per share (2020: 17.57 pence per share). The key dates for
the payment of dividends are set out in the important dates section
on page 239.
Communications
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
TheCompany’sfinancialreportsareavailableonthewebsite.TheAnnual
Report and Accounts are sent to those shareholders who have elected
to receive paper copies. Alternatively, shareholders may elect to receive
notificationbyemailbyregisteringonwww.investorcentre.co.uk.Ifyou
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.
Registrar
Computershare Investor Services Plc (Computershare) has been appointed
byLegal&GeneralGroupPlctoactasourRegistrarandoffersmany
servicestomakemanagingyourshareholdingeasierandmoreefficient.
Investor Centre
The Investor Centre is a secure online site where you can manage your
shareholding quickly and easily. You can:
• View your holding and get an indicative valuation.
• Change your address.
• Arrange to have dividends paid into your bank account.
• Request to receive shareholder communications by email rather
than post.
• View your dividend payment history.
• Make dividend payment choices.
• Buy and sell shares.
• Download a stock transfer form.
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 welcome letter or by contacting Computershare.
Byphone–+44(0)3707071399*
Byemail–webcorres@computershare.co.uk
Bypost–ComputershareInvestorServicesPlc.ThePavilions,Bridgwater
Road, Bristol, BS99 6ZZ
Corporate sponsored nominee
The corporate sponsored nominee allows you to hold shares in the
Companywithouttheneedforasharecertificateandenablesyouto
benefitfromshortermarketsettlementperiods.Thecorporatesponsored
nominee also offers lower rate dealing costs. Individual shareholders hold
theirLegal&Generalsharesinanomineeholdingregisteredinthename
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.
Dividend payment options
Re-invest your dividends
Computershare’s Dividend Re-investment Plan offers a convenient way
for shareholders to build up their shareholding by using dividend money
to purchase additional shares. The plan is provided by Computershare
Investor Services PLC who are authorised and regulated by the Financial
Conduct Authority.
For more information and an application pack, please call
+44 (0) 370 707 1399* Alternatively you can email webcorres@
computershare.co.uk or you can log on to www.investorcentre.co.uk.
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
diversifiedportfolio.Pleaseconsultanindependentadvisorifyouneed
anyassistancewithfinancialmatters.
Have your dividends paid to your bank account
Once registered on Investor Centre, you can choose to receive your
dividends directly to your bank account. Just select ‘dividend options’
and follow the simple instructions. By opting to receive your dividends
electronically, your dividend will reach your bank account on the payment
date and you won’t have the inconvenience of depositing a cheque.
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) run by Computershare and
receive cash dividends direct to your bank account in your local currency
(a small fee and terms and conditions apply). You can enrol in the GPS
via the Investor Centre.
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.
Registering for electronic communications is very
straightforward. Just visit www.investorcentre.co.uk.
All you need is your Shareholder reference number (SRN),
which can be found on your welcome letter or by contacting
Computershare.
Shareholder information
238 Other informationLegal & General Group Plc Annual Report and Accounts 2021
Buy and sell shares
A simple and competitively priced service to buy and sell shares is
provided by Computershare. Shareholders are able to buy and sell
Legal&GeneralsharesbyregisteringontheInvestorCentre(www.
investorcentre.co.uk) and enrolling for Computershare’s share dealing
service. 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
dealingservice.Anyholderofcertificatedshareswillberequiredtosend
Computersharetheiroriginalsharecertificateandanauthorisationletter
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.
* 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.
Important dates
21 April 2022 • Ex-dividenddate(finaldividend)
22 April 2022 • Record date
11 May 2022 • Last day for DRIP elections
26 May 2022 • Annual General Meeting
1 June 2022 • Paymentoffinaldividend(toshareholdersregistered
on 22 April 2022)
10 August 2022 • Half-year results 2022
18 August 2022 • Ex-dividend date (interim dividend)
19 August 2022 • Record date
5 September 2022 • Last day for DRIP elections
26 September 2022 • Payment of interim dividend (to members registered
on 19 August 2022)
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,butnotreflectinganyrightstakenupunderthe2002
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&Generalproducts,call08001076830.
