Bank of America Merrill Lynch Conference

(1)

Bank of America Merrill Lynch

Conference

6.40p

Nigel Wilson

Chief Executive Officer

Urban Regeneration:

(2)

LEGAL & GENERAL GROUP PLC

Forward looking statements

This document may contain certain forward-looking statements relating to

Legal & General Group, its plans and its current goals and expectations

relating to future financial condition, performance and results. By their

nature, forward-looking statements involve uncertainty because they relate

to future events and circumstances which are beyond Legal &

General’s

control, including, among others, UK domestic and global economic and

business conditions, market related risks such as fluctuations in interest

rates and exchange rates, the policies and actions of regulatory and

Governmental authorities, the impact of competition, the timing impact of

these events and other uncertainties of future acquisition or combinations

within relevant industries. As a result, Legal & General Group’s actual future

condition, performance and results may differ materially from the plans,

goals and expectations set out in these forward-looking statements and

persons reading this announcement should not place reliance on

forward-looking statements. These forward-forward-looking statements are made only as at

the date on which such statements are made and Legal & General Group

Plc. does not undertake to update forward-looking statements contained in

this document or any other forward-looking statement it may make.

(3)

Is the global macro economy moving to a digital world of zeros?

Downside Analogue Economy Paper Money % change Digital Economy Digital Money % change - Economic growth

2 - 4

0

- Nominal interest rates

4 - 6

0

- Real interest rates

2 -3

0

- Inflation - Normal - Hyper

3 – 10

10 – 30

0

- Wages - Nominal - Real - Hyper

4 – 6

2 – 3

10 – 30

0

- Currency

Fixed with

“crashes”

Volatile

“We cannot solve our

problems with the

same thinking we

used when we

created them.”

(4)

Technology

– The implications of the Second Machine Age

(i)

(ii)

(iii)

(iv)

(v)

(vi)

(vii)

Hollowing out of middle management – business “distributes and downsizes”

Digital investment is dis-intermediating low paid jobs – higher paid jobs becoming more higher

paid

Increasing demand for clean energy – economics are improving and climate change is a real

concern

Digital Advice – financial services needs to step up and fill the void – “Robo advice” is key,

including welfare

Physical is being replaced by Digital

– FS industry likes to finance physical assets and

regulation prefers physical and analogue

Digital in healthcare will be transformative for our industry – we have to disrupt

The internet of things will be transformational – huge impact on GI business

(5)

Investment is required to deliver growth

(1)

(2)

(3)

(4)

DM economies have over-consumed and under-invested – EM economies have

under-consumed and over-invested

The tsunami of digital money is moving around the world’s asset markets, bidding up the price

of existing assets, then rapidly exiting, causing volatility to increase and returns to fall

Public and private investment is too low – we need a change in policy and approach

“Fed Watching” by the market is being replaced by “Market Watching” by the Fed

(6)

L&G – A clear and focused strategy for a divergent world

• The world is getting older, people live longer and have not saved enough for retirement • Over 60’s have c£1.3trn of housing equity, increasingly used to fill this savings gap • $10trn of defined benefit liabilities globally, with increasing demand for de-risking

solutions

GROWTH DRIVERS

AGEING

POPULATIONS

GLOBALISATION OF

ASSET MARKETS

WELFARE

REFORMS

DIGITAL

LIFESTYLES

BANK

RETRENCHMENT

• Asset markets around the world are becoming increasingly homogenous

• This creates attractive opportunities to grow and internationalise our successful investment management capabilities

• Pressure on public finances is moving the provision of welfare from the state to individuals and employers

• Shrinking state funding will drive demand for the private provision of protection products

• Changes in digital customer engagement are presenting both opportunities and challenges to all companies

• Using digital capabilities to generate scale and efficiency will be key

• Retrenching banks create opportunities for investors with long term investment horizons to invest in real assets

(7)

High performing businesses aligned to growth drivers

ASSET MANAGEMENT

Legal & General Investment Management

•

Legal & General Retirement

•

Legal & General Capital

•

TOTAL

INSURANCE

Legal & General Insurance

• • •

Legal & General America

• •

TOTAL

DIRECT INVESTMENTS

_SAVINGS

Mature Savings • •Digital Savings • TOTAL

6.2

Group-wide direct investments H1 2015 (£bn)

51

H1 2015

192

40

H1 2015

176

280

115

H1 2015

571

• • • • • • •

149

188

102

H1 2014

439

Operating Profit (£m)

179

43

H1 2014 Operating Profit (£m)

55

H1 2014 Operating Profit (£m)

232

222 (1)

(1)

50

54

(8)

Improving efficiencies across our businesses

ASSET MANAGEMENT

Legal & General Investment Management

Legal & General Retirement Legal & General Capital TOTAL

INSURANCE

Legal & General Insurance Legal & General America TOTAL

SAVINGS

Legal & General Savings

2,041

Headcount

2,481

508

Headcount

1,902

501

26

Headcount

2,429

169

36

4

Costs (£m)

