Disciplined investment of capital.

Disciplined investment of capital.

GROUP METRICS

IFRS PROFIT BEFORE TAX Key measure in the remuneration of executives Key performance indicator (KPI)

£1,134m

(2012: £1,033m)

IFRS PROFIT BEFORE TAX (PBT)

PBT measures profit attributable to shareholders incorporating actual investment returns experienced during the year.

KPI purpose: PBT measures the actual distributable earnings of the Group, reflecting actual returns on investments, net of investment in future groupwide capabilities and new business ventures.

Profit before tax is up 10% on 2012 due to strong operating profits and favourable investment variances, particularly on shareholder assets, which benefitted from an upturn in equity markets during 2013. This has more than offset costs of investment in future capabilities and new business start-ups across the Group in 2013.

RETURN ON EQUITY Key measure in the remuneration of executives Key performance indicator (KPI)

16.1%

(2012: 15.4%)

RETURN ON EQUITY (ROE)

ROE measures the return earned by shareholders on shareholder capital retained within the business. ROE is calculated as IFRS profit after tax divided by average IFRS shareholders’ funds.

KPI purpose: ROE provides a link between performance and balance sheet management and ensures an appropriate balance is maintained between the two.

The Group continues to demonstrate careful use of capital across all divisions, generating a strong 16.1% return on equity, up 0.7 percentage points on 2012, reflecting a 12% rise in profit after tax in 2013.

EARNINGS PER SHARE Key measure in the remuneration of executives Key performance indicator (KPI)

15.20p

(2012: 13.84p)

EARNINGS PER SHARE (EPS)

EPS is a common financial metric, which can be used to measure the profitability and strength of a company over time. It is the total shareholder profit after tax divided by the number of shares outstanding. EPS uses a weighted average of shares outstanding in the year.

KPI purpose: EPS demonstrates the link between performance and shareholder return.

We’ve delivered another strong year of EPS growth, driven by a 12% increase in the Group profit after tax (up from £798 million in 2012 to £896 million in 2013). This has resulted in a 10% (1.36p) increase in EPS.

FULL YEAR DIVIDEND Key performance indicator (KPI)

9.30p

(2012: 7.65p)

FULL YEAR DIVIDEND

The full year dividend is the total dividend per share declared for the year (including interim dividend but excluding, where appropriate, any special dividend).

KPI purpose: Full year dividend demonstrates the level of distribution to shareholders.

Consistent with our revised dividend guidance to reduce our net cash coverage of dividend towards 1.5 times over the next two years, the Board has recommended an increase of 22% in the full year dividend to 9.30p (2012: 7.65p). The cost of the full year dividend is £550 million (2012: £452 million) and is covered 1.82 times by the net cash generated.

Please refer to the Our strategy and our progress section of this report for further details on our revised guidance.

TOTAL SHAREHOLDER RETURN Key performance indicator (KPI)

171%

(2012: 112%)

TOTAL SHAREHOLDER RETURN (TSR)

TSR is a measure used to compare the performance of different companies’ stocks and shares over time. It combines the share price appreciation and dividends paid to show the total return to shareholders.

KPI purpose: TSR measures total return to shareholders, including dividends and share price movements over time.

Based on TSR performance, we are in the FTSE 100 top quartile (top 10 position as at 31 December 2013) after giving investors a 171% return over a three-year period. We are also one of the world’s top-performing life insurance companies in the FTSE Global index in this period.

INSURANCE GROUP DIRECTIVE SURPLUS AND COVERAGE

£4.0bn

222%

(2012: £4.1bn/234%)

INSURANCE GROUP DIRECTIVE (IGD) SURPLUS AND COVERAGE

The IGD surplus is a regulatory measure which calculates surplus capital within the Group. IGD surplus is defined as the group regulatory capital less the group regulatory capital requirement, after accrual for proposed dividends. Surplus capital held within Society’s Long Term Fund cannot be included in the IGD definition of capital employed.

Purpose: IGD surplus and coverage are group regulatory surplus capital measures.

The Group is in a very strong capital position with a £4.0 billion IGD surplus and a 222% coverage ratio. This surplus is broadly unchanged since year end 2012 despite significant capital being utilised in the year to make strategic acquisitions (CALA, Cofunds, The Idol and Lucida). This capital buffer is in addition to the £1.8 billion (2012: £1.7 billion) of LGPL credit default provision, which remains in place to fund against the risk of credit defaults, and is after allowing for the accrual of the 2013 final dividends of £408 million.

EUROPEAN EMBEDDED VALUE PER SHARE Key measure in the remuneration of executives

190p

(2012: 173p)

EUROPEAN EMBEDDED VALUE (EEV) PER SHARE

EEV per share is used to measure value creation over time. It is the Group’s EEV including LGIM, divided by the closing number of shares in issue.

Purpose: EEV per share provides shareholders with an insight into the value of the existing book of business at the balance sheet date.

2013 embedded value has benefitted from strong operating profits, bolstered by large investment variances from positive market movements and uplifts from the BAE Systems longevity deals and surplus from the completion of the Lucida acquisition in August. This has resulted in a 10% increase in EEV per share to 190p.

Excluding the external assets of LGIM, the EEV per share is 162p (2012: 151p).

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