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,ortobuysharesataninflatedprice
inreturnforanupfrontpayment.Whilehighprofits
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
Promised tempting returns and told the investment
is safe.
Called repeatedly; or
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
ofallthefirmsandindividualsinthefinancial
services industry that are regulated by the FCA.
Get impartial advice
Thinkaboutgettingimpartialfinancialadvicebefore
you hand over any money. Seek advice from someone
unconnectedtothefirmthathasapproachedyou.
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
canfindoutmoreaboutinvestmentscams.You
can also call the FCA Consumer Helpline on
0800 111 6768.
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.
Ifyoudealwithanunauthorisedfirm,youwillnot
be eligible to receive payment under the Financial
Services Compensation Scheme. Find out more
at fca.org.uk/scamsmart.
Shareholder information 239Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Alternative Performance Measures
Analternativeperformancemeasure(APM)isafinancialmeasureof
historicorfuturefinancialperformance,financialposition,orcashflows,
otherthanafinancialmeasuredefinedunderIFRSortheregulationsof
Solvency II. APMs offer investors and stakeholders additional information
onthecompany’sperformanceandthefinancialeffectof‘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
complementaryto,ratherthanasasubstitutefor,thefiguresdetermined
according to other regulations. The APMs used by the group are listed
inthissection,alongwiththeirdefinition/explanation,theirclosestIFRS
measure and reference to the reconciliations to those IFRS measures.
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.
Adjusted operating profit
Definition
AdjustedoperatingprofitisanAPMthatsupportstheinternal
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.
Adjustedoperatingprofitmeasuresthepre-taxresultexcludingtheimpact
of investment volatility, economic assumption changes caused by
changes in market conditions or expectations and exceptional items.
Itthereforereflectslonger-termeconomicassumptionsforthegroup’s
insurance businesses and shareholder funds, including the traded portfolio
inLGC.Fordirectinvestments,operatingprofitreflectstheexpected
long-term economic return for those assets which are developed with
theintentionofsale,ortheIFRSprofitbeforetaxfortheearlystageand
mature businesses. Variances between actual and long-term expected
investment return on traded and real assets (including direct investments)
areexcludedfromadjustedoperatingprofit,aswellaseconomic
assumption changes caused by changes in market conditions or
expectations(e.g.creditdefaultandinflation)andanydifferencebetween
the actual allocated asset mix and the target long-term asset mix on new
pensionrisktransferbusiness.Adjustedoperatingprofitalsoexcludesthe
yield associated with assets held for future new pension risk transfer
business from the valuation discount rate on insurance contract liabilities.
Exceptional income and expenses which arise outside the normal course
of business in the year, such as merger and acquisition and start-up costs,
arealsoexcludedfromadjustedoperatingprofit.
Incertaindisclosures,thegroupmayusetheterm‘operatingprofit’asa
substituteforadjustedoperatingprofit,butinallcircumstancesitcarries
thesamedefinitionandmeaning.
Closest IFRS measure
Profitbeforetaxattributabletoequityholders.
Reconciliation
Note2–Supplementaryadjustedoperatingprofitinformation–section(i).
Return on Equity (ROE)
Definition
ROE measures the return earned by shareholders on shareholder capital
retainedwithinthebusiness.ROEiscalculatedasIFRSprofitaftertax
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 year).
Closest IFRS measure
Calculated using:
• Profitattributabletoequityholders
• Equity attributable to owners of the parent
Reconciliation
Calculatedusingprofitattributabletoequityholdersfortheyearof
£2,050m (31 December 2020: £1,607m) and average equity attributable
to the owners of the parent of £9,994m (31 December 2020: £9,270m),
based on an opening balance of £9,502m and a closing balance of
£10,486m (2020: based on an opening balance of £9,038m and a closing
balance of £9,502m).
Assets under management
Definition
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.
Closest IFRS measures
• Financial investments
• Investment property
• Cash and cash equivalents
Reconciliation
Note38–ReconciliationofAssetsundermanagementtoConsolidated
BalanceSheetfinancialinvestments,investmentpropertyandcashand
cash equivalents.
