Bank of America Merrill Lynch Conference

Transcription

1 Bank of America Merrill Lynch Conference Nigel Wilson Chief Executive Officer 6.40p Urban Regeneration: Our cities are not overbuilt, they are under demolished

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

3 Is the global macro economy moving to a digital world of zeros? Analogue Economy Paper Money % change Downside Digital Economy Digital Money % change - Economic growth Nominal interest rates Real interest rates Inflation - Normal - Hyper We cannot solve our problems with the same thinking we used when we created them. - Albert Einstein - Wages - Nominal - Real - Hyper - Currency Fixed with crashes 0 Volatile

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) 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 (4) Fed Watching by the market is being replaced by Market Watching by the Fed (5) Moore s Law is relentless

6 L&G A clear and focused strategy for a divergent world GROWTH DRIVERS AGEING POPULATIONS GLOBALISATION OF ASSET MARKETS 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 Asset markets around the world are becoming increasingly homogenous This creates attractive opportunities to grow and internationalise our successful investment management capabilities WELFARE REFORMS DIGITAL LIFESTYLES 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 BANK RETRENCHMENT Retrenching banks create opportunities for investors with long term investment horizons to invest in real assets Real assets provide enhanced risk adjusted returns if executed well

7 High performing businesses aligned to growth drivers ASSET MANAGEMENT Legal & General Investment Management Legal & General Retirement Legal & General Capital TOTAL Operating Profit ( m) H H INSURANCE Legal & General Insurance Legal & General America TOTAL Operating Profit ( m) H H DIRECT INVESTMENTS 6.2 SAVINGS Mature Savings Group-wide 51 direct investments H ( bn) Digital Savings TOTAL Operating Profit ( m) H H (1) (1) 50 54

8 Improving efficiencies across our businesses ASSET MANAGEMENT Legal & General Investment Management Legal & General Retirement Legal & General Capital TOTAL Headcount 1, ,429 H Costs ( m) INSURANCE Legal & General Insurance Legal & General America TOTAL H Headcount Costs ( m) 2, , GROUP Group 1 Shared services H Headcount Costs ( m) SAVINGS H Headcount Costs ( m) Legal & General Savings 2, TOTAL H Costs ( m) TOTAL Legal & General 8,324 Headcount 546

9 L&G Retirement Our vision and strategy 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: Global Pension Risk Transfer UK Pension Risk Transfer International Reinsurance Individual Retirement Choices Longevity guarantees Lifetime Mortgages US Pension Risk Transfer Investment guarantees Manage our balance sheet efficiently by seeking to continually: Actively manage longevity risk Improve risk adjusted return on assets for policyholders and shareholders Reduce unit costs

10 L&G Retirement eight sources of profit BACK BOOK FOR CASH UK CAPITAL LITE FRONT BOOK EUROPEAN PENSION RISK TRANSFER US PENSION RISK TRANSFER LONGEVITY INSURANCE LIFETIME MORTGAGES INDIVIDUAL RETIREMENT SOLUTIONS SECONDARY ANNUITY MARKET 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 Evolving to meet anticipated demand with 1.8trh of DB liabilities in the UK Target entry in 2016 Target entry in Q Utilising LGIMAs asset management and LGAs back office capabilities 6bn of 3 rd 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 Q Projected growth in DC will drive demand for simple tax efficient products to and through retirement. Entry expected in 2017

11 Profit Source 1: Back book for cash EEV VIF Undiscounted 2014 Discounted 2014 LGR c 8-9bn 4bn m Operational cash Cash: bn of annuity assets Hedges / Derivatives: 3.6 Direct investment: 4.9 Equities: 0.3 Sovereigns, Supras and Sub- Sovereigns: 6.7 Operating profit Direct investments - Lifetime mortgages - Default outperformance 1. Guidance Rest of world Corporate: 5.3 Europe Corporate 3.2 US Corporate: 8.7 UK Corporate: 12.6 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 Significant upside from back book asset optimisation: (a) reducing cash, sovereign and overseas debt (b) replacing with direct investments and lifetime mortgages.

