OUR STRATEGY - FIVE LONG TERM GROWTH DRIVERS

A colourful building

In addition to our institutional insurance businesses, Legal & General is increasingly serving its corporate, institutional and retail customers through our asset gatherer businesses of LGIM, LGR and LGC. These businesses are working together to deliver consistent, sustainable and attractive growth. We are executing our clear and focused strategy based on five key long term growth drivers:

AGEING POPULATIONS

A man in a red coat

The demand for de-risking strategies remains high and the opportunity remains significant for Legal & General as a market leader in both the UK and US. We are well placed to deploy our unique and integrated specialist experience in longevity, investment management and asset transitioning, across LGR, LGIM and LGC. In addition we have a panel of 11 counterparty reinsurance partners to execute transactions in a capital and risk efficient manner. Our entry into the equity release market (lifetime mortgages) provides an additional high quality long duration asset with enhanced risk adjusted returns to back the Group’s annuity liabilities.

Over 60s today

800m

Global

Over 60s by 2050

2bn

Global

AGEING POPULATIONS

OUR STRATEGY
Maintaining leadership in pensions derisking and helping people manage their retirement funds.

Businesses key to our response are highlighted

Legal & General Retirement (LGR)

Legal & Investment Management (LGIM)

Legal & General Capital (LGC)

Legal & General America (LGA)

Insurance

Savings

OUR RESPONSE: PROVIDE RETIREMENT SOLUTIONS

We've developed innovative solutions in the face of change in the world of pensions. The number of UK defined benefit (DB) pension schemes continues to decline, with companies struggling to afford the costs of meeting their pension liabilities. We need to make sure that the shift to defined contribution (DC) schemes also gives younger generations the scope to build adequate levels of pension income. In the UK, the government's ‘pension freedoms’ mean people who've saved in DC schemes need to plan their retirement income carefully.

Investment management solutions

Our investment management business specialises in providing solutions to the challenges posed by ageing populations. This affects all global markets where populations are ageing, such as the US, parts of Asia and western Europe.

Freedom for DC scheme members

While LDI solutions help companies ensure that DB pensions are paid on time and in full, there's a growing need for people who have saved in DC schemes to plan their finances in retirement. In 2015, we developed two new plans to supplement our traditional individual annuity business, which has declined in volumes by 74% since 2013. Our new ‘Fixed Term Retirement Plan’ and our ‘Cash Out Retirement Plan’ give consumers increased choice about how to take the money they’ve saved in DC schemes. However, our experience has been that around 90% of people have taken their full savings in cash, with average payouts of £12,000.

Turning the £1.4 trillion in housing equity into retirement income

It was estimated in 2014 that people over 65 in the UK, were sitting on £1.4 trillion in equity in their own homes. 3.3 million homeowners aged over 55 have been looking to ‘rightsize’ to smaller homes, freeing up 7.7 million spare bedrooms for younger people who are struggling to find affordable homes to buy or rent. Yet the UK is struggling to finance elderly care. Since 2010, cuts in council-funded adult social care have totalled £4.6bn, or 31% in real terms of net budgets.

Innovation in corporate derisking

We’re one of the few companies who can provide a complete suite of derisking services for DB schemes, comprising bulk annuities and longevity insurance as well as traditional fund management and LDI solutions. In 2015, the UK bulk annuity market saw a lower level of activity than 2014's record volumes. The new Solvency II capital regime led us to adopt a capital-lite approach to writing bulk annuities in the UK and we focused our attention on international markets, entering the US and European pension risk-transfer markets. In October 2015, we announced the first pension risk-transfer deal with the US subsidiary of Royal Philips for approximately $450 million, and in December we completed a €200 million reinsurance deal with ASR Nederland NV, a Dutch insurer. We extended our reputation for innovation in the UK, completing in December 2015 the UK’s largest medically underwritten bulk annuity deal with a UK DB scheme. This buy-in deal covered around £230 million in pension liabilities, for selected scheme members.