Net release from operations
Definition
Release from operations plus new business surplus/(strain). Net release
from operations is also referred to as cash generation, and includes the
release of prudent margins from the back book, together with the premium
received less the setup of prudent reserves and associated acquisition
costs for new business. Net release from operations is a component of
adjustedoperatingprofit(aftertax),andexcludespredominantlythe
impact of experience variances and changes in valuation assumptions.
Closest IFRS measure
Profitbeforetaxattributabletoequityholders.
Reconciliation
Note2–Supplementaryadjustedoperatingprofitinformation–sections
(i) and (ii).
Adjusted profit before tax attributable to equity holders
Definition
TheAPMmeasuresprofitbeforetaxattributabletoshareholders
incorporating actual investment returns experienced during the year
and the pre-tax results of discontinued operations.
Closest IFRS measure
Profitbeforetaxattributabletoequityholders.
Reconciliation
Note2–Supplementaryadjustedoperatingprofitinformation–section(i).
240 Other informationLegal & General Group Plc Annual Report and Accounts 2021
Glossary
* 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)
AnAPMisafinancialmeasureofhistoricorfuturefinancialperformance,
financialposition,orcashflows,otherthanafinancialmeasuredefined
under IFRS or the regulations of Solvency II.
Annual premium
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)
AssetsadministeredbyLegal&Generalwhicharebeneficiallyownedby
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)
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
contractuallyfixedand/orinflation-linkedsetofpaymentsovertimefrom
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.
Cash generation
Cash generation is an alternative term for net release from operations.
CCF – Common Contractual Fund
An Irish regulated asset pooling fund structure. It enables institutional
investors to pool assets into a single fund vehicle with the aim of achieving
costsavings,enhancedreturnsandoperationalefficiencythrough
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.
Credit rating
A measure of the ability of an individual, organisation or country to repay
debt. The highest rating is usually AAA and the lowest Unrated. Ratings
areusuallyissuedbyacreditratingagency(e.g.Moody’sorStandard&
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)
Atypeofpensionplaninwhichanemployer/sponsorpromisesaspecified
monthlybenefitonretirementthatispredeterminedbyaformulabasedon
the employee’s earnings history, tenure of service and age, rather than
depending directly on individual investment returns.
Defined contribution pension scheme (DC scheme)
Atypeofpensionplanwherethepensionbenefitsatretirementare
determined by agreed levels of contributions paid into the fund by the
memberandemployer.Theyprovidebenefitsbaseduponthemoney
heldineachindividual’splanspecificallyonbehalfofeachmember.
The amount in each plan at retirement will depend upon the investment
returns achieved as well as the member and employer contributions.
Derivatives
Derivatives are not a separate asset class but are contracts usually giving
acommitmentorrighttobuyorsellassetsonspecifiedconditions,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.
Dividend cover
Dividend cover measures how many times over the net release from
operations in the year could have paid the full year dividend. For example,
if the dividend cover is 3, this means that the net release from operations
was three times the amount of dividend paid out.
Early stage business
A recently created company in the early stage of its life cycle (typically
up to 18 to 24 months since establishment), which has not broken even
yet. This usually means the entity is not fully operational yet, and the
management team is still being developed.
Earnings per share (EPS)
EPSisacommonfinancialmetricwhichcanbeusedtomeasurethe
profitabilityandstrengthofacompanyovertime.Itisthetotalshareholder
profitaftertaxdividedbythenumberofsharesoutstanding.EPSuses
a weighted average number of shares outstanding during the year.
Eligible Own Funds
Eligible Own Funds represents the capital available to cover the group’s
Solvency II 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.
Glossary 241Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Employee satisfaction index
The Employee satisfaction index measures the extent to which employees
reportthattheyarehappyworkingatLegal&General.Itismeasuredas
part of our Voice surveys, which also include questions on commitment
tothegoalsofLegal&Generalandtheoverallsuccessofthecompany.
ETF
LGIM’s European Exchange Traded Fund platform.
Euro Commercial paper
Short-term borrowings with maturities of up to 1 year typically issued
for working capital purposes.
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).
