Tim Breedon
Group Chief Executive
Between the collapse of Northern Rock in October 2007 and the delayed but nevertheless dramatic government intervention in the banking sector a year later, our priority was to ensure that Legal & General was appropriately equipped with the right strategy and the operational skills to trade robustly through even a severe downturn.
Today, I believe we have gone further. In markets like these, fundamentally strong and healthy companies can gain competitive advantages and lay the foundations for future value growth.
The Right Strategy
Our five strategic imperatives are the keys to realising our goal of becoming the UK’s leading Risk, Savings and Investment management business. We aspire to more than leadership in each of the three sectors: we aim to share resources and skills across the Group, encouraging efficient cross-fertilisation which realises the value of the many synergies between our businesses. Core to our value proposition is the idea that Legal & General collectively is worth more than the sum of its parts.
“Since we first issued a cautionary note with our 2007 Interim Results, it has become increasingly clear to Legal & General that the UK economy was heading for slowdown and subsequent recession. Our regular outlook statements have suggested increased volatility, a slowing housing market, declining confidence and a general deterioration in the economic and market environment.”
Tim Breedon, Group Chief Executive
Strategy in Action
Strategy does not exist in a vacuum and during the year we made good progress embedding our strategic thinking into our day-to-day business activity. The evidence for this is woven throughout this 2008 Annual Report.
We have acted to build an increasingly diversified business, for example, reducing historic reliance on housing transactions as the catalysts for protection product sales, finding new ways to access customers and adding complementary products to our existing range in Savings and Investment management.
We have extended our range of high quality products and broad distribution, introducing market innovations – such as postcode annuities, dramatically extending our range in the Self Invested Personal Pensions (SIPP) market through the acquisition of Suffolk Life, and ensuring our new partnership with Nationwide Building Society has successfully added to sales.
We have worked closely with industry bodies and our regulator to improve customer experience and have led the industry in proposing new, fairer approaches to non-disclosure in the life assurance and critical illness areas.
Financial strength was a major focus in 2008. As financial market conditions became increasingly unsettled during the year, we took a number of steps to de-risk our balance sheet. Although credit default losses remained broadly in line with our assumptions in 2008, we have more than doubled the reserves we hold against future credit defaults in our bond portfolio. Our capital, cashflow and liquidity positions remain robust.
We have continued to pursue our aim of building an increasingly high performance organisation. We continued to invest in systems improvements and while tougher markets make greater demands on our employees, we have sought to create, through better training, better communications and increased accountability, the right environment in which they can continually improve performance.
We are acutely aware of the trust placed in us by customers and shareholders and of the important part we play, as an investor and employer, in the broader UK economy. We speak up and take part in public and private debate when it is in our stakeholders’ interests for us to do so.
As a long term business we seek to:- understand the risks we take
- avoid the distorting effects of short term incentives; and
- conduct business in a sustainable fashion.
No business can be immune from market changes, nor can any business make itself recession proof. But we can, and do, position our business to align ourselves as closely as possible with the long term interests of shareholders, customers and employees alike. Our CSR Report contains further detail and can be found at www.legalandgeneralgroup.com/csr.
Financial Results
Our headline financial results for 2008 are, frankly, disappointing. There is, however, good evidence of the underlying ability of our Risk and Investment management businesses to generate strong, positive cashflows which will support future dividends and growth. We intend to take the necessary steps to enable the Savings businesses to become similarly cash-generative going forward. Our balance sheet, as measured by total [IGD] capital resources of £4.4bn, including a regulatory IGD surplus of £1.8bn, remains strong.
Outlook
The outlook for the economy and for markets remains difficult. In common with others, we expect to see negative growth in the UK for the remainder of 2009, with continued uncertainty across most investment markets and asset classes. However, we believe Legal & General is well-diversified, able to take advantage of opportunities as they arise even in these more difficult conditions and has robust capital and cash positions. As such we are well-positioned to trade through the recession, building on our strong positions in Risk and Investment management, and subsequently to take advantage of a return to a more cautious, savings-oriented approach by customers as the economy recovers.
Tim Breedon
Group Chief Executive
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