Cutting the public sector pensions gap

The 2011 Hutton report highlighted the growing cost to the taxpayer of funding public sector pensions, which was estimated to be over £1 trillion. The recommendation to move to a DC basis is being steadily implemented by the state. However, expensive DB schemes still abound and we’re well placed to help the public sector manage its DB liabilities and move employees into new schemes. In November 2015, we increased our pooled passive investment mandate for a group of seven local government pension schemes to £6.5 billion. We now manage £40.2 billion for 54 local government pension schemes.

Recent Achievements

  • LGR transactions £2.9bn. First US and European pension de-risking transaction
  • Lifetime mortgages launched in Q2, advances over £200m, 22% market share in Q4
  • Solutions assets of £338bn, up 15%. Won National Grid UK Pension Scheme mandate to manage c.£12bn of assets

What's Next

  • Growing international demand for de-risking strategies, especially the US and the Netherlands
  • Continuing UK demand for de-risking of DB pensions
  • Continued demand for lifetime mortgages
  • Opportunities arising in annuity back books
  • Prepare for secondary annuity market in 2017

WELFARE REFORM

Two women using laptops

Governments worldwide are stepping back from welfare provision and it is increasingly likely that employers and individuals will have to fill this need. In the UK, auto-enrolment has been the successful prototype for this model, with 90% of members choosing to stay enrolled and defined contribution (DC) assets expected to triple in the next 10 years. We have had notable success with major employers reviewing their DC provider including John Lewis and Tesco. As a result we now have 1.8m customers on our Workplace Savings platform.

UK spending of

£47 billion

on sickness and disability benefits in the last tax year

Drop in real wages

10%

since 2008

WELFARE REFORM

OUR STRATEGY
We're driving down prices, giving better value to our customers and aiming to inspire market change.

Businesses key to our response are highlighted

Legal & General Retirement (LGR)

Legal & Investment Management (LGIM)

Legal & General Capital (LGC)

Legal & General America (LGA)

Insurance

Savings

OUR RESPONSE: PROVIDE FINANCIAL SECURITY AND HELP SOCIETY

Paul Stanworth

The overall market size for DC pensions assets is projected to increase over £1.7 trillion by 2030, driven by auto-enrolment where statutory minimum contribution rates are increasing from 2% today to 8% in 2019. The incorporation of Legal & General's Workplace Savings business into LGIM enables us to bring our successful workplace savings and fund management teams closer together. We expect to add around 240,000 new members to our platform by the end of 2016, boosting our UK DC customer base which stood at 1.8 million at the end of 2015. Greater scale and focus on unit cost management are important in increasing profitability. We're also making significant progress with SMEs, introducing a straight-through process, where we can maintain our 50bps price cap for the default fund, providing a highly efficient proposition for smaller companies.

Auto-enrolment – the next stage

Auto-enrolment has been successful in increasing the number of individuals saving into a pension. Further areas which the government could consider to help people fund their own retirements include:

  1. Putting in place an automatic system for pension increases
  2. Reconsidering the planned upper limit of 8% for contributions. We should follow the example of success in Australia, where employees will pay up to 12% by 2025.

Using the auto-enrolment model to improve welfare and social care

The success of auto enrolment has shown that people are prepared to pay for a better financial future if it is made easy for them to do so and they receive tax incentives. Reform of the national insurance (NI) system could mean that people could contribute towards the funding of better elderly care.

Driving change in UK insurance

The vision for our UK Insurance business is to give customers access to a much fuller range of insurance products available through their choice of distribution channels and delivered digitally.

Action to help flood victims

The horrendous floods of December 2015 and January 2016 were devastating for many of our customers and challenging for our personal claims managers. Our solution in Carlisle was to base members of our claims team in a local Community Centre all week, working with surveyors and loss adjusters in the heart of the community. We expect to pay out a total of £15 million in flood and storm claims.

