Sustainable returns.

Sustainable returns.
NET CASH GENERATION Key measure in the remuneration of executives Key performance indicator (KPI)

£1,002m

(2012: £865m)

 

OPERATIONAL CASH GENERATION

Operational cash generation is defined as the expected release from the in-force business for the UK non-profit LGAS and LGR businesses, the shareholder’s share of bonuses on with-profits business, the post-tax operating profit on other UK businesses, including an expected investment return on LGC invested assets, and dividends remitted from our international businesses.

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 (excluding solvency capital).

NET CASH GENERATION

Net cash generation is defined as operational cash generation less new business strain.

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
2013
£m

New business strain
2013
£m

Net cash generation
2013
£m

Operational cash generation
2012
£m

New business strain
2012
£m

Net cash generation
2012
£m

1.

A reconciliation from net cash generation to operating profit is provided in Note 2.

Legal & General Assurance Society

474

(73)

401

436

(107)

329

Legal & General Retirement

260

33

293

243

14

257

Legal & General Investment Management

239

239

219

219

Legal & General Capital

137

137

123

123

Legal & General America

44

44

40

40

Net cash from divisions

1,154

(40)

1,114

1,061

(93)

968

Group investment projects, interest and expenses

(112)

(112)

(103)

(103)

Net cash generation1

1,042

(40)

1,002

958

(93)

865

BUSINESS SEGMENT

NET CASH GENERATION

LEGAL & GENERAL ASSURANCE SOCIETY (LGAS)

LGAS net cash generation 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.

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

LGAS net cash generation further includes dividends received from our businesses in France and the Netherlands and the net of tax operating profit reported in the year from our investment savings businesses, excluding non-cash movements, such as amortisation.

JOHN POLLOCK, CEO, LGAS

£401m

(2012: £329m)

Strong progression in scale and favourable weather conditions in General Insurance (GI) contributed to a 22% increase in total net cash generation in 2013. Protection new business strain has reduced to a 1.3% ratio to the present value of new business premiums, from 3.8% in 2012. This reflects the impact of changes to the tax regime applicable to the retail protection market. GI net cash generation grew by 130% as a result of disciplined underwriting and beneficial weather experience for much of 2013.

LEGAL & GENERAL RETIREMENT (LGR)

LGR net cash generation 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.

KERRIGAN PROCTER, MD, LGR

£293m

(2012: £257m)

Net cash generation has increased by 14% to £293 million. Operational cash benefitted from increased scale. Higher new business volumes, disciplined pricing and efficient processing, further boosted by the Lucida acquisition, delivered a new business surplus of £33 million.

LEGAL & GENERAL INVESTMENT
MANAGEMENT (LGIM)

LGIM net cash generation represents the profit after tax from our managed and segregated pension business, institutional mandates, property and retail business.

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

MARK ZINKULA, CEO, LGIM

£239m

(2012: £219m)

LGIM revenues grew by 11% in 2013, primarily as a result of higher average assets under management, boosted by record gross inflows and benefitting from the favourable market performance. Combined with careful cost management, this has resulted in a 9% increase in net cash generation.

LEGAL & GENERAL CAPITAL (LGC)

Net cash generation for LGC represents the expected return after tax on group invested assets using long-term expected investment returns.

PAUL STANWORTH, MD, LGC

£137m

(2012: £123m)

The average balance of LGC assets has grown from £4.3 billion in 2012 to £4.5 billion in 2013 with the average return on investment growing from 3.9% to 4.1%. This has resulted in a 11% increase in the net cash generated.

LEGAL & GENERAL AMERICA (LGA)

Net cash generation represents dividends received from LGA.

JIMMY ATKINS, CEO, LGA

£44m

(2012: £40m)

The dividend paid by LGA to Group once again grew, increasing by 10% to £44 million.

More details of net cash generation can be found in Note 2.

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