2022 Results: Operating profit up 12% to £2.5bn, EPS up 12% to 38.3p , ROE of 21% and Solvency coverage of 236%
Strong financial performance[1]
· Operating profit of £2,523m, up 12% (2021: £2,262m)
· Profit after tax[2] of £2,291m, up 12% (2021: £2,050m)
· EPS of 38.33p, up 12% (2021: 34.19p)
· R eturn on equity of 20.7% (2021: 20.5%)
· Solvency II coverage ratio of 236% (2021: 187%)
· As at 3rd March 2023 we estimate the coverage ratio was 240%[3]
· Full year dividend of 19.37p, up 5% (2021: 18.45p), consistent with our ambition
On track to achieve our five-year (2020-2024) ambitions[4]
· Cash generation of £1.9bn, up 14%. Capital generation of £1.8bn, up 10%
· Cumulative cash and capital generation on track with strong dividend headroom. To date:
‒ Cash generation of £5.1bn and capital generation of £4.9bn (£8.0-9.0bn by 2024)
‒ Dividends of £3.3bn (£5.6-5.9bn by 2024)
‒ Net surplus generation[5] over dividends of £0.7bn
Good new business volumes and rapidly increasing international presence
· Global PRT new business premiums of £9.5bn (2021: £7.2bn), of which 23% international
· LGC alternative AUM up 21% to £4.2bn (2021: £3.4bn), of which 12% international
· LGIM AUM of £1.2tn , of which £441bn (37%) international
· LGIM external net flows of £49.6bn (2021: £34.6bn), of which 43% international
· Protection gross premiums up 8% to £3.1bn (2021: £2.9bn), of which 39% international
” We have delivered another strong result in 2022, ahead of market expectations, with operating profit of £2.5bn and EPS of 38.3p, both up 12%, cash generation of £1.9bn up 14%, capital generation of £1.8bn up 10%, dividends up 5% to 19.37p and an ROE of 21%. Our diversified and highly synergistic business model continues to deliver significant benefits. Our balance sheet is strong and highly resilient, with a record solvency ratio of 236% and we have once again received 100% of cash flows due from our Direct Investments. At a time when many households are being affected by the rising cost of living, our commitment to inclusive capitalism is more important than ever to help improve the lives of our customers, build a better society for the long-term and create value for our shareholders.”
Sir Nigel Wilson, Group Chief Executive
Financial summary
| £m | 2022 | 2021 | Growth % |
| Analysis of operating profit | |||
| Legal & General Retirement Institutional (LGRI) | 1,257 | 1,154 | 9 |
| Legal & General Capital (LGC) | 509 | 461 | 10 |
| Legal & General Investment Management (LGIM) | 340 | 422 | (19) |
| Retail[6] | 825 | 620 | 33 |
| Operating profit from divisions | 2,931 | 2,657 | 10 |
| Group debt costs | (214) | (230) | 7 |
| Group investment projects and expenses | (194) | (165) | (18) |
| Operating profit[7] | 2,523 | 2,262 | 12 |
| Investment and other variances (incl. minority interests) | 136 | 226 | n/a |
| Profit before tax attributable to equity holders[8] | 2,659 | 2,488 | 7 |
| Profit after tax attributable to equity holders | 2,291 | 2,050 | 12 |
| Earnings per share (p) | 38.33 | 34.19 | 12 |
| Book value per share (p) | 194 | 174 | 11 |
| Full year dividend per share (p) | 19.37 | 18.45 | 5 |
2022 Financial performance
Income statement
Legal & General’s diversified business model has delivered a record set of results and resilient balance sheet, with operating profit up 12% to £2,523m (2021: £2,262m). A ll four divisions are well positioned to execute on compelling structural market opportunities and collectively to deliver profitable growth over the medium and long-term.
LGRI operating profit increased by 9% to £1,257m (2021: £1,154m) underpinned by the growing scale of backbook earnings and the consistent performance of our annuity portfolio. LGRI also maintained pricing discipline and executed at higher volumes to address growing demand, writing £9,541m of global PRT (2021: £7,176m) at attractive Solvency II new business margins (8.9%)[9], which is in line with our long-term average.
LGC operating profit increased by 10% to £509m (2021: £461m) driven by strong performance in our alternative asset portfolio, where operating profit increased to £400m (2021: £350m). Our diversified, multi-tenure housing portfolio has delivered another set of strong results, driven by Cala. Science and technology infrastructure investments through our Bruntwood SciTech joint venture (JV) and Urban regeneration projects such as Sky Studios in Borehamwood continue to generate attractive returns. Our Alternative Finance business (Pemberton) also continues to perform strongly.
LGIM delivered lower operating profit of £340m (2021: £422m) primarily due to the impact of market movements on assets under management, which decreased by £225bn to £1,196bn since the start of the year. External net flows remained strong, increasing by 43% to £49.6bn (2021: £34.6bn). 43% of these flows were from international clients, and we have seen continued growth in higher margin areas such as thematic ETFs and multi-asset. However, the positive impact of these higher margin flows has been offset by Defined Benefit flows, with clients selling higher fee-generating products to meet collateral requirements. The impact of inflation and market movements, alongside lower revenues, increased the cost income ratio to 65% (2021: 58%). We are carefully balancing cost control with selective ongoing investment to modernise, diversify and internationalise LGIM.