209

H1 2015

101

43

Costs (£m) H1 2015

89

Costs (£m) H1 2015

2,989

144 GROUP

Group1 Shared services TOTAL

282

583

Headcount

28

76

Costs (£m) H1 2015

865

104 TOTAL

Legal & General

8,324

Headcount

546

Costs (£m) H1 2015

(9)

L&G Retirement – Our vision and strategy

Individual Retirement Choices

Longevity guarantees

Investment guarantees Lifetime Mortgages

Global Pension Risk Transfer

UK Pension Risk Transfer International Reinsurance US Pension Risk Transfer

OUR VISION

Help 2 million people achieve financial security in retirement by the end of 2020

OUR STRATEGY

Deploy shareholder capital flexibly and dynamically across our chosen markets,

currently:

Manage our balance sheet efficiently by seeking to continually:

Improve risk adjusted return on assets for policyholders and shareholders

Reduce unit costs Actively manage longevity risk

(10)

L&G Retirement – eight sources of profit

BACK BOOK FOR CASH

• Existing £46bn annuity portfolio – expect to generate £340m of operational cash and higher net cash in 2015

• Asset strategy being optimised with direct Investments and lifetime mortgages

1

2

3

4

5

6

7 UK CAPITAL LITE FRONT

BOOK

US PENSION RISK

TRANSFER

LONGEVITY INSURANCE

SECONDARY ANNUITY

MARKET

LIFETIME MORTGAGES

INDIVIDUAL RETIREMENT

SOLUTIONS

• Evolving to meet anticipated demand with £1.8trh of DB liabilities in the UK

• Target entry in Q4 2015

• Utilising LGIMAs asset management and LGAs back office capabilities

• £6bn of 3rd_{party longevity reinsurance deals completed to date. E.g. British}

Aerospace

• £1.3trn of housing equity owned by the over 60’s in the UK • Long term illiquid asset creation for our annuity fund • Entered market in Q2 2015

• Projected growth in DC will drive demand for simple tax efficient products “to and through” retirement.

• Entry expected in 2017

8 EUROPEAN PENSION

RISK TRANSFER

(11)

Profit Source 1: Back book for cash

EEV VIF Undiscounted

2014 Discounted 2014 LGR c£8 - 9bn £4bn £m 2014 20151 ₂₀₁₆ Operational cash 292 340 Operating profit 428 - Direct investments - Lifetime mortgages - Default outperformance

• Significant upside from back book asset optimisation:

(a) reducing cash, sovereign and overseas debt (b) replacing with direct investments and lifetime

mortgages. 1. Guidance Equities: 0.3 Sovereigns, Supras and Sub-Sovereigns: 6.7 UK Corporate: 12.6 US Corporate: 8.7 Europe Corporate 3.2 Rest of world Corporate: 5.3 Hedges / Derivatives: 3.6

Cash: 0.5 _investment:Direct 4.9

• High degree of predictability and visibility of monetisation of the back book.

• The £46bn back book will generate material levels of profit for around 15 years

(12)

Profit Sources 2,3,4: UK, European and US pension risk transfer

Estimated private sector defined benefit liabilities (£trillion)

• Markets at the very early stages of de-risking

(13)

Profit source 6: Successful low cost entry into lifetime mortgages

LIFETIME MORTGAGES

Applications

(14)

Profit Sources 6, 7 and 8: Individual Retirement Solutions and

secondary annuity market

Post retirement flows (£m)

• Freedom and choice brings unrestricted

choice and complexity

• There is uncertainty about how the market

will evolve

L

ifetime mortgage market (£bn)

• The number of people over 60 expected to

grow by 6.3m in next 20 years

• £1.3trn of housing equity currently owned

by the over 60s in the UK.

£2.3bn

(15)

Legal & General Investment Management has less than 1% of the

global market

LGIM AUM ($bn)

• LGIM - AUM has grown from $138bn in 1998 to

$1.1trn at June 2015 largely as a domestic UK

business.

• There is significant potential for further growth –

particularly in international markets across DC

pensions, LDI, real assets and fixed income.

Private Financial Wealth ($ trillion)

$131 $147

$164

$222

(16)

LGIM – developing growth businesses

SOLUTIONS AUM (£bn)

REAL ASSETS AUM (£bn)

INTERNATIONAL AUM (£bn)

DC AUM (£bn)

169.4 115.8 31.5 16.7 8.8 42.8 23.6

(17)

LGIM – Defined Contribution

• Auto-enrolment has been a big success in the UK with 90% of employees

choosing to stay in workplace schemes.

• Increase in DC savings driven by auto-enrolment, with 12 million individuals ultimately expected to be enrolled in workplace savings schemes, compared to c.5 million today.

• Currently we have 1.4 million customers and expect to add a further c700k new members by the end of 2016.

• Statutory minimum contribution rates will increase from 2% today to 5% in 2017 and up to 8% in 2018.

• Minimum contribution rates may have to be increased still further.

