6 Profit/(loss) for the year

For the year ended 31 December 2014

Note

LGAS and LGR
£m

LGIM
£m

LGC and group expenses
£m

LGA
£m

Total
£m

1.

The expected return on in-force for LGAS and LGR is based on the unwind of the risk discount rate on the opening, adjusted base value of in-force (VIF). The opening base VIF of the UK LGAS and LGR business was £4,693m in 2014 (£4,402m in 2013). This is adjusted for the effects of opening model changes of £(30)m (2013: £27m) to give an adjusted opening base VIF of £4,663m (2013: £4,429m). This is then multiplied by the opening risk discount rate of 6.8% (2013: 6.0%) and the result grossed up at the notional attributed tax rate of 20% (2013: 20%) to give a return of £397m (2013: £331m). The same approach has been applied for the LGAS overseas businesses.

2.

LGAS and LGR variance primarily reflects UK cost of capital unwind and favourable mortality experience for bulk annuities. LGA experience variance primarily relates to adverse mortality experience within term assurance and universal life products respectively.

3.

LGAS and LGR operating assumption change primarily reflects mortality assumptions changes for non-profit annuities. LGA operating assumption change primarily incorporates an adjustment to our mortality assumptions to reflect the changes in industry wide mortality tables (which were issued in the second half of 2014).

4.

LGAS and LGR non-covered business primarily reflects GI operating profit of £59m (2013: £69m).

5.

LGIM operating profit includes Retail Investments and excludes £32m (2013: £34m) of profits arising from the provision of investment management services at market referenced rates to the covered business on a look through basis and as a consequence are included in the LGAS and LGR covered business on an EEV basis.

6.

LGC and group expenses non-covered business primarily reflects group debt costs and investment projects and expenses, partly offset by investment returns from non-covered shareholder assets.

7.

The LGAS and LGR positive variance has resulted from a number of factors including lower risk discount rate, favourable default experience and enhanced yield on annuity assets offset by a lower risk free rate. LGC and group expenses primarily reflects lower equity return from shareholder funds.

8.

Other taxation impacts reflects the change in the treatment of deferred tax on in-force business to align with IFRS by removing the effect of discounting.

Business reported on an EEV basis:

 

 

 

 

 

 

Contribution from new risks after cost of capital:

 

 

 

 

 

 

– contribution from new business

7

760

 

 

90

850

– intra-group transfer from With-Profit to Non Profit Fund

 

100

 

 

100

Contribution from in-force business:

 

 

 

 

 

 

– expected return1

 

424

 

 

66

490

– experience variances2

 

21

 

 

(23)

(2)

– operating assumption changes3

 

58

 

 

(241)

(183)

Development costs

 

(32)

 

 

(32)

Contribution from shareholder net worth

 

7

 

184

3

194

Operating profit/(loss) on covered business

 

1,338

184

(105)

1,417

Business reported on an IFRS basis4,5,6

 

50

304

(190)

164

Total operating profit/(loss)

 

1,388

304

(6)

(105)

1,581

Economic variances7

 

893

(12)

(74)

(17)

790

Gains on non-controlling interests

 

7

7

Profit/(loss) before tax

 

2,281

292

(73)

(122)

2,378

Tax (expense)/credit on profit from ordinary activities

 

(372)

(63)

32

43

(360)

Other taxation impacts8

 

(2)

(2)

Profit/(loss) for the year

 

1,907

229

(41)

(79)

2,016

 

 

 

 

 

 

 

Operating profit attributable to:

 

 

 

 

 

 

LGAS

 

377

 

 

 

 

LGR

 

1,011

 

 

 

 

 

 

 

 

 

 

 

 

p

Earnings per share

 

Based on profit attributable to equity holders of the Company

34.07

Diluted earnings per share

 

Based on profit attributable to equity holders of the Company

33.73

For the year ended 31 December 2013

Note

LGAS and LGR
£m

LGIM
£m

LGC and group expenses
£m

LGA
£m

Total
£m

1.

The expected return on in-force is based on the unwind of the risk discount rate on the opening, adjusted base value of in-force (VIF). The opening base VIF of the UK LGAS and LGR business was £4,402m in 2013. This is adjusted for the effects of opening model changes of £27m to give an adjusted opening base VIF of £4,429m. This is then multiplied by the opening risk discount rate of 6.0% and the result grossed up at the notional attributed tax rate of 20% to give a return of £331m. The same approach has been applied for the LGAS overseas businesses.

2.

LGAS and LGR variance primarily reflects UK cost of capital unwind, bulk purchase annuity data loading, fewer retail protection lapses and better longevity experience. LGA experience variance primarily relates to adverse persistency experience and mortality experience within term assurance and universal life products respectively.

3.

LGAS and LGR assumption changes primarily reflects mortality assumption changes in LGR. LGA assumption changes primarily relate to improved modelling of term business in the period after the end of the guaranteed level premium period.

4.

LGAS and LGR non-covered business primarily reflects GI operating profit of £69m.

5.

LGIM operating profit includes Retail Investments and excludes £34m of profits arising from the provision of investment management services at market referenced rates to the covered business on a look through basis and as a consequence are included in the LGAS and LGR covered business on an EEV basis.

6.

LGC and group expenses non-covered business primarily reflects group debt costs and investment projects and expenses, partly offset by investment returns from non-covered shareholder assets.

7.

The LGAS and LGR positive variance has resulted from a number of factors including equity market outperformance, favourable default experience, actions to improve the yield on annuity assets and a lower risk margin offset by a higher risk free rate. The higher risk free rate has contributed to a negative variance in LGA.

8.

Primarily reflects the implementation of the UK planned future reductions in the corporation tax rate to 20% on 1 April 2015.

Business reported on an EEV basis:

 

 

 

 

 

 

Contribution from new risks after cost of capital:

 

 

 

 

 

 

– contribution from new business

7

544

 

 

107

651

– intra-group transfer from With-Profit to Non Profit Fund

 

 

 

Contribution from in-force business:

 

 

 

 

 

 

– expected return1

 

358

 

 

68

426

– experience variances2

 

52

 

 

(23)

29

– operating assumption changes3

 

(9)

 

 

(52)

(61)

Development costs

 

(40)

 

 

(40)

Contribution from shareholder net worth

 

5

 

113

7

125

Operating profit on covered business

 

910

113

107

1,130

Business reported on an IFRS basis4,5,6

 

47

270

(106)

211

Total operating profit

 

957

270

7

107

1,341

Economic variances7

 

250

(6)

8

(37)

215

Gains on non-controlling interests

 

13

13

Profit before tax

 

1,207

264

28

70

1,569

Tax (expense)/credit on profit from ordinary activities

 

(251)

(57)

21

(24)

(311)

Effect of tax rate changes and other taxation impacts8

 

41

41

Profit for the year

 

997

207

49

46

1,299

 

 

 

 

 

 

 

Operating profit attributable to:

 

 

 

 

 

 

LGAS

 

360

 

 

 

 

LGR

 

597

 

 

 

 

 

 

 

 

 

 

 

 

p

Earnings per share

 

Based on profit attributable to equity holders of the Company

21.91

Diluted earnings per share

 

Based on profit attributable to equity holders of the Company

21.61