Fair value through profit or loss (FVTPL)
Afinancialassetorfinancialliabilitythatismeasuredatfairvaluein
the Consolidated Balance Sheet reports gains and losses arising from
movements in fair value within the Consolidated Income Statement as
partoftheprofitorlossfortheyear.
Generally accepted accounting principles (GAAP)
These are a widely accepted collection of guidelines and principles,
established by accounting standard setters and used by the accounting
communitytoreportfinancialinformation.
Gross written premiums (GWP)
GWP is an industry measure of the life insurance premiums due and the
general insurance premiums underwritten in the reporting period, before
any deductions for reinsurance.
ICAV – Irish Collective Asset-Management Vehicle
A legal structure investment fund, based in Ireland and aimed at European
investmentfundslookingforasimple,tax-efficientinvestmentvehicle.
International financial reporting standards (IFRS)
These are accounting guidelines and rules that companies and
organisationsfollowwhencompletingfinancialstatements.Theyare
designed to enable comparable reporting between companies, and they
are the standards that all publicly listed groups in the UK are required to use.
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&GeneralAmerica.
LGAS
Legal and General Assurance Society Limited.
LGC
Legal&GeneralCapital.
LGI
Legal&GeneralInsurance.
LGI new business
New business arising from new policies written on retail protection
products and new deals and incremental business on group protection
products.
LGIA
Legal&GeneralInsuranceAmerica.
LGIM
Legal&GeneralInvestmentManagement.
LGR
Legal&GeneralRetirement,whichincludesLegal&GeneralRetirement
Institutional(LGRI)andLegal&GeneralRetirementRetail(LGRR).
LGR new business
Single premiums arising from annuity sales and back book acquisitions
(including individual annuity and pension risk transfer), the volume of
lifetime and retirement interest only mortgage lending and the notional size
oflongevityinsurancetransactions,basedonthepresentvalueofthefixed
legcashflowsdiscountedattheSONIAcurve.
Liability driven investment (LDI)
Aformofinvestinginwhichthemaingoalistogainsufficientassetsto
meet all liabilities, both current and future. This form of investing is most
prominentinfinalsalarypensionplans,whoseliabilitiescanoftenreach
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
guaranteeexistssuchthatifthehousevalueonrepaymentisinsufficient
to cover the outstanding loan, any shortfall is borne by the lender.
Longevity
Measureofhowlongpolicyholderswilllive,whichaffectstheriskprofile
of pension risk transfer, annuity and protection businesses.
Matching adjustment
An adjustment to the discount rate used for annuity liabilities in Solvency II
balancesheets.Thisadjustmentreflectsthefactthattheprofileofassets
heldissufficientlywell-matchedtotheprofileoftheliabilities,thatthose
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
fluctuationsafterpurchase.
Mature business
Acompanywhichhasbeenoperativeformorethanthreetofiveyears.
It generates regular revenue streams but the growth rate in its earnings
isexpectedtoremainbroadlyflatinthefuture.Atthispointinitslifecycle,
a complete and experienced management team is in place.
Morbidity rate
Rateofillness,influencedbyage,genderandhealth,usedinpricingand
calculating liabilities for policyholders of life products, which contain
morbidity risk.
Mortality rate
Rateofdeath,influencedbyage,genderandhealth,usedinpricingand
calculating liabilities for policyholders of life and annuity products, which
contain mortality risks.
Net release from operations*
Refer to the alternative performance measures section.
Net zero carbon
Achieving an overall balance between anthropogenic carbon emissions
produced and carbon emissions removed from the atmosphere.
Glossary
continued
242 Other informationLegal & General Group Plc Annual Report and Accounts 2021
New business surplus/strain
The net impact of writing new business on the IFRS position, including the
benefit/costofacquiringnewbusinessandthesettingupofreserves,for
UKnonprofitannuities,workplacesavings,protectionandsavings,netof
tax. This metric provides an understanding of the impact of new contracts
ontheIFRSprofitfortheyear.
OEIC – Open Ended Investment Company
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
Overlay assets are derivative assets that are managed alongside the
physical assets held by LGIM. These instruments include interest rate
swaps,inflationswaps,equityfuturesandoptions.Thesearetypically
used to hedge risks associated with pension scheme assets during the
derisking stage of the pension life cycle.
