Sustainable returns

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

 

Operational cash generation
2014
£m

New business strain
2014
£m

Net cash generation
2014
£m

Operational cash generation
2013
£m

New business strain
2013
£m

Net cash generation
2013
£m

1.

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

Legal & General Assurance Society

472

(48)

424

474

(73)

401

Legal & General Retirement

292

51

343

260

33

293

Legal & General Investment Management

262

262

239

239

Legal & General Capital

162

162

137

137

Legal & General America

46

46

44

44

Net cash from divisions

1,234

3

1,237

1,154

(40)

1,114

Group investment projects, interest and expenses

(133)

(133)

(112)

(112)

Total1

1,101

3

1,104

1,042

(40)

1,002

BUSINESS SEGMENT

Legal & General Assurance Society

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.

OPERATING PROFIT

£424m
(2013: £401m)

Net cash generation has increased by 6%, driven by improving scale and efficiency in the workplace pensions business, higher volumes in the insurance business and the continued focus on cost management in the savings business.

Legal & General Retirement

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.

£343m
(2013: £293m)

Net cash generation has increased by 17%, reflecting the growth in business demonstrated by a 28% increase in assets, and a favourable new business surplus of £51 million which has benefited from disciplined pricing. Selective placement of longevity reinsurance in respect of new business also boosted net cash generation.

Legal & General Investment Management

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

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

£262m
(2013: £239m)

LGIM revenues grew by 9% in 2014, largely due to higher average assets, benefiting from favourable market performance. Combined with maintaining a very efficient cost to income ratio, this has resulted in a 10% increase in net cash generation.

Legal & General Capital

Net cash generation for Legal & General Capital (LGC) represents the expected return after tax on group invested assets using medium-term expected investment returns.

£162m
(2013: £137m)

The average balance of LGC assets has grown from £4.5 billion in 2013 to £4.8 billion in 2014 with the assumed average return on assets growing from 4.1% to 4.3%. This has resulted in a 18% increase in the net cash generated.

Legal & General America

Net cash generation represents dividends received by the group from LGA during the year.

£46m
(2013: £44m)

The dividend paid by LGA to group once again grew, increasing by 10% to $76 million. Adjusting for foreign exchange movements, this represents a 5% increase to £46 million.

Guide to symbols

This is a key performance indicatorKey performance indicator (KPI)

Key measure in the remuneration of executivesKey measure in the remuneration of executives