Retail operating profit increased by 33% to £825m (2021: £620m). Our US life insurance business saw a return to profit, driven by robust new business volumes and the benefit from reinsuring the in-force universal life book. After significant Covid mortality experience over Q1 2022, the market continued to see elevated levels of mortality over the year, leading to claims exceeding the provision raised at FY 2021. The retail retirement business delivered strong new business volumes in addition to a significant prudence release from updating base mortality assumptions, and our Fintech business benefitted from valuation uplifts following successful fundraising in Salary Finance and Smartr365 over 2022.
Group costs were elevated compared to prior year, driven by the IFRS 17 programme and related workstreams.
Profit before tax attributable to equity holders[10] increased by 7% to £2,659m (2021: £2,488m) reflecting a strong operating result and positive investment variance of £137m (2021: £233m). The key drivers of this positive investment variance are from the formulaic impact of rising interest rates on insurance reserves, partially offset in LGC by global equity market falls and the revaluation of some land assets and development projects as a result of higher interest rates.
Balance sheet and asset portfolio
The Group’s Solvency II operational surplus generation was up 10% at £1,805m (2021: £1,636m). New business strain was £(352)m (2021: £(354)m) resulting in net surplus generation of £1,453m (2021: £1,282m). UK PRT volume was written at a capital strain of less than 4% and we achieved self-sustainability on the UK annuity portfolio again, as we did in 2020 and 2021.
The Group reported a Solvency II coverage ratio[11] of 236% at the end of 2022 (FY 2021: 187%) which, in addition to the contribution from net surplus generation, reflects the impact of market movements, principally from the non-economic impact of higher interest rates on the valuation of our balance sheet[12], partially offset by payment of the 2021 final and 2022 interim dividend (£1,116m).
Our IFRS return on equity of 20.7% reflects the impact of operating profit growth and positive investment variance (2021: 20.5%).[13] Book value per share has increased by 11% to 194p.
Our diversified, actively managed annuity portfolio has continued to perform resiliently with no defaults. The annuity portfolio’s direct investments continue to perform strongly, with 100% of scheduled cash-flows paid in 2022, reflecting the high quality of our counterparty exposure.
Group Strategy
Legal & General has established expertise in asset origination (LGC) and asset management (LGIM), and in the provision of retirement and protection solutions to corporates and individuals (LGRI and Retail). We operate at scale and are strongly positioned to capitalise on significant growth opportunities across our chosen markets through these four divisions:
| Division | Provision | Description |
| LGRI | Retirement Solutions | A leading international manager of institutional Pension Risk Transfer (PRT) business |
| LGC | Asset Origination | An alternative asset origination platform generating attractive shareholder returns |
| LGIM | Asset Management | A global £1.2tn asset manager with deep expertise in DB and DC pensions |
| Retail | Retirement & Protection Solutions | A leading provider of UK retail retirement and protection solutions and US term life insurance |
A powerful business model
We have a unique and highly synergistic business model, which continues to drive our strong return on equity. Legal & General provides powerful asset origination and management capabilities directly to clients. These capabilities also underpin our leading retirement and protection solutions:
· LGRI is a market leader in UK PRT and a top ten player in the US PRT market, with annuity assets of £55bn.[14] It provides long-term, captive AUM to LGIM. As noted, the annuity portfolio is continually being enhanced through the supply of alternative assets originated by LGC.
· LGC invests across four main asset classes (Specialist Commercial Real Estate, Clean Energy, Housing and SME Finance) to generate attractive risk-adjusted shareholder returns and to create alternative assets with which to back our annuity portfolio. LGC is also increasingly attracting third party capital investment directly, and through collaboration with LGIM, to meet the growing client demand for alternative assets.
· LGIM is a leading global asset manager, ranking 11th in the world[15] with £1.2tn of AUM of which £441bn, or 37%, are international assets. LGIM is a leading provider of UK and US Defined Benefit (DB) de-risking solutions. It is uniquely positioned to support DB clients across the full range of pension endgame destinations, including PRT with LGRI. 77% of LGRI’s PRT transactions over the past three years were from existing LGIM clients.[16] LGIM is also the market leader in UK Defined Contribution ( DC) pension scheme clients with DC AUM of £135bn – the leading player in a market with significant growth potential, with total UK DC assets expected to surpass £1.2tn by 2031.[17]
· Retail is a leading provider of UK retail retirement and protection solutions, and US term life insurance. The UK retail retirement business offers Workplace Savings, annuities, income drawdown and lifetime mortgages (LTM). Our UK and US insurance businesses generate day one surplus capital which partially offsets annuity new business strain. Retail is also an internal centre of excellence in technology, and manages a portfolio of successful, strategic Fintech business investments.