Paris Agreement
The Paris Agreement is 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)
PRTrepresentsbulkannuitiesboughtbyentitiesthatrunfinalsalary
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
asafunctionofnetflowsandclosingAUM.
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.
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
businessvalueattheendofthefinancialperiod.Thediscountedvalueof
longevity insurance regular premiums and quota share reinsurance single
premiums are calculated on a net of reinsurance basis to enable a more
representativemarginfigure.PVNBPthereforeprovidesanestimateof
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.
QIAIF – Qualifying Investor Alternative Investment Fund
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
borrowingrestrictions,QIAIFspresentahighlevelofflexibilityintheir
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.
Release from operations
The expected IFRS surplus generated in the period from the difference
between IFRS prudent assumptions and our best estimate of future
experience for in-force LGR and UK Insurance businesses, the post-tax
adjustedoperatingprofitonotherUKbusinesses,includingthemedium
term expected investment return on LGC invested assets, and dividends
remitted from LGIA.
Retirement Interest Only Mortgage (RIO)
A RIO mortgage is 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.
Return on Equity (ROE)*
Refer to the alternative performance measures section.
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.
SICAV – Société d’Investissement à Capital Variable
A publicly traded open-end investment fund structure offered in Europe
and regulated under European law.
SIF – Specialised Investment Fund
An investment vehicle regulated in Luxembourg targeted to well-informed
investors,providingagreatdegreeofflexibilityinorganisation,investment
policy and types of underlying assets in which it can invest.
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 II
The Solvency II regulatory regime is a harmonised prudential framework
forinsurancefirmsintheEEA.Thissinglemarketapproachisbasedon
economic principles that measure assets and liabilities to appropriately
align insurers’ risk with the capital they hold to safeguard the policyholders’
interest.
Solvency II capital coverage ratio (SCR)
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.
Glossary 243Legal & General Group Plc Annual Report and Accounts 2021
Strategic report Governance Financial statements Other information
Solvency II capital coverage ratio (proforma basis)
The proforma basis Solvency II SCR coverage ratio incorporates the
impacts of a recalculation of the Transitional Measures for Technical
Provisionsandthecontributionsofthegroup’sdefinedbenefitpension
schemes in both Own Funds and the SCR in the calculation of the SCR
coverage ratio.
Solvency II new business contribution
ReflectspresentvalueatthepointofsaleofexpectedfutureSolvencyII
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
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. 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.
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
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.
Solvency Capital Requirement (SCR)
The amount of Solvency II capital required to cover the losses occurring
in a 1-in-200 year risk event.
Total shareholder return (TSR)
TSR is 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)
This is 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 will decrease 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.
Glossary
continued
244 Other informationLegal & General Group Plc Annual Report and Accounts 2021
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Forward-looking statements
This Annual Report and Accounts may contain
‘forward-looking statements’ with respect
tothefinancialcondition,performanceand
position, strategy, results of operations and
businesses of the Company and the group that
are based on current expectations or beliefs, as
well as assumptions about future events. These
forward-lookingstatementscanbeidentified
by the fact that they do not relate only to
historical or current facts. Forward-looking
statements often use words such as ‘may’,
‘could’, ‘will’, ‘expect’, ‘intend’, ‘estimate’,
‘anticipate’, ‘believe’, ‘plan’, ‘seek’, ‘continue’ 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 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
otherfactorsspecifictothegroup.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 representation that such trends
or activities will continue in the future. No
statement in this document is intended to be
aprofitforecastortoimplythattheearnings
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.
These judgments, assumptions and estimates
are likely to change over time. In addition, the
group’s climate risk analysis and net zero 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 2021 climate 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
securitiesorfinancialinstrumentsnordothey
constitute any advice or recommendation with
respecttosuchsecuritiesorotherfinancial
instruments or any other matter.
Registeredoffice:
T 020 3124 2000
F 020 3124 2500
legalandgeneralgroup.com
Legal&GeneralGroupPlcisaholding
company, subsidiary undertakings of which
are authorised and regulated by the Financial
Conduct Authority and/or Prudential
Regulation Authority, as appropriate.