12 Profit Sources 2,3,4: UK, European and US pension risk transfer Markets at the very early stages of de-risking Estimated private sector defined benefit liabilities ( trillion) 10-12

13 Profit source 6: Successful low cost entry into lifetime mortgages LIFETIME MORTGAGES Applications per week 1m 2m 3m 5m 10m

14 Profit Sources 6, 7 and 8: Individual Retirement Solutions and secondary annuity market Post retirement flows ( m) Lifetime mortgage market ( bn) 2.3bn Source: Mintel report: Equity Release Schemes UK, May 2015 Freedom and choice brings unrestricted choice and complexity There is uncertainty about how the market will evolve 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.

15 Legal & General Investment Management has less than 1% of the global market LGIM AUM ($bn) Private Financial Wealth ($ trillion) $222 $131 $147 $ 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.

16 LGIM developing growth businesses SOLUTIONS AUM ( bn) INTERNATIONAL AUM ( bn) REAL ASSETS AUM ( bn) DC AUM ( bn)

17 bn LGIM Defined Contribution 3,500 3,000 2,500 2,000 1,500 1, DEFINED CONTRIBUTION SAVINGS 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 autoenrolment, 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 Statutory minimum contribution rates will increase from 2% today to 5% in 2017 and up to 8% in Minimum contribution rates may have to be increased still further. Similar opportunities in other markets including the US and most emerging market countries.

18 International Expansion (1) LGIM America Rapid growth and strong momentum (2) Entrance in Japan, Korea, Taiwan in last 6 months LGIMA AUM US continues to be the largest pensions market with $25trn of assets. US clients grown to 124 from 20 in Expanding LDI distribution to provide a full spectrum of LDI solutions. First US Index win in H 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. * Includes 37.5bn of assets transferred to the US in Q China first mandate in 2014 Japan Meiji Yasuda distribution agreement announced in September 2015 Korea first mandate in Q Taiwan - first mandate in Q3 2015

19 Legal & General Capital: Bank retrenchment and welfare reform are creating substantial growth opportunities for disruption. Tomorrow s Money Patient Capital Pension Funds Essential Capital Heavy Industries Housing Regeneration Insurance Funds Finance Capital Gap Energy Sovereign Wealth Funds Transport SME Finance Banks Governments Yesterdays Money

20 Legal & General Capital: Our strategic focus 1 UK REGENERATION UK Govt total debt is 1.56trn (82% of GDP); Liabilities of 3.3 trn Private long term investment is required 2 UK HOUSING 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 Q CLEAN ENERGY LGC is developing a strategy focussing on long term clean electricity generation assets focussing on (a) onshore wind, (b) solar, and (c) offshore wind. 4 ALTERNATIVE FINANCE EU banks remain constrained with many reverting to core markets. LGC is committed to SME lending, e.g. Pemberton.

21 Long term direct investments 15bn We continue to drive riskadjusted 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 Where we are Where we plan to go Whole of Life Over 50s (funeral plan) PRODUCTS SERVICES Will Writing/ Probate/Power of Attorney Income Protection Healthcare Funeral Provision Long Term Care Warranty Expand product range and develop broader propositions Enhance marketing campaigns Whole of Life Over 50s (funeral plan) PRODUCTS SERVICES Will Writing/ Probate/Power of Attorney Income Protection Healthcare Funeral Provision Long Term Care Warranty Term Assurance Home Support Helpline (EAP) Range of Info & Financial Services Guides MAKING LIFE BETTER Motor Rehabilitation Services Health & Wellbeing Access Building & Contents Supply Chain Mortgages Travel Critical Illness Pet Increase product holding per customer Radical simplification of the quote and buy customer journey for Core Direct Term Assurance Home Support Helpline (EAP) Range of Info & Financial Services Guides MAKING LIFE BETTER Motor Rehabilitation Services Health & Wellbeing Access Building & Contents Supply Chain Mortgages Travel Critical Illness Pet Available today POSSESSIONS Not yet in portfolio Develop self-service capabilities POSSESSIONS Product sold, but not underwritten Only available to some customers

23 Dividend DIVIDEND 9.30p 6.40p 7.65p 4.75p +19% NET CASH ( m) ,002 1, CASH RETAINED ( m) DIVIDEND ( m) DIVIDEND COVERAGE

24 Longer term ambition Bolt-on M&A Organic growth Cash focus 5 key macro trends 2014: EPS 16.70p, DPS 11.25p, ROE 16.9%, Net cash 1.1bn 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) Leading welfare reform with new savings and insurance products Reducing operating costs in nominal terms Bolt-on M&A Organic growth Cash focus 5 key macro trends 2019: EPS, DPS, ROE, Net cash