In 2010, the Risk division achieved £439m of [operational cash generation] (2009: £454m). [Net cash generation] was £429m (2009: £504m) as positive new business strain arising from exceptional pricing conditions in annuities receded. Operating profit was £560m (2009: £735m) but [IFRS] profit before tax was up 28% to £662m following the reversal of negative investment variances seen in 2009. [IFRS operating profit] at £560m (2009: £735m) was well ahead of target, although down on the previous year due to one off events such as exceptional annuities pricing in 2009.

INDIVIDUAL PROTECTION

In individual protection, the weak housing market continues to depress demand although intermediaries within the protection market are replacing the loss of income from mortgage business with other protection sales. New Business [APE] remained strong at 96% of that achieved in 2009. During the year, competitors have withdrawn from the market and there has been some consolidation.

2010 saw the continued growth of the successful partnership with Nationwide Building Society, sustained volumes from Legal & General Network and a new panel arrangement with Openwork. Direct business increased to 6% of total APE, reflecting an increase in marketing activity on the Over 50s product and the development of our affinity partnership with Bounty.

We have increased the maximum expiry age for our individual critical illness cover (CIC) from age 65 to age 70, reflecting developments in employment trends caused by changes such as the removal of the default retirement age and the increase in the state pension age. We have also increased the maximum sum assured for CIC, meeting the needs of more high net worth customers who need a higher level of cover. Both our income protection and CIC products now have a Defaqto 5 star rating.

In November, we successfully moved Nationwide Building Society, our largest tied protection partner, to our core protection system OLP Connect. This has enabled processing efficiencies for both companies and delivers an improved customer experience. Over 90% of applications are now received online through OLPC.

GROUP PROTECTION

In group protection, traditional corporate markets continue to be adversely impacted by falling staff numbers and wage freezes. However, volumes have been maintained against this backdrop with APE of £57m (2009: £57m) through successful distribution, product innovation and continued investment in systems improvements such as the policy administration platform Elixir.

We have developed an Ill Health Liability Insurance product which allows UK Councils to manage their exposure to workers’ early retirement pensions when diagnosed with long-term illness. We were the first provider in the group market to provide employers with an income protection product allowing them to cover all of their employees, whatever their age, following the removal of the default retirement age.

Our group protection business was the first in the group market to offer tele-underwriting and the first to provide a free Employee Assistance Programme (EAP) to all group life members. We have expanded into the multinational pooling market in order to offer a global solution to corporate customers and have developed superior service and risk-assessment capabilities that have enabled us to grow our business by 40% in the last five years, with 88% of our customers staying year on year.

Our group life business paid out £196 million in claims to help relieve the financial suffering of over 2,000 dependants in 2010 and our group critical illness product has been improved with the addition of more conditions, the inclusion of a shorter survival period and a substantial increase in the free limit.

ANNUITIES

Overall [APE] for annuities was 11% higher than in 2009 at £207m (2009: £186m). The overall annuities profit (including investment variance) stands at £458m (2009: £348m).

Individual Annuities delivered record volumes of more than £1.1bn in 2010 and full year APE grew by 19% (2009: £979m). Individual Annuities benefited from increased direct business and higher volumes through our relationship with SAGA; additionally there was a one off uplift as the minimum retirement age increased to 55. There was also growth in the enhanced annuities market where sophisticated pricing increased market share.

We expect to continue to grow in this area having entered into an annuity partnership deal with Zurich Financial Services to provide annuities for their pension customers from October.

In the bulk annuity market we continued to focus on small schemes, writing 115 schemes during the year (2009: 82 schemes) worth £900m of premium. We continue to be highly selective in the large bulk annuity market writing only one scheme in excess of £100m premiums.

GENERAL INSURANCE

In general insurance, gross written premiums of £281m are slightly up on 2009 (2009: £273m) and new business is ahead of 2009 with a new banking distribution deal signed in the period. Operating expenses have been controlled in line with business growth.

An IFRS operating loss of £(8)m reflects two periods of severe cold weather in the year. In January claims reached £14m and at the end of the year, during what the Meteorological Office has reported as the coldest December in the last 100 years, claims are estimated to be in excess of £30m. This experience is expected to be in line with the market and, despite the volume of December claims, action has been taken to protect customer service levels and good progress has been made around initial loss assessment visits.

DISTRIBUTION

In the IFA market, we have consolidated our position by agreeing a panel arrangement with Sesame, the largest network in the market. We also gained a key position on the Openwork panel, which should provide new [APE] of £2m.

In the banks and building societies arena we continue to maximise scale from the large volume distributors such as Nationwide Building Society and Barclays while working with partners such as Sainsbury’s Bank to deliver more innovation.

The Legal & General Network had another strong year in 2010, maintaining distribution capacity in contrast to the general reduction of advisers in the market as a whole. The Legal & General Network is well placed, with significant strategic advantages, to outperform in the intermediary market.

We have taken steps to enhance future distribution through a number of strategic investments in additional technological solutions and platforms.