Recent Achievements

  • Market leading UK retail protection business, around 25% market share
  • UK DC assets £46bn, up 13%
  • 1.8m customers

What's Next

  • Growth in full service customers on DC platform to over 2 million
  • Opportunities in group protection could arise due to welfare reforms of state benefits
  • Continue positive collarorative dialogue with govOpportunities for new socially inclusive insurance products
  • Workplace market opportunities in health and wellbeing products

CREATING REAL ASSETS

A girl playing in her home

Legal & General Capital (LGC) is utilising the Group's shareholder funds to take significant stakes in strategic businesses to enhance risk adjusted returns. LGC is investing in sectors that are economically crucial and require long term finance, such as infrastructure and UK housing and suffer from a multi-billion pound financing gap. In doing so, we are able to originate a pipeline of assets to back our long term annuity liabilities, which have predictable liquidity requirements in LGR and co-investment opportunities with the LGIM client base.

426K

Homes built in the UK in 1968

144k

Homes built in the UK in 2012

CREATING REAL ASSETS

OUR STRATEGY
We're changing the face of UK towns and cities using our slow money to invest in new homes and infrastructure.

Businesses key to our response are highlighted

Legal & General Retirement (LGR)

Legal & Investment Management (LGIM)

Legal & General Capital (LGC)

Legal & General America (LGA)

Insurance

Savings

OUR RESPONSE: PURSUE DIRECT INVESTMENT OPPORTUNITIES

A bridge and ITV offices

The UK managed to build 131,000 new homes in the year up to August 2015, the highest annual total since June 2009, but still a long way behind building levels in the 1950s and 1960s.

Moving from NIMBY to PIMBY

The UK may need a complete re-think of attitudes to housing, urban regeneration and infrastructure developments in areas such as transport, where local planning decisions actively move away from a ‘not in my backyard’ attitude to ‘please in my backyard’. Planning laws are getting better, but we've still a long way to go. We want to end the inequality of opportunity in the UK, where many developments focus on the affluent south of England to the detriment of our inner city areas, especially those in the north and west of Britain. Our urban regeneration plan has been adopted by the government's ‘Regeneration Investment Organisation’ (RIO). We committed £1.5 billion as part of a £15 billion fund over the next few years, working alongside international investment partners. We have nine key regeneration schemes across the UK. In the north of England there are projects in Salford, Leeds Liverpool and Wakefield. In the west of Britain we're involved in projects in Cardiff and Plymouth. In the south of England, there are schemes in Canning Town, Bracknell and Crowthorne.

Our commitment to Cardiff

In Cardiff, we're not only committed to providing local employment with 1,200 people located in our Cardiff office, but we're also working with Cardiff City Council and a local developer, Rightacres, to regenerate the city. We contributed towards the £400 million mixed-use development, including a new ‘Central Square’, offices, hotels and residential developments, together with a transport hub and a new headquarters for BBC Wales.

The northern ‘powerhouse’

In Leeds, our first RIO development was to acquire a 50% stake in Thorpe Park Leeds, a £160 million 200 acre mixed-use business development. The joint venture with Scarborough Group is set to create 13,000 local jobs while potentially unlocking the construction of 7,000 new homes in the East Leeds area through the construction of the first section of the East Leeds Orbital Road.

Let's build Britain

Our commitment to homebuilding includes all types of housing tenures. We invest in the ‘build to rent’ sector as well as building homes to buy for all age groups, from first time buyers to ‘last time buyers’. We’re keen to see a greater supply of affordable homes and social housing. In Walthamstow, we acquired an initial £25 million regeneration site to build and rent over 300 flats. In Salford, we partnered with English Cities Fund for a £16 million scheme, part of the New Bailey development, which will create a total of 90 homes located on the border of Salford and Manchester. Both developments comprise one-, two- and three-bedroom flats.

