Net cash.

NET CASH Key measure in the remuneration of executives Key performance indicator (KPI)

£865m

(2011: £846m)

OPERATIONAL CASH GENERATION

Operational cash generation is defined as the expected release from the in-force business for the UK non-profit Protection and Annuities and Savings businesses, the shareholders’ share of bonuses on with-profits business, the post-tax operating profit on other UK businesses, including an expected investment return on Group Capital and Financing invested assets, and dividends remitted from our international businesses from sustainable cash generation.

NEW BUSINESS STRAIN

This is the impact of writing new business on the regulatory position, including the cost of acquiring new business and the setting up of regulatory reserves.

NET CASH GENERATION

Net cash generation is defined as operational cash generation less new business strain for UK non-profit Protection and Annuities and Savings businesses.

KPI PURPOSE: NET CASH GENERATION DEMONSTRATES THE ABILITY OF THE GROUP TO PAY RETURNS TO SHAREHOLDERS

(XLS:) KPI purpose: net cash generation demonstrates the ability of the group to pay returns to shareholders

 

Operational cash generation
2012
£m

New
business strain
2012
£m

Net cash
2012
£m

Operational cash generation
2011
£m

New
business
strain
2011
£m

Net cash
2011
£m

Protection and Annuities

522

(31)

491

498

(31)

467

Savings

179

(62)

117

174

(63)

111

Investment management

197

197

189

189

US protection

40

40

35

35

Group capital and financing

20

20

44

44

 

958

(93)

865

940

(94)

846

BUSINESS SEGMENT

PROTECTION AND ANNUITIES

Protection and Annuities net cash represents the expected surplus generated in the period from the in-force non profit business less the cost of acquiring new business and setting up regulatory reserves in respect of the new business, net of tax.

Protection and Annuities net cash generation further includes dividends received from our businesses in France and Netherlands and the net of tax operating profit reported in the year from other UK businesses. Netherlands operating profit reflects a longer-term expected return on shareholders’ funds and index linked policies.

CEO, Protection & Annuities: John Pollock

£491m

(2011: £467m)

Continuing progression in scale led to a 5% increase in operational cash generation to £522m (2011: £498m). Net cash generation increased to £491m (2011: £467m) benefiting from further reduction in Protection new business strain to a 20% ratio to APE from 37% in 2011, achieved through economies of scale and continuous optimisation generating profitable new business. Annuities maintained a positive new business surplus of £14m (2011: £35m).

SAVINGS

Insured Savings net cash generation represents the expected surplus generated in the period from the in-force non profit investment bonds and pensions businesses less the cost of acquiring new business and setting up regulatory reserves in respect of the new business, net of tax.

With-profits net cash generation represents the net of tax transfer to shareholders from the With-profits business.

Savings Investments net cash generation represents the operating profit after tax from our retail investment business, excluding movements in non cash items.

CEO, Savings: Mark Gregory

£117m

(2011: £111m)

Continuing growth in scale and writing new business more efficiently, with a strain of 1.6% of PVNBP (2011: 2.7%), has led to record net cash generation in the Savings division of £117m (2011: £111m).

INVESTMENT MANAGEMENT

Investment Management net cash generation represents the profit after tax from our managed and segregated pension business, institutional mandates, private equity and property business.

Incorporated within this segment is the net cash generation from managing internal funds.

CEO, LGIM: Mark Zinkula

£197m

(2011: £189m)

Net cash generation increased 4.2% in 2012 driven by the focus on international growth, retaining defined benefit pension funds and attracting new flows into defined contribution pension schemes.

US PROTECTION

US Protection net cash generation represents dividends received from Legal & General America (LGA).

CEO, LGA: Jimmy Atkins

£40m

(2011: £35m)

Operational cash generation is the dividends paid to the Group. This dividend has continued to grow to $63m in 2012 (2011: $58m).

GROUP CAPITAL AND FINANCING

Net cash generation for our Group Capital and Financing segment represents the expected return after tax on Group invested assets using longer-term expected investment returns. It also includes interest expense on total Group borrowings, excluding non-recourse financing and other unallocated corporate expenses.

Head of Group Treasury & Investments: Paul Stanworth

£20m

(2011: £44m)

The smoothed investment return on the investment portfolio decreased from 4.7% in 2011 to 3.9% in 2012 predominately as a result of a fall in the assumed UK equity return (from 7.5% to 5.8%).

More details of cash generation for protection and annuities and savings can be found in Note 2(ii) respectively Note 2(iii).