The synergies within and across our businesses drive profits and fuel future growth.
The integrated nature of our business model means we have relationships with clients and customers that can and do last for decades. A corporate client in LGIM typically becomes a PRT client after 14 years. LGRI will then typically have a relationship with that client for another 30 to 40 years. Equally, Retail Retirement and LGIM may have a 30-40 year relationship with a customer during the DC accumulation phase, and then extend that relationship for another 15-30 years during the decumulation phase across a suite of decumulation products including individual annuities, lifetime mortgages and drawdown.
The Group continues to build out, in a measured fashion, its international retirement solutions franchise. We have made excellent progress in the US over the last decade and will continue to grow our established businesses (LGRI, LGIM, Retail) in that market. LGIM continues to make good progress against its international expansion plans in the US, Europe and Asia. Kerrigan Procter is co-ordinating the Group’s expansion plans in Asia building on the $150bn of regional assets already under management.
A long-term commitment to Sustainability and Inclusive Capitalism
Our purpose is to improve the lives of customers, build a better society for the long-term and create value for our shareholders. This inspires us to use our assets in an economically, environmentally and socially useful way to benefit society – what we call Inclusive Capitalism. At a time when many in society are facing increasing economic hardship, we believe Inclusive Capitalism matters more than ever.
Our philosophy underpins our approach to sustainability.[18] We think about sustainability in terms of:
· How we invest proprietary assets . [19] Our ambition is to reduce our group investment portfolio economic carbon intensity by half by 2030 and to net zero carbon by 2050. In 2022, our group investment portfolio economic carbon intensity fell by 5% versus 2021, through a combination of market movements, partially offset by a muted emissions increase as business activity increased. While the reduction of 23% from 2019 is ahead of our 2022 target, we may still see further volatility from future global events – as experienced through the pandemic and the ongoing conflict in Ukraine – and therefore remain focused on delivery of our mid-to-long-term decarbonisation targets. We continue to make environmentally and socially useful investments. As at FY 2022, we have invested £1.3bn in clean energy and £8.3bn in social infrastructure. For more information, please see our latest Climate Report, compliant with recommendations by the Task Force on Climate-related Financial Disclosures (TCFD), and our latest Social Impact Report, which describes our activity in investing for positive social, economic and health outcomes.[20]
· How we influence as one of the world’s largest asset managers with £ 1.2 trillion AUM . We have £332.2bn AUM in ESG strategies and in 2022 our investment stewardship team engaged with around 900 companies, holding them to account on the issues that matter most to our clients.[21],[22] LGIM is proud to have received a 5 star ranking from the UN Principles for Responsible Investment (UN PRI) for investment stewardship and policy, and to have scored over 75% in each section of the latest UN PRI report.[23] In addition to being among the highest rated managers for engagement by FinanceMap, LGIM has also been highlighted by MajorityAction for its approach to holding companies to account on climate change.
· How our businesses operate . We are committed to supporting our customers, employees, suppliers, shareholders and society at large. In the current economic environment, we recognise that support is more critical now than ever. For information on how we are supporting our stakeholders, please see our Social Impact report.12 We have committed to reducing the carbon emission intensity of our operating businesses. Our ambition is to operate our offices and business travel with net zero emissions from 2030, and for all our new homes to be net zero operational carbon from 2030. ESG criteria are included in executives’ objectives and remuneration schemes.
CEO retirement and succession plans
Sir Nigel Wilson has informed the Board of his decision to retire from executive life. He joined Legal & General as Chief Financial Officer in 2009 and was appointed as Chief Executive in 2012.
Since Sir Nigel joined Legal & General, the Group has delivered a consistently strong financial performance with a total shareholder return of over 600% driven by significant growth in dividends, earnings per share and ROE. During his time as Chief Executive, Sir Nigel has executed numerous strategic initiatives to grow and re-focus the business, consistently exceeding financial and operational targets while also ensuring Legal & General has delivered Inclusive Capitalism with positive outcomes for shareholders, customers and the broader economy.
The Board has commenced a rigorous process to appoint a successor, considering both internal and external candidates. Sir Nigel has agreed to continue as Chief Executive until the new Chief Executive starts and he will support a smooth transition following their appointment. It is envisaged that this process will take up to a year. In the meantime, Sir Nigel will continue to focus on delivering the Group’s strategy, supported by the executive team.
Current Trading Update
We have made a good start to the year:
· LGRI: There has been a step-up in the number of pension schemes approaching the insurance market, with market movements in 2022 having generally increased funding levels and accelerated the ability of many pension schemes to de-risk. As a result, we currently have a strong global pipeline across all of our key markets. We remain well placed to achieve our volume ambitions.
· LGIM: We have started 2023 with further positive flows across higher margin areas, including Defined contribution and Wholesale. Our international progression continues, with positive flows in Japan and the US. We continue to work with our UK Defined Benefit clients to support them in repositioning their strategies in a higher interest rate environment.
