Legal & General Regulatory News (LGEN)

Stock Exchange Release

04 November 2015

legal & GENERAL: net cash up 14%, LGIM NET FLOWS OF £21.7BN

group highlights:

business highlights:

Nigel Wilson, Group Chief Executive, said:

"Legal & General's scale and growing international business, coupled with strategic clarity and financial discipline, has driven a strong performance, particularly in our asset management businesses, resulting in net cash up 14% at £943m.

LGIM's growth both in the UK and internationally has accelerated this year. Net flows of £21.7bn include mandates from the US, China, Korea and Taiwan and exclude the £13bn of assets from the National Grid Pension Scheme transferring this month. UK Defined Contribution pension assets under management are now over £43bn, with further mandates including John Lewis still to fund. LGIM's AUM is £717bn, and is the 15th largest asset manager globally.

LGR has attractive UK growth opportunities and is using its unique skillset to expand into both the US and European pension risk transfer markets. We have written our first US transaction in October - a $450m BPA deal for Royal Philips, and should enter the European market shortly. Lifetime Mortgage applications have increased to around £10m per week.

LGC is focused on attractive financial opportunities in urban regeneration, housing, alternative finance and clean energy. Urban regeneration schemes are progressing well in Bracknell, Canning Town, Cardiff, Leeds, Manchester and Salford. We entered the build-to-rent market and CALA Homes produced record operating profits of £73m.

External political and regulatory uncertainties remain, but we believe that by aligning our strategy to macro trends we have created a high degree of resilience in our business model and are well positioned for further growth."

GROUP CASH GENERATION

LEGAL & GENERAL RETIREMENT (LGR)

LEGAL & GENERAL INVESTMENT MANAGEMENT (LGIM)

LEGAL & GENERAL CAPITAL (LGC)

INSURANCE

SAVINGS

LEGAL & GENERAL AMERICA (LGA)

1. LGIM total AUM includes £216.6bn (Q3 2014: £185.3bn) of derivative overlay assets associated with the Solutions business.

2. LGIM AUM includes £43.1bn (Q3 2014: £39.9bn) managed on behalf of LGR and £31.3bn (Q3 2014: £33.4bn) managed on behalf of Savings.

3. Savings AUA as at Q3 2014 has been amended to exclude £2.5bn in relation to Legal & General International (Ireland) Limited, which was sold in Q3 2015. AUA at the time of disposal was £2.8bn.

financial performance

We have delivered another quarter of strong cash generation. Operational cash for the Group is up 11% to £936m in the first nine months of the year (Q3 YTD 2014: £844m). New business surplus of £7m (Q3 YTD 2014: strain of £17m) primarily reflects improved efficiency and increasing scale in UK Protection and Savings, and the implementation of our capital lite strategy for new UK pension risk transfer business. As a result net cash generation is up 14% at £943m (Q3 2014 YTD: £827m).

trading update

legal & general retirement (LGR)

Total annuity assets increased by 8% to £43.1bn (Q3 2014: £39.9bn). Annuity sales were £1.5bn (Q3 YTD 2014: £3.9bn), with 2014 benefitting from the £3bn buy-in transaction with ICI pension fund.

Bulk annuity sales were £1,238m YTD (Q3 YTD 2014: £3,368m). Q3 was a quieter quarter with completions of £92m (Q3 2014: £233m) from 15 bulk annuity transactions (Q3 2014: 14 transactions). In October 2015 we completed our first US pension de-risking transaction, entering into an agreement to provide retirement payments to 14,000 of Royal Philip's retirees and other former employees for $900m, shared equally with The Prudential Insurance Company of America. This business has been written by Legal & General America, with the associated asset management for our 50% provided by Legal & General Investment Management America (LGIMA).

Lifetime mortgage completions were £102m YTD (Q3 YTD 2014: £nil) with £65m of advances in Q3 and applications currently running at around £10m per week. Following the Budget reforms to the annuity market, Individual annuity sales were down 48% at £262m (Q3 YTD 2014: £508m). We have seen the proportion of people taking their pension savings as cash increase to 90% from 60% before the introduction of the Pensions Reform legislation. Our average payment size is £12k.

legal & general investment management (LGIM)

LGIM total assets under management increased 8% to £717.0bn (Q3 2014: £662.1bn) reflecting external net inflows of £21.7bn (Q3 YTD 2014: £8.3bn). In the third quarter, external net inflows were £7.9bn (Q3 2014: £0.2bn outflows), representing the second successive quarter of positive external net flows across all our major asset classes. Our UK retail business had another strong quarter with external net flows of £0.6bn (Q3 2014: £0.0bn).

UK defined contribution (DC) pension assets increased 13% to £43.3bn (Q3 2014: £38.3bn) with assets under administration on our Workplace platform increasing 30% to £13.1bn (Q3 2014: £10.1bn). The UK DC market continues to grow and we have had notable success with large schemes that have come to market this year, including John Lewis, which is still to fund. We have also made significant progress with SMEs, where we have maintained our 50bps price cap for the default fund, providing a highly efficient proposition for smaller companies. In addition we have recently signed a strategic partnership deal with Towers Watson on their LifeSight Platform which is expected to generate significant AUM over the next five years.