0 500 1,000 1,500 2,000 2,500 3,000 3,500 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 £b n

DEFINED CONTRIBUTION SAVINGS

Similar opportunities in other markets including the

US and most emerging market countries.

(18)

International Expansion

• US continues to be the largest pensions

market with $25trn of assets.

• US clients grown to 124 from 20 in 2011. • Expanding LDI distribution to provide a full

spectrum of LDI solutions.

• First US Index win in H1 2015.

• Expanding distribution of US credit and 3

year track record established in high yield.

• Launched a range of passive collective

investment trusts to target US pension clients.

• 100% of US active fixed income composites

outperforming respective benchmarks over 1,3 and 5 years.

LGIMA AUM

* Includes £37.5bn of assets transferred to the US in Q3 2014.

25.4

118.5

(1) LGIM America – Rapid growth and strong momentum

(2) Entrance in Japan, Korea, Taiwan in last 6 months

 China – first mandate in 2014

 Japan – Meiji Yasuda distribution agreement announced in September 2015

 Korea – first mandate in Q3 2015

(19)

Legal & General Capital: Bank retrenchment and welfare reform are

creating substantial growth opportunities for disruption.

Capital

‘Tomorrow’s Money’

Patient Capital

Essential ‘Capital

Heavy’ Industries

Housing

Pension Funds

Regeneration

Insurance Funds

_{‘Finance Gap’}

_Energy

Transport

Sovereign Wealth

Funds

SME Finance

‘Yesterdays Money’

Capital

‘Tomorrow’s Money’

Patient Capital

Essential ‘Capital

Heavy’ Industries

Housing

Pension Funds

Regeneration

Insurance Funds

_{‘Finance Gap’}

_Energy

Transport

Sovereign Wealth

Funds

SME Finance

(20)

Legal & General Capital: Our strategic focus

UK REGENERATION

• UK Govt total debt is £1.56trn (82% of GDP); Liabilities of £3.3 trn

• Private long term investment is required

CLEAN ENERGY

UK HOUSING

ALTERNATIVE FINANCE

1

• UK housing is lagging the requirement of 250k homes per annum

• The housing deficit can be met through increased capacity and private rental sector (PRS), entered the PRS in Q3 2015.

• LGC is developing a strategy focussing on long term clean electricity generation assets focussing on (a) onshore wind, (b) solar, and (c) offshore wind.

• EU banks remain constrained with many reverting to ‘core’ markets.

• LGC is committed to SME lending, e.g. Pemberton.

2

3

(21)

Long term direct investments

We continue to drive

risk-adjusted returns upwards

through direct investments in

long dated real assets where

the banks have left behind

‘white space’. Investment in

housing and regeneration are

economically useful for us, for

the broader economy and

socially useful too.”

(22)

Legal & General Insurance

POSSESSIONS

Income Protection Health-care _Long Term Care Warranty Critical Illness Pet Travel Mortgages Motor Home Term Assurance Whole of Life Over 50s (funeral plan) Will Writing/ Probate/Power of Attorney Funeral Provision Health & Wellbeing Access Building & Contents Supply Chain Rehabilitation Services Range of Info & Financial Services Guides Support Helpline (EAP) MAKING LIFE BETTER SERVICES PRODUCTS

Radical simplification of the

quote and buy customer

journey for Core Direct

Expand product range and

develop broader propositions

Enhance marketing

campaigns

Increase product holding per

customer

Develop self-service

capabilities

POSSESSIONS

Income Protection Health-care _Long Term Care Warranty Critical Illness Pet Travel Mortgages Motor Home Term Assurance Whole of Life Over 50s (funeral plan) Will Writing/ Probate/Power of Attorney Funeral Provision Health & Wellbeing Access Building & Contents Supply Chain Rehabilitation Services Range of Info & Financial Services Guides Support Helpline (EAP) MAKING LIFE BETTER SERVICES PRODUCTS Available today

Product sold, but not underwritten

Not yet in portfolio Only available to some customers

(23)

Dividend

6.40p 7.65p 9.30p

DIVIDEND

+19% NET CASH (£m)

₃₂₀

₆₉₉

₇₆₀

₈₄₆

₈₆₅

_1,002

_1,104

₆₂₄

CASH RETAINED (£m)

₈₁

₄₇₄

₄₈₁

₄₇₁

₄₁₃

₄₅₂

₄₃₆

DIVIDEND (£m)

₂₃₉

₂₂₅

₂₇₉

₃₇₅

₄₅₂

₅₅₀

₆₆₈

₂₀₅

DIVIDEND COVERAGE1

1.34

3.11

2.72

2.26

1.91

1.82

1.65

4.75p

(24)

Longer term ambition

Bolt-on M&A

Organic growth

Cash focus

•Doubling size of LGIMA assets

•Direct investments to exceed £15bn

•Establishing LGR’s international business

•Grow UK GWP at twice UK GDP

•Building market leading position in UK DC

•Creating new business segment in housing and urban regeneration

•Launching a mobile business to drive customer growth in UK and internationally (Africa and Asia)