· LGC: Our Housing portfolio has made a good start to the year against a tougher backdrop. Cala has completed 200 sales with reservations on private units at 41% of the target for the year. Whilst this is slightly below last year’s exceptional start to the year, it is in line with previous years. Our most recent Build to Rent developments have also let far quicker than expected. Pemberton has raised $1bn for its Working Capital Finance strategy, and will invest in receivables, payables and inventory financing for US and European large and mid-market companies. The Specialist commercial real estate portfolio has also made a good start to the year with two planning applications accepted for Ancora L&G in the US and progress made across the Oxford portfolio, notably with developments in our Begbroke Science Park.
· Retail: In Retirement, we have seen a continuation of higher demand for individual annuities due to higher rates on offer and an increased demand for fixed term annuities, with total annuity volumes of c£196m at end February, 43% higher than the prior year, and lifetime mortgage advances of £40m. US Protection new business is up 32% on the prior year, with volumes of c$28m. UK protection new business is down on prior year with total volumes of c£40m, predominantly due to fewer large Group Protection schemes coming to market.
Our solvency ratio as at 3rd March 2023 was 240%.
Outlook
Confident in achieving our ambitions; well-positioned to deliver long-term profitable growth
Our strategy has delivered strong returns for our shareholders over time. It demonstrated resilience through the pandemic and positions us well to navigate – and even benefit from – the prevailing market environment. We are confident we can continue to deliver profitable growth as we execute on our strategy .
We set out five-year ambitions at our Capital Markets event in November 2020. Cumulatively, over the period 2020-2024, our financial ambitions[24] are for :
· Cash and capital generation (of £8.0bn – £9.0bn) significantly to exceed dividends (of £5.6bn – £5.9bn)[25]
· Earnings per share to grow faster than dividends, with the dividend growing at 5% to FY 2024
· Net capital surplus generation (i.e., including new business strain) to exceed dividends
We made further progress against these ambitions in 2022 and remain confident in achieving them. In 2022, we have achieved 14% growth in cash generation and 10% growth in capital generation. From the start of the ambition period to FY 2022, we have achieved £5.1bn of cash generation and £4.9bn of cumulative capital generation, and declared £3.3bn of dividends. Even zero growth in cash and capital generation from now to 2024 would still see us meet our ambition of generating £8.0 – £9.0bn in cumulative cash and capital. Moreover, the jaws between net capital surplus generation and the dividend are widening, providing attractive capital optionality. From the start of the ambition period to FY 2022 we have generated £0.7bn of cumulative net surplus over the dividend.
We aim to deliver long-term, profitable growth across the Group . Our annuity portfolios generate highly predictable, stable cash flows from their growing back-books, and we are well positioned to help meet the rapidly growing demand for global PRT. Our asset origination and asset management businesses, LGC and LGIM, operate in attractive and profitable markets, and maintain a strong commitment to sustainable investing. LGC provides unique asset origination capabilities in sectors that have significant growth potential and which produce yield-creating assets that drive our annuity business and which appeal to third party investors (e.g. specialist commercial real estate, clean energy, housing and SME finance). LGIM offers a range of investment solutions for institutional and wholesale clients and is expanding geographically and into new channels. Retail is applying technological innovation to sustain its UK leadership position, to grow in the US and to continue to expand into adjacent markets.
We remain highly confident in our strategy and in our ability to deliver resilient, organic growth, supported by our strong competitive positioning in attractive and growing markets. Our confidence in our dividend paying capacity is underpinned by the Group’s strong balance sheet, which has Solvency II surplus regulatory capital of £9.9bn, providing significant capacity to absorb a market downturn. We have a proven operating model which is reinforced by robust risk management practices.
We are pleased with the further progress we have made in 2022 and are confident in our ability to deliver further profitable growth going forwards. Our Inclusive Capitalism approach enables us to support the UK’s twin policy objectives of “Levelling Up” and “Addressing Climate Change”.
We will continue to maintain a defensive and diversified asset portfolio and a long-term investment horizon, supporting all our stakeholders by delivering Inclusive Capitalism through investments – both for our own portfolio and for clients – in areas such as infrastructure, clean energy and affordable housing, and by providing products to support individuals’ financial resilience.
Business segment outlook
Legal & General Institutional Retirement (LGRI)
LGRI participates actively in the global pension risk transfer (PRT) market, focusing on corporate defined benefit (DB) pension plans in the UK, the US, Canada, Ireland and the Netherlands, which together have more than £6 trillion of pension liabilities.
We write direct business in both the UK and US and are top-tier providers in both markets. We are supported by LGIM’s long-standing client relationships and investment capabilities as well as LGC’s asset origination capabilities. We are now beginning to leverage LGC investments in the US and continue to enhance our asset strategy and product innovation, commercialising the wide-ranging skills accessible across the Group. Our A minus rated global annuity asset portfolio is well-managed and diversified across sector and region (46% UK, 54% international). In 2022, 57% of our UK transactions were with LGIM clients, demonstrating the continued strength of our client relationships and the competitive advantage provided by our unique position as the only firm operating across the full pension de-risking journey.