We continue to see strong demand for our liability driven investment (LDI) and multi asset strategies. Solutions assets increased 18% to £322.3bn (Q3 2014: £273.0bn), with external net inflows of £17.1bn (Q3 YTD 2014: £18.0bn), as companies look to de-risk and manage the volatility associated with legacy defined benefit pension schemes.

In September, we announced an agreement to manage £13bn of assets for the National Grid UK Pension Scheme, which will transfer in November.

LGIM's property business continues to experience demand from retail clients, UK pension funds and international clients, with net external inflows for the period of £0.6bn (Q3 YTD 2014: £0.5bn). AUM increased 26% to £16.6bn in Q3 2015 (Q3 2014: £13.2bn).

Total international AUM increased by 63% to £117.8bn (Q3 2014: £72.3bn), with external net flows of £8.0bn (Q3 YTD 2014: £7.1bn). In the US, AUM increased 115% to $117.0bn (Q3 2014: $54.4bn), including external net flows of $8.7bn (Q3 YTD 2014: $9.4bn) with continued demand for LDI and active fixed income (AFI) asset classes. US AUM includes £37.5bn of index assets transferred from the UK to be managed by the Chicago office in Q4 2014. Our index proposition is now in the early stages of roll out and we successfully won our first multi-billion dollar US index mandate in Q2. In Asia, we won new mandates in Korea and Taiwan which funded in Q3 and have entered the Japanese market through a newly-signed co-operation agreement with Meiji Yasuda, the 3rd largest insurance company in Japan. Through this agreement LGIM will provide global fixed income investment management services to create products primarily for Japanese public and corporate pension funds.

legal & general capital (LGc)

LGC increased direct investments as at Q3 to £0.8bn (Q3 2014: £0.4bn), an increase of 88%. Total Group-wide direct investments have increased 43% to £6.6bn (Q3 2014: £4.6bn). LGC is focused on markets where under-investment and limited institutional finance are providing attractive opportunities, namely in housing, urban regeneration, alternative finance and clean energy.

Key investments over the quarter include:

- In housing LGC is investing in our first 'Build to Rent' schemes in Walthamstow and Salford working in partnership with LGIM's property business. CALA Homes, of which the Group owns 46.5%, produced record annual operating profits of £73m.

- In urban regeneration we announced an initial investment of £162m in the regeneration of Thorpe Park, in Leeds. Working with our partners, Scarborough Group, we are developing this 200 acre, mixed-use site. In Cardiff, we announced a joint venture with Rightacres to invest in a £400m regeneration scheme in the city centre.

- In alternative finance Pemberton Asset Management, of which LGC owns 40%, announced the successful €447m first close on its European Mid-Market Debt Fund. The fund is looking to build a diversified portfolio of bilateral, club and syndicated loans to UK and European small and medium size enterprises.

- In clean energy our current priorities are onshore wind power and solar investment opportunities.

insurance

UK Protection premium increased 3% to £1,109m (Q3 YTD 2014: £1,077m). New business sales reduced marginally to £174m (Q3 YTD 2014: £178m).

Retail Protection sales were £121m (Q3 YTD 2014: £124m) with new business of £42m (Q3 2014: £41m) in Q3. We remain the largest provider of retail protection in the UK and benefit from a highly efficient automated underwriting model and broad distribution reach. The Legal & General Network facilitated over £32bn of mortgages (Q3 YTD 2014: £29bn), reinforcing its position as the leading mortgage club in the market, and our surveying business completed c350k surveys, representing an increase of 93% over Q3 YTD 2014.

Group Protection sales were marginally lower in Q3 at £13m (Q3 2014: £14m). Year to date sales are broadly flat at £53m (Q3 2014 YTD: £54m). General Insurance gross premiums were down 11% to £251m (Q3 YTD 2014: £282m) reflecting disciplined pricing in a competitive market.

Direct retail protection new business sales were £22m, representing 16% growth on Q3 YTD 2014 and now accounts for 18% of new business (Q3 YTD 2014: £19m, 15% of new business). Direct household GWP was £73m, representing 14% growth on Q3 YTD 2014 and now accounts for 29% of gross premiums (Q3 YTD 2014: £64m, 23% of gross premiums).

savings

Cofunds generated further YTD net flows of £2.6bn (Q3 YTD 2014: £4.0bn) with total AUA up 6% at £73.1bn (Q3 2014: £69.0bn).

Suffolk Life generated net flows of £0.5bn YTD (Q3 YTD 2014: £0.6bn) with AUA now £8.2bn (Q3 2014: £7.5bn).

