Chairman's Statement

The credit crisis and its consequences in terms of confidence in financial markets and economic activity has taken us all into waters uncharted in our lifetimes. It has had a heavy impact on our share price and on your returns. Shareholders’ exposure to actual impairments and defaults has been contained but, as asset values have fallen, the Company’s capital base, whilst remaining strong, has declined. After thorough analysis and much consideration, your Board is pursuing a more cautious strategy which reflects the heightened risk and uncertainty being experienced in global financial markets.

Our operating businesses remain sound and are generating healthy cashflows. It is your Board’s view that the integrity and long term success of your Company is best served by focussing on sustaining the strength of its capital base and improving cash flows through these turbulent times. We will therefore continue to reduce risk, whilst accelerating our programme to reduce capital strain and improving cash generation across the business.

“It is your Board’s view that the long term success of your Company is best served by focussing on sustaining the strength of its capital base and improving cash flows through these turbulent times.”

Sir Rob Margetts, Chairman
 

Shareholder Return, Share Buyback and Dividend

Total Shareholder Return (TSR) for 2008 was negative 38% (2007: negative 14%). This reflects a fall of over 30% in the [FTSE] All-Share Index and a decline of 40% for the life insurance sector during the year.

We have pursued a progressive dividend policy for many years, and we believe this has served our long term shareholders well. In arriving at its dividend recommendation, the Board must take account of market conditions, future growth expectations and the need to retain a strong capital base. This year, in line with changed market circumstances we are recommending a reduced final dividend of 2.05p per share. With the interim dividend of 2.01p, this will bring total dividends for 2008 to 4.06p, a reduction of 32%.

During the year we suspended the £1bn share buyback having completed £843m of share purchases under the programme. The consequent reduction in the number of shares outstanding has significantly cut the ongoing cost of dividend.

Financial Highlights

Worldwide new business sales for 2008 were £1,486m on an Annual Premium Equivalent (APE) basis (2007: £1,437m). International Financial Reporting Standards (IFRS) operating loss was £(189)m (2007: profit of £658m) and [IFRS] loss from ordinary activities after income tax was £(1,130)m (2007: profit £718m). The Company remains strongly capitalised with a regulatory capital surplus of £1.8bn on the Insurance Groups Directive (IGD) basis, and a AA Financial Strength Rating.

Shareholder Communications and AGM

After two transitional years, I am pleased to report that the majority of our shareholders are now receiving Annual and Interim Reports online. Of those of you who chose to continue to receive printed copies, most now favour the shorter Summary Financial Statements. These changes have been positive in environmental and cost terms, and the shift online has enabled us to make more information available to shareholders, in increasingly user-friendly formats.

This year’s Annual General Meeting (AGM) will be held on Wednesday 27 May at the Institution of Engineering and Technology, Savoy Place, London WC2R 0BL.

Board Changes

There were no Board changes during 2008. In January 2009, Kate Avery stood down from the Board. I would like to thank her for her contribution to Legal & General since 1996, and to the Board since 2001. Mark Gregory joined the Board as Executive Director (Savings) in January 2009, and I look forward to working with him in his new capacity.

Our Staff

I remain convinced that Legal & General’s people and culture are significant assets which differentiate the Company from its competitors. While the increasingly difficult recent market conditions have placed correspondingly greater burdens on our management and staff, they have risen to the challenges of a much more uncertain business environment and the increasing need to align our resource base and infrastructure more closely with changing business volumes. At the same time, we welcomed new employees to Legal & General following our acquisitions of Suffolk Life, Nationwide Life and Nationwide Unit Trust Managers. Throughout the year we worked to improve employees’ understanding and knowledge of the business and to raise levels of skill and engagement through improved training and communication. Our partnership with Unite, the trade union, remains strong and collaborative and as ever we appreciate their support.

Outlook

In 2007’s Annual Report, I indicated that we expected to see more difficult market conditions. The dislocation in credit markets in 2008 will, we anticipate, be followed by continuing recession in the UK in 2009 and perhaps beyond. Business conditions are becoming more difficult as a result of falling house prices, rising unemployment and declining corporate profitability.

Legal & General, however, has a robust and diversified business model and a long history of operational success. While it is undoubtedly appropriate for us to adopt a more cautious stance during this period of financial turbulence and uncertainty, we believe the Company is well positioned to trade through the economic downturn and emerge in a strong financial and competitive position.

Sir Rob Margetts
Chairman

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