The UK is our primary market and is the most mature PRT market globally with £1.4 trillion of UK DB pension liabilities, of which an estimated c14% has been transferred to insurance companies to date.[26] The addressable market therefore remains significant. At the same time, demand for PRT is growing as rising interest rates and widening credit spreads reduce pension deficits and allow more funds to consider de-risking. Leading advisers such as LCP are bullish on the prospects for PRT in 2023 and beyond.[27] W e are strongly positioned to capitalise on this opportunity.
Our stated ambition is to write circa £8-10bn of UK PRT per annum. We have demonstrated that this level of new business is self-sustaining, i.e. the growing amount of capital generated by our in-force UK annuity book more than offsets both the capital investment required to fund new business and the portfolio’s contribution to our progressive Group dividend. The UK annuity portfolio achieved self-sustainability in 2020, 2021 and 2022. Over this period, Group net surplus generation has exceeded dividends by a total of £0.7bn, equivalent to approximately two additional years of new business strain.
We increasingly regard our ambition of writing £8-10bn of UK PRT per annum as “business as usual” and have demonstrated that this level of new business is self-sustaining. T here may well be opportunity to bid on additional large, or very large, PRT transactions over the coming years. We are well positioned and have appetite to write this additional business, subject to it delivering on our key new business metrics. We will consider any large incremental transactions as “M&A”-type activity, funding it from our strong stock of solvency capital as required.
The US represents another significant market opportunity, with $3.0 trillion of DB liabilities, of which an estimated c9% have transacted to date.[28] Since our market entry in 2015, our US business has completed 95 transactions and written $8.4bn of business. As in the UK, demand for PRT is growing: we estimate the total US PRT market increased 39% to $53bn in 2022 (FY2021: $38bn).[29] LGRI is the only insurer providing PRT directly to pension plans in both the UK and US, and we actively quote on select Canadian and Irish PRT opportunities as well. In the Netherlands, proposed pension reform legislation could result in significant PRT business coming to market over the next 3-4 years. We continue to actively monitor the market with a view to potential participation.
Our ambition is to write at least $10bn of international PRT over the five years from 2020-2024. We have written $5.5bn of International PRT from 2020 to date, with premiums growing over this period by c30% per annum. We expect sales to continue to grow and are confident of meeting our ambition.
Legal & General Capital (LGC)
LGC, the Group’s alternative asset origination platform, will continue to deploy shareholder capital in a range of underserved areas of the real economy which are backed by long-term structural trends. LGC has three fundamental objectives: 1) profit and value generation within LGC for shareholders; 2) asset creation to back LGRI and Retail annuity liabilities and to meet demand from like-minded investors; and 3) a focus on high-return sustainability and ESG investments, securing long lasting value for shareholders and society.
LGC is making good progress in internationalising its business model, announcing its first US investment projects with joint venture partner Ancora in 2022.
As communicated at the LGC capital markets event in October 2021, our ambition is to build LGC’s diversified alternative AUM to c£5bn by 2025 (2022: £4.2bn), with a blended portfolio return target of 10-12% (previously 8-10%). In combination with the contribution from the Traded Portfolio, LGC’s ambition is to deliver operating profit of £600-700m in 2025. Additionally, we plan to increase third party capital to £25-30bn (2022: £16.6bn). We expect our existing platforms (Pemberton, NTR) to underpin our ambitions for third party AUM, building on their impressive growth to-date, although we also anticipate growing contributions from Clean Energy, Later Living, Data Centres and US science and technology infrastructure opportunities via Ancora L&G, alongside wider internationalisation efforts. Excluding assets originated to back our annuity liabilities, LGC expects to invest and manage over £30bn of alternative AUM by 2025.
LGC’s asset classes, which include specialist commercial real estate, housing, clean energy and SME Finance, have all been selected given the long-term need for capital in these sectors, and provide us with compelling opportunities to create high-yielding assets.
· The Specialist Commercial Real Estate (SCRE) portfolio includes urban regeneration (primarily funded by LGRI) and science and technology-focused real estate in the UK through Bruntwood SciTech and more recently in the US, through Ancora L&G . Partnering with universities, local authorities and private sector experts, we have invested across twenty-two towns and cities in the UK and two in the US, creating jobs, driving economic growth and revitalising local communities. Our SCRE portfolio also includes an increasing focus on Digital Infrastructure, which is critical for both corporations and governments. State of the art data centres are central to meeting this need, and data management is one of the fastest growing sectors from a structural perspective. Our investment has given LGC the opportunity to strategically diversify its portfolio whilst enabling social and financial inclusion as we level up cities and unlock productivity growth on a global basis.
· In the Clean Energy sector, we are focused on investing selectively into attractive growth equity and low carbon infrastructure opportunities. We are confident that our selective approach to clean energy investing will continue to yield positive results. With a focus on meeting increasing societal demand, growth equity investments include early-stage scale-up companies that deliver innovative clean technologies, and low carbon infrastructure investments target renewable energy sources.
