Strategic overview.

Apply superior financial management

Capital is a key ingredient for our business and effective capital management is an important objective. We aim to ensure that we have the right amount of the right type of capital to meet our business requirements. We have built a reputation as a low-cost manufacturer. As well as immediate margin enhancement, cost leadership provides the agility to react to changing circumstances quickly.

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We do this in five ways*:
Return on equity
IFRS operating profit
Insurance group directive (IGD) surplus and coverage ratio
Total shareholder return (TSR)
EEV operating profit
* The definitions and purpose of these measures can be found at the bottom of this page.

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Both IFRS and EEV operating profits showed a healthy improvement on 2008 numbers. Our focus on cash generation has yielded a significant improvement in IFRS profits
Our balance sheet proved resilient to extreme market conditions and year end estimated IGD surplus was £3.1bn
[TSR] has improved in 2009 to 11% from negative 28% in 2008
Consequently group return on equity was a healthy 22%.

Build a diversified business

We manage our portfolio of businesses to deliver Group targets against our key metrics. We scan the market to identify new opportunities and invest to grow the business and build profitable returns.

Segmented IFRS profit

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Risk is a highly cash generative business which benefits from high scale and leading market positions. IFRS operating profit in 2009 was £735m
Savings has continued to turn around its performance with changes to costs, products and distribution yielding an IFRS operating profit of £55m
Investment management has a leading position in its UK markets, and is developing internationally. IFRS operating profit was £167m
We are building our international portfolio with the launch of new businesses in the Gulf States and India in 2009. International IFRS operating profit was £127m.

High quality products and broad distribution

Central to our business model is the maintenance of diversified distribution capability. The benefits of this strategy are that we are able to build scale in diversified markets and maintain growth as distribution patterns shift. Together with this, we will produce products which offer demonstrable value to customers, distributors and us, maintaining quality and ensuring a stable stream of high quality new business.

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Persistency measures
Awards in recognition of good products

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We have continued to execute our multi distribution strategy well during 2009. We signed distribution agreements with SAGA, Northern Rock, and Skipton Building Society amongst others
Our product range continues to attract customers and distributors to us. During the year we launched a range of new products across our businesses.

A positive customer experience

We recognise our customers are at the heart of our business and consequently work hard to develop relationships with our key customer segments and distributors on mutually acceptable terms. We aim to deliver a positive experience for our existing customer base; treating our customers fairly and meeting, or beating, the performance assumptions made in terms of persistency, cost, claims and mortality.

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Customer experience report
Customer satisfaction surveys

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Extreme market conditions have affected customers during the year. Many savings and investment management customers have seen their asset values fall. This has had an impact on customer perceptions of Legal & General
We continue to deliver high quality service to our customers and win many awards for service. We continually strive to improve the quality of service we offer.

A high expectation culture

Our people are key to our continued long term success. We aim to maintain a strong management team and continually to grow the breadth and depth of our management capability. Our organisational culture already yields benefits in terms of behaviour, low turnover and cost, but we recognise the need to evolve in the current marketplace, injecting greater energy into the business to improve on our successes.

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Annual staff survey
Staff engagement in ‘What Matters?’ programme

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We have continued to make good progress in the evolution of our culture. We have recruited a number of high quality leaders to the Board and to individual businesses. Our managers have been trained on improving performance management, leadership and communications. There is still more to do but we are pleased with the progress we have made in 2009.