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DELIVERING OUR STRATEGY
Tim Breedon
Group Chief Executive
In March 2009 I set out our intention to accelerate the net cash generation of the Group. We set targets to deliver £450 million of net cash and £50 million of annual cost savings in 2009. Both of these targets were exceeded by the end of September, and end of year net cash generation was £699 million and annual cost savings were £69 million.
Legal & General is a balanced manufacturer of Risk, Savings, and Investment management products. In Risk, market leading positions in protection and annuities are generating significant, sustainable cash flows and continue to perform well despite a weakened UK housing market. Our General insurance business is now delivering healthy returns.
The turnaround in our Savings business is ahead of schedule. New business sales have been strong in 2009 with emergence of sustainable cash flow and profit in the second half of 2009.
Legal & General Investment Management (LGIM) has continued to receive strong new business flows and has established a top ranked position in the UK pensions fund market. Our International businesses are now poised to become a significant source of future profit growth.
Our diverse mix of distribution channels puts us in a good position ahead of the implementation of the Retail Distribution Review (RDR). New distribution arrangements with SAGA, Skipton Building Society and Northern Rock, amongst others, will contribute to overall sales in 2010.
We have also worked closely with industry associations and relevant Government bodies to highlight the impacts of regulation and policy, particularly the potential unintended consequences of the European Solvency II Directive and its impact on UK savers.
OUR PURPOSE
“I strongly believe insurance can be a catalyst for economic improvement, and a force for good. We can take on new responsibilities to benefit our policyholders, investment customers, shareholders and society at large. Having proved we can survive the financial crisis, it is now up to us to prove our value in the recovery, but we will need the right regulatory framework and the right spirit of partnership with Government to do so.
We need to deliver on our promises and meet our obligations where it is right to do so. We must not forget that our products should be designed to meet the real needs of customers, not be driven by our own preferences or those of our distributors.”
Tim Breedon, Business In the Community (BITC) AGM, 3 December 2009.
In recognition of this important aspect of our role, a new section has been added to this year’s report and can be found in the Our role section.
Our CSR Report contains further details and can be found at www.legalandgeneralgroup.com/csr.
FINANCIAL HIGHLIGHTS
IFRS PROFIT FOR THE YEAR
£844m
(2008: loss of £1,130m)
Worldwide new business sales for 2009 were £1,388 million on an annual premium equivalent (APE) basis (2008: £1,486 million). In part this reflects more difficult economic conditions, and low investor confidence in the first half of the year. However it is also the result of a deliberate strategy on our part to focus more selectively on higher quality, higher return new business. International Financial Reporting Standards (IFRS) operating profit was £1,109m (2008: £592m restated).
In Risk, individual annuities recorded double digit sales growth and individual protection outperformed the falls in gross mortgage lending reflecting sector leadership and breadth of distribution. The pensions buyout market, after an extraordinary 2008, returned to the levels seen in previous years and Legal & General took a broadly consistent share of this market in 2009.
The strategy of focusing on the small scheme market coupled with a highly selective approach to larger transactions has been maintained. Total APE in the Risk business fell 25% to £366 million.
In Savings, a strategy of reducing volumes in traditional capital-intensive life and pensions products in favour of more capital efficient Self Invested Personal Pensions (SIPPs) and unit trusts continues to drive growth. Overall UK Savings APE was 3% higher than last year at £907 million, boosted by a 69% growth in unit trusts sales.
FINAL DIVIDEND PAYABLE
£160m
(2008: £120m)
Investment management received gross inflows of funds of £33.3 billion for the year. Of this LGIM inflows accounted for £31.5 billion, our second highest annual level of gross funds ever, as UK Corporate pensions trustees and institutional clients continue to be attracted to our range of indexed, fixed income and liability driven investment (LDI) products combined with high levels of service.
International sales were down 3%, as businesses in the United States, France and the Netherlands performed well in challenging market conditions. New joint ventures in India and the Gulf began trading during the fourth quarter.
BALANCE SHEET AND CAPITAL
Financial strength was a major focus in 2008 and continued to be so in 2009. Our balance sheet is stronger and our estimated IGD surplus at the end of the year was £3.1 billion (2008: £1.8bn). This is more than double the required level of regulatory capital, resulting in a coverage ratio of 224%, up from 169% at the end of December 2008.
OUTLOOK
These results demonstrate the significant progress we continue to make in transforming the Group into a lower cost, capital efficient, cash generative business. Our business outlook is exciting. Confidence is slowly returning to the economy and I believe the actions that we have taken this year leave our businesses well placed to continue delivering growth going forward. We have a clear strategy based on strong cash generation and profit growth, an efficient manufacturing capability, and proven distribution strength.
Tim Breedon
Group Chief Executive