Investing in clean energy

In December 2015, we made a start in investing in clean energy by investing in NTR Wind Management Limited, a clean energy and asset management business, that has committed to building an onshore wind portfolio which could generate sufficient electricity to power up to 170,000 homes and avoid more than 300,000 tonnes of CO2 per annum across the UK and Ireland.

Header: Alternative finance

Our 40% equity stake in Pemberton allows us to offer direct lending through the Pemberton platform to UK and European corporates, providing much-needed loans and private placements to mid-market companies in the UK and Europe. We achieved a major milestone in 2015 with the first Pemberton fund closing. We now have €500 million invested in loans across Europe.

Recent Achievements

  • £7bn of group-wide direct investments, up 22%
  • £600m partnership with PGGM, entering our first ‘Build to Rent’ schemes in Walthamstow, Salford and Bristol
  • New urban regeneration schemes in Cardiff (£400m) and Leeds (£162m)
  • Entered clean energy sector through NTR Plc, Pemberton's first fund now at $572m
  • LGMI Real Assets AUM of £18.3bn, up 26%; tenfold increase in profit 2010-2015

What's Next

  • Expansion in modular homes business
  • Further expected growth in build to rent sector
  • Further opportunities through partnership with the government's ‘Regeneration Investment Organisation’ RIO
  • Acceleration of clean energy to meet EU 2020 renewable targets
  • Opportunities to originate alternative finance for mid-market companies

GLOBALISATION OF ASSET MARKETS

New York

Investors worldwide are increasingly looking to global asset managers and markets to satisfy their requirements for value, yield, risk management and service. LGIM, the 15th largest asset manager globally with around a 1% share of the global market, is expanding internationally through its three manufacturing hubs in the UK, US and Asia as well as expanding its distribution footprint. In 2015 we won new mandates in Korea, Taiwan and Japan.

£64 trillion

global assets under management now

£102 trillion

estimated global assets under management by 2020

GLOBALISATION OF ASSET MARKETS

OUR STRATEGY
We're using our existing skills and expertise to build a world-class international asset management business.

Businesses key to our response are highlighted

Legal & General Retirement (LGR)

Legal & Investment Management (LGIM)

Legal & General Capital (LGC)

Legal & General America (LGA)

Insurance

Savings

OUR RESPONSE: EXPAND OUR GLOBAL FOOTPRINT

Huge opportunities exist to export our expertise to continue to build our successful investment management business internationally. With total private wealth estimated to reach $210 trillion in 2019, we've barely started to scratch the surface, managing just around 1% of global assets, despite being the world’s 15th largest asset manager. We have significant potential for further growth, especially in the US and Asia, despite recent market volatility. Key growth areas in international markets are DC pensions, LDI, real assets and fixed income.

Taking our US business to a new level

The US continues to be the world's largest pensions market with an estimated $22 trillion of assets in 2015. Willis Towers Watson’s 2016 ‘Global Pensions Asset Management’ survey shows that the US has 60% of US pension assets in DC funds compared to 32% in the UK and just 4% in Japan. The US is our most significant growth market. We now have around 124 institutional clients compared to just 16 in 2011.

Around $2.8 trillion of US defined benefit private sector liabilities

Our strong position in US LDI, with $8.7 billion of assets under management, includes managing assets on behalf of five of the top ten largest US corporate DB plans. We’re now expanding our LDI distribution to provide a full spectrum of LDI solutions. A successful LDI business creates synergy benefits across Legal & General's broader US pension derisking business. Our US investment management business provides the investment management capabilities for our retirement business as it expands into the US, including our recently announced $450 million bulk annuity contract with Royal Philips. Further diversification of our US investment management business saw us introducing new index propositions in 2015 and winning a first multi-billion dollar US index mandate. Additionally, we launched a collective investment trust to target US clients.

Changing focus for Legal & General America (LGA)

In 2015, LGA appointed Gene Gilbertson as President and Chief Executive Officer following his successful work in leading the management of a transformational US capital management programme, which has resulted in growing cash generation. LGA has gross written premiums of $1.2 billion and has over one million policies. LGA's strategy is to capitalise on new opportunities in the US protection and pension risk transfer markets and support LGIM's US investment capabilities.

