Robust Financial Position, New Business up 5 Percent Say Legal and General

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Legal and General offer a report on the current financial circumstances, as well as a rough forecast.

These are uncertain times for everyone. We welcome recent actions by the Government to underpin confidence in the UK banking sector and hence the wider economy. It is in these challenging markets that businesses with solid foundations can mark themselves out in their ability to continue to deliver for customers and shareholders over the long term.

Highlights for the 9 months to 30 September 2008:(1)

  • Worldwide new business £1,137m (9M 07 £1,085m) up 5%
  • UK new business £1,047m (9M 07 £993m) up 5%
  • UK Risk: new business £381m (9M 07 £295m) up 29%
  • Pension buyout sales more than trebled up 226%
  • Group protection sales continue to grow up 13%
  • UK Savings: new business £666m (9M 07 £698m) down 5%
  • Unit trust and ISA(2) sales remain strong up 35%
  • Non profit pensions boosted by SIPP success up 27%
  • Unit linked bonds remain at lower levels as anticipated down 49%
  • Investment management gross new funds £28.3bn (9M 07 £33.4bn)
  • IGD surplus £2.9bn at end of September(3)

Tim Breedon, Group Chief Executive, said: "These results once again underline the strength of our broad distribution model, high quality

product offering and robust financial position. We remain at best cautious about the economic outlook for the UK, but are confident that we are well positioned to exploit opportunities throughout the current economic cycle.

"These are uncertain times for everyone. We welcome recent actions by the Government to underpin confidence in the UK banking sector and hence the wider economy. It is in these challenging markets that businesses with solid foundations can mark themselves out in their ability to continue to deliver for customers and shareholders over the long term."

Business Commentary:
Legal & General has three main businesses: Risk, Savings and Investment management. Our UK Risk and Savings businesses generated combined APE new business of £1,047m, an increase of 5% on the same period of 2007. Worldwide APE new business stood at £1,137m, also up 5%. Our institutional investment management business delivered a further £28.3bn of gross new funds.

UK Risk business

New business was lower in the first nine months at £158m (9M 07: £168m) as the slowing housing market continued to have some impact on individual protection sales.

UK mortgage approvals have fallen 36%(4) to the end of August, while our individual protection sales were down only 13% to the end of September. We continued to exploit opportunities across our broad product offering, through increased focus on our wide range of non mortgage related products, including family protection and high sum assured business.

Group Protection grew, with employers still keen to secure competitive and attractive protection for their employees. Sales were up 13% in the first nine months of the year. Quotation activity remained high in Q3, with an increased emphasis on benefit design.

New business grew 76% in the period to £223m (9M 07: £127m), continuing the trends seen in the first half of the year.

Bulk Purchase Annuity (BPA) sales were once again up strongly, more than trebling in the first nine months, and more than doubling in Q3 relative to the previous year. The market for open pension scheme buyouts has continued to deliver strong sales in Q3, albeit at a lower level than the average for the first half of the year. We have been more cautious over the last three months in the large schemes area, where highly volatile credit and swaps markets have increased pricing and execution risk. We remain particularly strong in the small and medium sized schemes market. We have written a total of 172 policies so far this year, with an average case size of £9m.

Sales of individual annuities were lower at £60m (9M 07: £77m), reflecting our caution in pricing and our focus on the significant opportunities in the BPA market.

A resilient application pipeline means protection sales should remain around current levels for the rest of this year, with a continued focus on non mortgage related products. We also see opportunities for further progress in our Group protection business, where quotations remain at a high level.

Our annuity business has significant long term opportunities given the scale of potential demand for pension buyouts and demographic demand growth in individual annuities. As indicated we have recently reduced our activity in the larger schemes market, as a result of asset market illiquidity and volatility. The pipeline of quotations remains at a very high level and a return to deeper, more liquid credit markets may help to stimulate closure of larger schemes, though this remains unpredictable in the short term.

UK Savings business

Non profit pensions:
Our non profit pension business reported strong sales growth of 27%. Within this result we saw progress in both corporate and retail pension sales. We have continued to refocus our business towards modern and flexible pension products, including SIPPs, which accounted for 56% of retail sales. This includes ongoing momentum in Suffolk Life, the specialist SIPP provider which we acquired earlier this year. With an average retail SIPP case size more than treble that of non SIPP products, the strategic development in our business is increasingly evident. We are now the number two provider of SIPP products in the UK(5).

Unit linked bonds:
The unit linked bond market has materially reduced in size this year and we believe we have performed broadly in line. The reduction reflects the impact of CGT changes as well as current retail investor sentiment. Notwithstanding this, net sales were positive in the period, whilst gross sales volumes were lower at £101m in the first nine months, down 49% (9M 07 £198m).

Retail investments:
Strong progress in our core retail investment business (unit trusts and ISAs) continued, with sales up 35% to £168m, including a strong contribution from our distribution relationship with Nationwide Building Society. While we continue to build our range of products in this market, our traditional strengths in passive, fixed income and balanced funds continue to resonate in current conditions.

With-profits savings volumes of £151m were 17% lower compared to the same period of 2007 (9M 07 £183m). With-profits bond sales continue to increase strongly, up 186% year on year, reflecting investor appetite for more defensive investment options.

Underlying conditions in retail savings markets are likely to remain challenging over the next 12 months, however we continue to anticipate progress in corporate pension, SIPP and core retail investment business.

Institutional investment management business:
Our institutional investment management business continued its extremely strong sales performance in the first nine months of the year, with £28.3bn of gross new funds under management from new and existing clients. Our core scalable products in index, active fixed income and structured solutions, continue to be attractive to our clients in volatile markets. Total UK assets under management stood at £275bn at the end of September, compared to £286bn at the end of June 2008.

LGIM has delivered average gross sales of £24bn per annum over the last 5 calendar years, excluding institutional unit trust sales. We continue to see opportunities for growth from our traditional product areas, but also through expanding further in structured solutions, active fixed income and active equities, where investment performance continues to progress.

International business:
Sales in our US business were up 6% in local currency terms to $71m, with ongoing growth in our high net worth term life business. In the Netherlands we continued to grow in very challenging industry conditions, with sales up 3% to €30m. We increased share in the unit linked market and delivered strong growth in term life products. Our French business saw sales reduce by 25% to €41m, once again reflecting the absence this year of fiscally-stimulated sales which led to a big one-off increase in sales in 2007.

Financial strength:
At 30 September 2008, Legal & General's estimated surplus capital on the IGD basis remained strong at £2.9bn. This compares to £3.4bn estimated at 30 June 2008. The change primarily reflects the decline in investment markets and the impact of our ongoing share buyback in the period. We have repurchased shares to a value of £111m in the third quarter.

We estimate that in the event of a 30% fall in equity markets from the end of September position, our estimated IGD surplus would reduce to approximately £2bn.

(1) All sales figures are quoted in APE terms unless otherwise stated (APE = Annual Premium Equivalent = new regular premium plus 10% of new single premium)

(2) Core retail investment sales

(3) Management estimate of Insurance Groups Directive surplus - a regulatory measure of group capitalisation. 30 June 2008 position was estimated to be £3.4bn

(4) Bank of England data for the 8 month period to the end of August 2008, compared to the same period of 2007

(5) Association of British Insurers data
Notes to Editors:

Issued share capital at 30 September 2008 was 5,867,110,348 shares of 2.5p.


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John Godfrey
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