· As a leading provider of UK homes, committed to tackling the affordability gap and the undersupply of housing (estimated to be around 450,000 homes required annually), LGC’s Housing platform continues to expand across all tenures and demographics, and we are well positioned to scale in support of our long-term ambitions. Whilst 2023 presents a more challenging outlook for housing due to increases in cost to the consumer, our multi-tenure approach provides opportunity to grow our portfolio. We will continue to invest thoughtfully through the cycle, benefitting from our large stock of patient capital waiting to be deployed.
· In SME Finance, we are continuing to support UK and European innovation through two key platforms. Firstly, through our GP Investing platform and aligned to our strategy to invest in socially and economically useful enterprises, we continue to work alongside ambitious, ESG-oriented alternative asset managers. Since 2020, Pemberton (where we hold a 40% stake) has doubled its revenues from c€50m to c€100m in 2022, driven by Direct Lending which continues to be core to Pemberton’s strategy. And secondly, through our Venture Capital Platform where we continue to invest in the real economy and technological innovation. The Venture Capital platform now supports over 600 companies through our investments.
Our alternative asset strategies represent Inclusive Capitalism at work – generating long-term value for society and shareholders. Through our investments, we are creating much needed jobs, homes, and infrastructure, driving growth, skills and innovation, and contributing towards a cleaner and greener future.
Legal & General Investment Management (LGIM)
LGIM is a global asset manager with a diversified asset and client base, underpinned by clear structural demand for our capabilities. As the asset manager for the Group, LGIM plays a core part in L&G’s successful synergistic business model, including creating a pipeline of fully-funded DB pension schemes for LGRI, the origination and management of assets for the annuity portfolio, and access to distribution for LGC’s alternative asset creation platform.
Our purpose is to create a better future through responsible investing, and we are a global leader in ESG. LGIM is one of the largest managers of corporate pension funds globally. We are a UK leader in Defined Benefit (DB) pensions, the UK’s number-one Defined Contribution (DC) manager and we manage assets for 4 of the 5 largest corporate pension schemes in the US. We intend to maintain our strong position in the UK, which has been the bedrock of our success to date, while continuing to broaden our reach internationally. We will diversify our active, index and solutions capabilities, building on our strength in fixed income and real assets, and on our heritage in ESG.
2022 was a profoundly challenging year for all asset managers. The market environment shifted fundamentally, with interest rates up significantly, inflation hitting double digits in many developed economies and global equity markets falling substantially. As a consequence, LGIM’s assets under management declined over 2022, with closing AUM of £1,196bn compared to average AUM for the year of £1,309bn, notwithstanding positive net flows of £47bn. We remain confident, however, that LGIM will continue to make an important profit and cash contribution to the Group, despite the lower opening asset position in 2023.
The three pillars of our strategy are to modernise, diversify and internationalise. We are investing in our people, our operating platform and our data capabilities and are currently implementing a transformation of our strategic operating model to build a globally scalable investment and middle office platform and to deliver excellent client service. We are selectively expanding our investment offering, with a focus on higher-margin product areas such as Real Assets, ETFs, Multi-asset and Fixed Income, and we are increasingly integrating ESG into our investment portfolios. LGIM aims to be an innovator in those countries where our strengths align to client needs. Our ambition is to continue to grow International AUM profitably and at pace in the US, Europe and Asia. Over the last five years, LGIM’s international AUM has more than doubled to reach £441bn – 37% of the total.
Legal & General Retail Division (Retail)
Insurance
We will continue to leverage our technological innovation, operational strength and scale efficiencies to offer market leading product offerings. Our data and tech-led strategy makes our products more accessible to customers and supports further product and pricing enhancements.
In the UK, our market leading retail protection business is supported by our strong distribution relationships, investment in our systems and platforms, and product enhancements, leading to robust delivery in 2022. In 2023, we expect the retail protection market to be impacted by a softer housing market and by affordability considerations for consumers. Our group protection business has performed well, increasing premium income by 5% to £427m (2021: £405m). Our medium-term ambition remains unchanged. We continue to target mid-single digit growth in revenues across our UK protection businesses to 2025.
In the US, we anticipate our ongoing technology investments and new partnerships will position us for premium growth. We are using technology to improve customer experience while reducing cost to become the partner of choice for a wide range of distribution partners. We are already the largest provider of term life assurance in the brokerage channel[30], and our digital first approach is aiming to achieve, on average, double digit growth in new business sales to 2025.
Retirement
Workplace savings is a core part of the Group’s retail proposition. The business is a growth area for the Group and we expect the market to continue to expand, driven by ageing demographics and welfare reforms. Our core focus is on better assisting our 4.96 million Workplace members to plan for their retirement whilst they are saving with us, as well as when they come to retirement. This will drive better customer outcomes and, at the same time, help us to retain more of our customers in retirement. Despite consumer pressures, member contributions have remained strong over 2022 and we’ve not yet observed any material changes in customer activity as a result of increases in the cost of living.