Recent achievements

  • International AUM of £122bn, up 7%
  • 147 US clients with $120bn assets, 5 of top 10 US DB pension funds
  • Won our first multi-billion dollar US index mandate

What's Next

  • Ambition to double global market share of assets from 1% to 2%
  • Well positioned for further international growth in Asia and the US
  • Opportunities for international growth in Insurance

DIGITAL

A man with a virtual reality headset on

We are addressing the opportunities and challenges presented by digital developments, which both shape the ways in which we interact with our customers and present opportunities to significantly reduce unit costs. Our market leading retail protection business has straight through processing of around 80%, we re-platformed our lifetime mortgages proposition for less than £500k. In India simple products supported by digital technology resulted in two million new insurance customers in three months during 2015 and in housing, we will use technology to build innovative modular homes.

On a daily basis

73%

of UK adults are online

On a daily basis

57%

of UK adults use smartphones or tablets

DIGITAL

OUR STRATEGY
We're using technology to help customers understand their financial options.

Businesses key to our response are highlighted

Legal & General Retirement (LGR)

Legal & Investment Management (LGIM)

Legal & General Capital (LGC)

Legal & General America (LGA)

Insurance

Savings

OUR RESPONSE: BUILD SUCCESSFUL DIGITAL SOLUTIONS

A woman smiling

Our digital vision is to automate our businesses, increasing back-office efficiency, simplifying processes for individual customers and corporate partners and delivering better value products and propositions.

Digital objectives

We’re developing our key digital objectives to improve our direct to consumer capabilities and build self-serve technology to create efficiencies. Our key objectives are:

  • Continue to build a market-leading direct business for Retail Protection by further developing our ‘My life’ and ‘Making life better’ facilities
  • Position Legal & General America as the ‘simple’ company with simpler products, developing a new customer website and driving simplicity in customer experience
  • Continue to develop LGIM's ‘direct to consumer’ retail investment business
  • Improve the ability of our Mature Savings customers to ‘self-service’ their product holdings

In addition, we're now taking advantage of the new digital platforms we've developed for pensions auto-enrolment and lifetime mortgages to drive new business.

Driving digital disruption

Digital disruption has enabled brands like Uber, Airbnb and Netflix to flourish while traditional market players offering taxi services, hotel accommodation and DVD hire have seen their market shares decline. We're keen to use our scale to shake up the investment and insurance world in innovative ways.

Micro insurance in India First

A worktop with a phone, milk, mugs and kettle

In India we're working with the government, who have an outstanding digital programme encompassing mobile technology and retinal scanning. We now insure the lives of five million people, helping many lower income groups buy affordable cover for their families.

MediaCityUK's digital incubators

Our purchase of 50% of MediaCityUK in Salford, which is an overall £500 million investment project, has enabled us to play a part in the development of new digital businesses. MediaCityUK is the largest purpose-built creative, digital and technology community in Europe, and the UK's first media campus. Its vision is to provide a global centre of excellence for innovation and creation, and to be a broadcasting hub enabling businesses to operate across all media.

We need a strategy that is digital

We've started to develop our digital strategy in our Insurance and workplace pensions businesses. However, we have only managed to make limited progress and there's still a long way to go.

Recent achievements

  • Retail protection straight through processing 79%
  • Direct retail protection new business sales of £29m, accounting for 18% if new business
  • Platforms assets of £77bn, up 7%
  • My Account re-launched February 2015, 441k customers registered

What's Next

  • Potential in Insurance to benefit from digital and direct growth
  • Growth in India of digital mass market propositions
  • Opportunities for online direct growth in LGA
  • Digital customer engagement in Savings to drive growth in direct business
  • In Savings, the use of new digital processes and ‘robo’ developments can drive efficiencies