Group chief executive’s review.

Group chief executive’s review.

STEPPING UP: NEW OPPORTUNITIES

Profitable growth for our business; personal growth for our employees; growth that drives the economy and helps our customers achieve their goals.

Nigel Wilson, Group Chief Executive (photo)

EARNINGS PER SHARE

15.20p

(2012: 13.84p)

RETURN ON EQUITY

16.1%

(2012: 15.4%)

PENSIONERS WHO DEPEND ON OUR RETIREMENT INCOME

1m

MEMBERS IN OUR WORKPLACE
PENSION SCHEMES

1m

The UK and US economies are growing again: our LGIM economists are currently forecasting 3% growth for both countries in 2014. But Britain’s economic growth relies too much on ultra-low interest rates, printing new money, and rising house prices. This recovery is driven by spending, without enough investment by companies or government. These are not long-term economic solutions.

Quantitative easing worked as an economic emergency measure, but it helped the ‘haves’ rather than the ‘have-nots’. There’s now 30 million people working in the UK, but real-terms earnings for a typical British households are 6% lower than five years ago, and productivity in most sectors has moved backwards. Housing is in short supply and unaffordable for many: we need to speed up planning and double the number of homes being built. We need to make saving for old age more effective, building on pension auto-enrolment but with a fairer tax system. And we need to help government reduce the deficit, in ways that are fair between generations and which avoid hurting the most vulnerable.

INVESTING IN BRITAIN

Legal & General is well-placed to help, by stepping up investment and developing opportunities in ways which benefit our policyholders and shareholders. We strongly support investment in infrastructure: in housing, energy, health, transport and education. Britain needs over 200,000 more houses each year: for the first-time and the last-time buyer and every stage in between. We have put over £3 billion into these areas so far, and alongside other insurers have committed another £25 billion over the next five years.

With huge resources – over £450 billion in total assets under management – we aim to build a framework for sustained future economic growth, creating homes and jobs, and helping to deliver necessities like energy and transport at affordable prices.

WORKING FOR SHAREHOLDERS, CUSTOMERS AND SOCIETY

We are paying 2013 dividends of £550 million and our shareholders earned a total return of 61% in 2013.

We have over 10 million customers globally and in 2013 we paid £4.9 billion in net claims to customers, including £1.9 billion in annuity payments.

We invest over £450 billion, employ over 9,000 people and in 2013 paid £877 million in tax.

DEALING WITH RISK

The Government has reduced the UK deficit to £96 billion. But annual expenditure is running at around £700 billion and tax receipts are only £600 billion. Austerity alone can’t offset the rising welfare costs of people living longer and needing more care. Risks and costs need to be shared differently between the government and individuals, who will increasingly have to make better financial provision.

This happens already in pensions where auto-enrolment has been a success. We now have over a million workplace pension customers, and our scale and efficiency has driven down costs for savers: in 2013 we capped charges for our pension-saving customers at 0.5% and improved standard annuity prices by approximately 11%.

Risk-sharing, between the government, individuals and companies needs to be extended. Good value mass-market insurance products covering sickness or redundancy that reduce the costs of welfare for governments and taxpayers are an obvious next step.

PARTNERSHIPS THAT DELIVER

For a long term business, public policy uncertainty presents a risk. We need the right regulatory and policy environment to deliver the right products to customers at the right prices. The Solvency II legislation made progress in 2013, and thanks to HM Treasury’s successful negotiation, managed to avoid the worst pitfalls, but uncertainties remain. We’ve spent £154 million and need to be sure that the EU’s capital requirements will not be gold-plated in the UK to the detriment of our customers.

Regulation that enables consumers to access affordable, relevant financial advice and products requires a strong partnership between industry, government and regulators – and this is what we want. We need to keep improving products; delivering better pricing through greater efficiency; and providing service levels for customers that are consistent with our culture, brand and values.

THE STRENGTH OF OUR PEOPLE

Insurance and investment management are technical businesses, but people businesses too. We employ some of the best and most committed people in financial services. We’re becoming a destination for talent and are determined to grow our people and skills. We have to identify future leaders, ensuring we realise their potential. We’re delighted this was recognised by the Sunday Times Best Big Companies survey, which again ranked us among the top 25 large employers in 2013.

THE POWER OF CHANGE: ANALOGUE TO DIGITAL

In 2013, we invested in new areas like digital platforms and supplemented our organic growth with four acquisitions: Lucida, Cala Homes, Cofunds and the Idol, the latter two being in the digital space. Our industry is transforming, automating and speeding up processes and increasingly interacting with customers online.

We’re on an exciting operational and financial journey: five years ago net cash was £320 million, it’s now over £1 billion; dividends have grown by 129% and our share price has improved tenfold. And our business performed well again in 2013. Net cash generation was £1 billion, earnings £896 million and our total shareholder return for 2013 was 61%.

The future is just as exciting. We’ve scale and financial strength. We matter to the broader economy and are a socially useful business: in 2013 BITC recognised this by awarding us their top, ‘platinum’, rating for our CSR programme for the third year running.

Thank you for having the confidence to invest in us.

Signature Nigel Wilson, Group Chief Executive (handwriting)

Nigel Wilson
Group Chief Executive

Watch a video presentation from CEO Nigel Wilson here: http://investor.legalandgeneral.com/video.cfm?v=46441

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