A growth story.

A growth story.
OPERATING PROFIT Key measure in the remuneration of executives Key performance indicator (KPI)

£1,158m

(2012: £1,087m)

 

OPERATING PROFIT

Operating profit measures the pre-tax result reflecting longer-term economic assumptions, for our insurance businesses and shareholder funds, except for LGA which excludes unrealised investment returns to align with the liability measurement under US GAAP. Variances between actual and smoothed assumptions are reported below operating profit. Income and expenses arising outside of the normal course of business, such as merger and acquisition and restructuring costs, are excluded from operating profit, as profit and loss arising on the elimination of our debt holdings.

KPI PURPOSE: OPERATING PROFIT GIVES AN INSIGHT INTO THE GROUP’S ABILITY TO GENERATE CASH FLOWS TO SUPPORT DIVIDENDS.

(XLS:) KPI purpose: operating profit gives an insight into the Group’s ability to generate cash flows to support dividends. 2013

 

Net cash1 gener­ation
2013
£m

Expe­rience variances
2013
£m

Changes in valuation assump­tions
2013
£m

Non-cash items and other2
2013
£m

Operating profit/ (loss) after tax
2013
£m

Tax expense/ (credit)
2013
£m

Operating profit/ (loss) before tax
2013
£m

Legal & General Assurance Society

401

(34)

31

(59)

339

105

444

Legal & General Retirement

293

9

(13)

(48)

241

69

310

Legal & General Investment Management

239

239

65

304

Legal & General Capital

137

137

42

179

Legal & General America

44

14

58

34

92

Operating profit from divisions

1,114

(25)

18

(93)

1,014

315

1,329

Group investment projects, interest and expenses

(112)

(19)

(131)

(40)

(171)

Operating profit3

1,002

(25)

18

(112)

883

275

1,158

(XLS:) KPI purpose: operating profit gives an insight into the Group’s ability to generate cash flows to support dividends. 2012

 

Net cash1 generation
2012
£m

Experience variances
2012
£m

Changes in valuation assump­tions
2012
£m

Non-cash items and other2
2012
£m

Operating profit/ (loss) after tax
2012
£m

Tax expense/ (credit)
2012
£m

Operating profit/ (loss) before tax
2012
£m

1.

Net cash generation is defined in the Glossary and further analysis is provided in Note 2.

2.

Investment gains and losses, profits and losses retained by international subsidiaries, and other.

3.

A reconciliation from operating profit to IFRS profit before tax is provided on in Note 2.

Legal & General Assurance Society

329

(47)

45

19

346

116

462

Legal & General Retirement

257

43

(24)

(64)

212

69

281

Legal & General Investment Management

219

219

53

272

Legal & General Capital

123

123

40

163

Legal & General America

40

22

62

37

99

Operating profit from divisions

968

(4)

21

(23)

962

315

1,277

Group investment projects, interest and expenses

(103)

(40)

(143)

(47)

(190)

Operating profit3

865

(4)

21

(63)

819

268

1,087

BUSINESS SEGMENT

OPERATING PROFIT

LEGAL & GENERAL ASSURANCE SOCIETY (LGAS)

Protection operating profit includes the general insurance, individual and group protection businesses and profit from our France and Netherlands businesses. Operating profit reflects the investment returns that the business expects to make on the financial investments that back this business and on shareholder funds retained within general insurance.

Savings operating profit represents the profit from the insured savings businesses (non-profit investment bonds and non-profit pensions, including SIPPs), the with-profits transfer and the profit from our investment savings businesses. Operating profit for the insured savings business reflects the investment returns that the business expects to make on the financial investments that back this business.

JOHN POLLOCK, CEO, LGAS

£355m protection operating profit

(2012: £359m)

Protection was £355 million (2012: £359 million), benefitting from significantly improved profitability in General Insurance of £69 million (2012: £30 million), reflecting strong underwriting discipline, improved claims handling and benign weather for much of the year. This was offset by lower Retail Protection new business margins following the introduction of gender neutral pricing and changes to tax legislation.

£89m savings operating profit

(2012: £103m)

Savings operating profit was £89 million (2012: £103 million) with Workplace savings losses increasing to £(29) million (2012: £(14) million) as the costs and continued investment associated with securing half a million new auto-enrollees outweighed the low early years’ revenue.

LEGAL & GENERAL RETIREMENT (LGR)

Operating profit from the retirement business represents the profit from individual and bulk purchase annuities and longevity insurance.

KERRIGAN PROCTER, MD, LGR

£310m

(2012: £281m)

LGR operating profit increased by 10% to £310 million (2012: £281 million) reflecting record sales in 2013 and continued steady profit from our back-book. The business benefited from £33 million of new business surplus, demonstrating our ability to source and win attractively priced assets to back our new business.

LEGAL & GENERAL INVESTMENT
MANAGEMENT (LGIM)

Operating profit for the investment management segment represents the operating profit before tax on our managed and segregated pension business, institutional mandates, property business, retail unit trusts and internal funds.

MARK ZINKULA, CEO, LGIM

£304m

(2012: £272m)

LGIM operating profits are up 12% on 2012. This reflects an increase in the AUM, including our growing higher margin LDI solution business. The cost: income ratio has remained steady at 49bps despite significant investment in our business as it continues to grow.

LEGAL & GENERAL CAPITAL (LGC)

LGC operating profit represents the expected return on group invested assets using long-term expected investment returns, net of investment management expenses.

PAUL STANWORTH, MD, LGC

£179m

(2012: £163m)

Operating profits are generated by the expected long-term smoothed returns on invested assets, which are calculated asset class by asset class. Operating profit has grown by 10% reflecting an increase in the average balance of invested assets and changes in the portfolio mix, including our growing direct investment portfolio, driving higher returns, and a small increase in the average balance of invested assets.

LEGAL & GENERAL AMERICA (LGA)

Operating profit for LGA represents the profit on our protection and universal life products written in the US. For LGA unrealised investment returns are excluded from operating profits to align with the liability measurement under US GAAP.

JIMMY ATKINS, CEO, LGA

£92m

(2012: £99m)

Overall operating profit was £92m (2012: £99m). During the second half of the year we experienced higher mortality claims than expected on our smaller life portfolio. The operating profit also reflects the lower investment returns achieved during the year. This was partially offset by continued cost reductions.

More details of operating profit can be found in Note 2.

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