There are currently c£600bn in UK Defined Contribution (DC) accumulation assets and this is expected to more than double over the next ten years.[31] As a market leading provider in Workplace Savings, we are well placed to benefit from this expected increase in DC pension assets, and to grow administration revenues for the Retail division and fund management revenues for LGIM.
The amount of DC assets coming to maturity each year has increased to c£45bn following the dip that was seen during the pandemic when customers deferred making retirement decisions. Similarly, and as noted, the annuity market is also showing signs of recovery as the interest rate rises make the cost of an annuity cheaper. Retail Retirement has a strong market share in individual annuities – 20.3% over 2022[32] and an external market share of 36.3% 24 – and continues to explore and develop new product ideas to meet the needs of people reaching retirement.
The UK lifetime mortgage (LTM) market continues to represent a sizeable opportunity, with UK housing equity in over 55s at £2.6 trillion.[33] This year c£6bn per year was released through the LTM market. However, we anticipate a challenging market in 2023 given the prevailing interest rate environment. We continue to remain disciplined on pricing to deliver assets that add value to our portfolio to back our long-term annuity liabilities.
Across all our Retail businesses we continue to focus on our customers, with a particular focus on the technology that supports providing a more efficient and more personalised service.
Fintech
There are a wide range of technology startups creating new financial services businesses harnessing technology and data to deliver better customer outcomes and successful business models. With our market insights, relationships and expertise, we are well positioned to accelerate growth and scale up Fintechs in adjacent markets, which can also assist us in accelerating our own strategic growth areas.
We have been making strategic investments in adjacent market Fintechs for many years including adding three new investments during 2022. Our current portfolio of eight Fintechs has been growing fast, with valuation uplifts in both Salary Finance and Smartr365 following successful rounding rounds over 2022. Over the coming years we expect continued growth in revenues and customer numbers: We are targeting double digit growth to 2025 for our Fintech businesses.
Dividend
The Board has approved a slight amendment to the Group’s dividend policy to reflect the fact that we will no longer be producing “Net release from operations” under IFRS 17. Accordingly, and to reflect the importance of solvency capital generation as a critical measure of dividend sustainability, the dividend policy will substitute “Net release from operations” with “Capital generation”.
Henceforth the Group’s dividend policy states: “We are a long-term business and set our dividend annually, according to agreed principles. The Board’s intention for the future is to maintain its progressive dividend policy, reflecting the Group’s expected medium-term underlying business growth, including measurement of Capital generation and Adjusted operating profit.”
The Board has recommended a final dividend of 13.93p, giving a full year dividend of 19.37p, up 5% from the prior year (18.45p). This is consistent with our stated ambition to grow the dividend at 5% per annum to FY 2024. [34]
LGR – Institutional
| FINANCIAL HIGHLIGHTS £m | 2022 | 2021 | ||
| Operating Profit | 1,257 | 1,154 | ||
| Investment and other variances | (21) | 193 | ||
| Profit before tax attributable to equity holders | 1,236 | 1,347 | ||
| Release from operations | 620 | 512 | ||
| New business surplus | 298 | 193 | ||
| Net release from operations | 918 | 705 | ||
| New business premiums £m | ||||
| UK PRT | 7,226 | 5,315 | ||
| International PRT | 2,222 | 936 | ||
| Other PRT (longevity insurance, Assured Payment Policy) | 93 | 925 | ||
| Total new business | 9,541 | 7,176 | ||
| LGRI Annuity assets1 (£bn) | 55.0 | 67.4 |
1. In the UK, annuity assets across LGRI and Retail are managed together. Estimated proportion of annuity assets belonging to LGRI
Operating profit of £1,257m
LGRI delivered strong operating profit of £1,257m, up 9% (2021: £1,154m). Profit was underpinned by the scale of backbook earnings, performance of our global annuity portfolio, robust pension risk transfer (PRT) new business volumes and routine assumption changes. UK volumes increased 17% to £7.3bn (2021: £6.2bn) and international volumes increased 137% to £2.2bn (2021: £0.9bn).
We have prudently adopted a modified CMI 2020 model, releasing a modest positive into the results. No weight was given to 2020 data, as this would have led to unreasonable falls in life expectancy, given the significant impact of Covid.
Release from operations increased 21% to £620m (2021: £512m), reflecting the scale of the business as prudential margins unwind from LGRI’s £55.0bn annuity portfolio (2021: £67.4bn).
Net release from operations was £918m (2021: £705m) with new business surplus of £298m (2021: £193m), reflecting successful execution of our disciplined approach to writing new business, leveraging positive asset sourcing and proactive use of reinsurance. During 2022, we wrote £7,319m of UK PRT at a UK Solvency II new business margin of 8.9% , which is in line with our long-term average (2021: 9.5%). UK PRT volumes were written at a capital strain of less than 4%.
