Chairman's statement.

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A CHALLENGING YEAR

John Stewart
Chairman

This is my first communication with you, our shareholders, as the new Chairman of your Company. I have known and worked with Legal & General for many years and have found the company to have huge strengths, including its balance sheet, cash-generative capacity, strong brand and commitment to customers.

In the 2008 Annual Report, your previous Chairman indicated that we expected continuing recession in the UK in 2009 and, sadly, he was not wrong. In the first quarter of 2009 financial markets were left reeling after narrowly avoiding a systemic failure of the banking system and entering one of the sharpest, deepest recessions on record. However, over the course of one of the most difficult years in my memory, a financial meltdown was avoided and a feared 1930’s style depression did not materialise.

Through this period of extreme uncertainty, no major UK-listed insurer was forced to cease trading, ask for taxpayer funding or go to the stock market to raise fresh capital. Most importantly, no promises to policyholders were reneged upon. Investment performance suffered with falling markets, but customers’ claims and pensions continued to be paid as normal. This is testament to the strength and importance of the life industry in the UK.

Throughout the course of the year, policy makers undertook extraordinary measures to rebuild confidence in the financial system and stimulate economic activity. I am pleased that these actions, alongside the steady stewardship of your Board, have had a positive impact on our share price and on your returns, ensuring that we entered 2010 in a strong position.

SHAREHOLDER RETURN AND DIVIDEND

By the end of the year, the [FTSE] All-Share Index saw a recovery to 2761, 25% above its 2209 at the start of last year. Our total shareholder return (TSR) for 2009 was 11% (2008: negative 28%).

This year, in line with improved market conditions, but recognising the need to retain a strong capital base, the Board is recommending an increase in the final dividend of 33% to 2.73p per share. With the interim dividend of 1.11p, this will bring total dividends for 2009 to 3.84p.

ANNUAL GENERAL MEETING (AGM)

This year’s AGM will be held on Wednesday 26 May at the Institution of Engineering and Technology, Savoy Place, London WC2R 0BL.

BOARD CHANGES

In addition to my appointment there have been a number of changes to the Board this year. In June we welcomed Dame Clara Furse, formerly Chief Executive of London Stock Exchange Group, as a Non-Executive Director of the Group and in September Dr. Nigel Wilson joined the Board as Group Chief Financial Officer in succession to Andrew Palmer.

I would like to thank Andrew for the contribution he made to Legal & General over his long period with the Company and to formally welcome Nigel and Dame Clara to the Board.

Full details of all changes can be found in the Introduction section of the report.

OUR STAFF

As a result of the economic situation, fiscal changes and our pursuit of increased efficiency we reduced resource levels across the Group this year. This resulted in redundancies in several areas.

Notwithstanding these changes our employees have continued to perform at their normal high standard and I am very grateful to them for their hard work and commitment.

OUTLOOK

As we head into 2010, economic indicators have started to improve and financial markets have responded slowly. Over the next twelve months we anticipate only modest growth in the UK economy and activity in the housing market is likely to remain subdued. However, fresh signs of improvement in the manufacturing sector should help restore economic growth in 2010 and we believe the Company is well positioned to seize the opportunities offered by this recovery.