Mature savings net flows were £(2.4)bn (Q3 YTD 2014: £(2.3)bn) excluding a £2.8bn outflow relating to the disposal of Legal & General International (Ireland) Limited to Canada Life Group in Q3 2015.

legal & general america (LGA)

LGA delivered lower Q3 sales of $24m (Q3 2014: $39m) following recently introduced price changes. This is in line with guidance provided at the time of our interim results. YTD sales are $86m (Q3 YTD 2014: $117m).

More broadly LGA is important to the expansion of the Group in the US, providing back-office support for LGR and the balance sheet through which we will write further US pension risk-transfer business.

trading Outlook

Our strategic clarity together with our scale, efficiency and track record of execution mean that we are very well placed to continue to grow the business. External uncertainties, including regulatory change, do remain. We are adapting to these changes and remain focussed on delivering good returns for our shareholders.

In LGR we are internationalising our pension risk transfer business with hubs operating in the UK and in the US. Demand for de-risking solutions remains high and we retain a strong pipeline. Actual transaction flows, particularly for large bulk annuity transactions will vary between reporting periods. We expect individual annuities to remain subdued. We are on track to write up to £200m of lifetime mortgages this year and increasing amounts thereafter. We intend to invest £15bn in direct investment across the Group, over the medium term, matching the illiquid nature of our liabilities and solvency capital requirements to deliver more attractive risk adjusted returns to our shareholders.

LGIM is on track to deliver external net inflows of over £30bn for full year 2015. We continue to expand our distribution in the US, Asia, the Gulf and Europe. In UK defined contribution (DC) savings, newly won schemes will add a further 700k people to our existing 1.4 million full service customers by the end of 2016. Demand for LDI, multi asset, real asset and fixed income strategies is expected to remain strong. Retail sales have seen a healthy improvement, with LGIM moving into the top 3 of UK net retail fund sales in the third quarter of 2015.

In LGC we are seeing significant opportunities and a strong pipeline across each of our four chosen investment areas; housing; urban regeneration; alternative finance; and clean energy. We anticipate that city devolution will generate further demand and expect to complete at least two more urban regeneration deals in the next 6 months.

In Insurance we expect new business volumes across our UK protection business for 2015 to be broadly in line with 2014. We are expanding our digital capabilities, increasing the efficiency of our proposition in a mature and competitive market. In our Direct channel we are launching both 'GI Digital' and 'My Life', mobile and tablet friendly customer platforms for general insurance household customers and retail protection customers respectively.

In Savings, following the closure of our with-profits fund to new business in January 2015, we are managing the contribution from our mature savings business, identifying cost efficiencies to compensate for the gradually declining asset base. As part of a strategic review of our digital savings business we will focus on improving operational efficiency in Cofunds.

In LGA, we expect new business volumes to be c25% lower for 2015, when compared to 2014, with gross written premium c5% higher. Delivering further cash contribution to the Group will remain a key focus for LGA.

costs

We are ahead of our original group-wide target to deliver £80m of operating cost savings this year, reducing costs from £1,250m in 2014. We expect to incur c£40m of restructuring costs in 2015 to deliver these savings.

disposals

We are continuing to 'declutter' our business model, disposing, exiting and closing businesses that we consider to be non-core or sub-scale. As previously announced we have agreed to sell Legal & General France (LGF) to APICIL Prévoyance. This is expected to complete, subject to regulatory approval, around the end of 2015.  Following the disposal of our Irish business in July 2015, we have also entered into agreements, subject to regulatory and other approvals, to sell our Egyptian, Gulf and German businesses.

SOLVENCY II

We have applied to the Prudential Regulatory Authority (PRA) to use our internal model to calculate our Solvency Capital Requirement, transitionals, matching adjustments and deduction and aggregation for Legal & General America. Whilst we have not yet received any feedback in respect of the PRA's decisions, we do expect to obtain approval for these applications. We will report our Solvency II capital position for the first time as part of our full year results in March 2016.

ENQUIRIES

Laura Doyle Head of Investor Relations 020 3124 2088

Stephen Thomas Investor Relations Manager 020 3124 2047

John Godfrey Corporate Affairs Director 020 3124 2090

Richard King Head of Group Corporate Communications 020 3124 2095Michelle Clarke Tulchan Communications 020 7353 4200

Notes

A copy of this announcement can be found in "Results", under the "Financial information" section of our shareholder website at http://www.legalandgeneralgroup.com/investors/results.cfm.

There will be a teleconference at 9.00 UK time. Investors should dial +44 (0)20 3059 8125.

DEFINITIONS

Operational cash generation is the expected release from in-force business for the UK non-profit Insurance and Savings and LGR businesses, the shareholder's share of bonuses on with-profits business, the post-tax operating profit on other UK businesses, including the expected investment return on LGC invested assets, and dividends remitted from our international businesses.

Net cash generation is defined as operational cash generation less new business strain.

FORWARD LOOKING STATEMENTS

This announcement may contain certain forward-looking statements relating to Legal & General, 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'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-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 announcement or any other forward-looking statement it may make.