Gross longevity exposure was £69.7bn across LGRI’s and Retail’s annuity and longevity insurance businesses. We have reinsured £32.3bn of longevity risk with seventeen reinsurance counterparties, leaving a net exposure of £37.4bn. The reinsurance market continues to grow and innovate, and we expect it to continue to offer sufficient capacity to meet the demand from insurers.
Successful execution coupled with a disciplined approach for value
During 2022 LGRI underwrote £9,541m of business across 61 deals globally (2021: £7,176m, 57 deals).
Legal & General wrote strong levels of PRT new business whilst remaining focused on value creation.
LGRI’s brand, scale and asset origination capabilities – through synergies and expertise within LGIM and LGC – are critical to our market leadership in the UK PRT market. Long-term client relationships, typically created and fostered by LGIM, have allowed us to help many pension plans achieve their de-risking goals. In 2022, we demonstrated our market leadership and solutions capabilities by writing a series of innovative transactions, including:
· A £4.3bn buy-in with the British Steel Pension Scheme (BSPS), sponsored by Tata Steel UK, executed in two tranches (£2.2bn in May and £2.1bn in December). These transactions bring L&G’s total insured amount to 60% of BSPS liabilities, up from 5% in 2021. The BSPS trustee appointed LGIM in July 2022 to manage the combined assets of the scheme and bring additional skills and expertise to the scheme as it targets full buy-in [35]
· c£430m buy-in with the Tioxide Pension Fund, securing the benefits of around 2,700 retirees and deferred members
· c£400m buy-in with the TT Group (1993) Pension Scheme, securing the benefits of circa 5,000 retirees and deferred members
· c£370 million buy-in with London Heathrow’s BAA Pension Scheme, securing the benefits of more than 1,400 retirees
Strong US volumes with significant growth
Capitalising on the growing market opportunity and affirming our competitive position in the US, LGRI delivered $2,096m in 2022, almost double the US PRT business originated in the prior year (2022: £1,763m; 2021: $1,095m; £789m) . As the US market continues to grow and mature, LGRI is strongly positioned to leverage cross-divisional synergies to boost momentum in the region.
As always, our focus is on shareholder value creation, and we maintain disciplined pricing to ensure strong economic returns. This has been fundamental to our success to date and positions us well as we begin to undertake larger PRT transactions. In 2022, we wrote two of our largest ever US PRT transactions, each greater than $500m, with strong economic returns. In addition, we secured £459m of Canadian deals through our reinsurance entity and continue to develop strategic partnerships in the region, increasing our overall presence in North America.
As the only insurer providing PRT directly to pension plans across the UK and US, Legal & General is also strongly positioned to offer international pension de-risking solutions.
Legal & General Capital
| FINANCIAL HIGHLIGHTS £m | 2022 | 2021 |
| Operating profit | 509 | 461 |
| – Alternative asset portfolio | 400 | 350 |
| – Traded investment portfolio & Treasury | 109 | 111 |
| Investment and other variances | (408) | 19 |
| Profit before tax attributable to equity holders | 101 | 480 |
| Net release from operations | 404 | 379 |
| ALTERNATIVE ASSET PORTFOLIO £m | ||
| Specialist commercial real estate | 811 | 625 |
| Clean energy | 272 | 224 |
| Housing | 2,268 | 1,979 |
| SME Finance | 811 | 611 |
| 4,162 | 3,439 | |
| TRADED ASSET PORTFOLIO £m | ||
| Equities | 1,335 | 1,853 |
| Fixed income | 103 | 54 |
| Multi-asset | 181 | 221 |
| Cash1 | 1,067 | 1,427 |
| 2,686 | 3,555 | |
| LGC investment portfolio | 6,848 | 6,994 |
| Treasury assets at holding company | 1,588 | 1,621 |
| Total | 8,436 | 8,615 |
1. Includes short-term liquid holdings.
Total operating profit of £509m increased 10% over 2022
LGC operating profit increased by 10% to £509m (2021: £461m). This growth principally reflects increased profits from our alternative asset portfolio of £400m (2021: £350m), driven by strong demand in the housebuilding market and continued maturing of the portfolio.
Profit before tax attributable to equity holders was £101m, driven by investment and other variances of £(408)m, largely due to adverse market performance in traded equities, as well as the more minor revaluation of some land assets and development projects reflecting higher interest rates.
Our growing alternative asset portfolio achieved a net portfolio return of 7.5% (2021: 8.5%).
Alternative asset portfolio grew 21% over 2022 to £4.2bn
LGC continues to strengthen its capabilities across a diversified range of alternative assets that are underpinned by structural growth drivers. In 2022, our alternative asset portfolio increased to £4,162m (2021: £3,439m) as we deployed a further £0.8bn, and made new undrawn commitments of £0.5bn across our existing investment platforms. Through these investments, we originate assets that generate strong returns for shareholders, create attractive Matching Adjustment (MA)-eligible assets for our annuity portfolio, and supply attractive alternative assets to third party clients. An example of this is the new JV between LGIM and our NTR investment, where we participated as one of the cornerstone investors for the Clean Power (Europe) Fund.