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Edited Transcript of LGEN.L earnings conference call or presentation 7-Aug-19 9:30am GMT

Half Year 2019 Legal & General Group PLC Earnings Call

London Aug 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Legal & General Group PLC earnings conference call or presentation Wednesday, August 7, 2019 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Bernard Leigh Hickman

Legal & General Group Plc - CEO of Legal & General Insurance Division

* Catherine Laura Mason

Legal & General Group Plc - CEO of Legal & General Retirement - Institutional

* Chris J. Knight

Legal & General Group Plc - CEO of Legal & General Retail Retirement

* Kerrigan William Procter

Legal & General Group Plc - CEO of Legal & General Capital and Director

* Nigel David Wilson

Legal & General Group Plc - Group CEO & Director

* Simon Gadd

Legal & General Group Plc - Group Chief Risk Officer

* Stuart Jeffrey Davies

Legal & General Group Plc - Group CFO & Director

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Conference Call Participants

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* Abid Hussain

Crédit Suisse AG, Research Division - Research Analyst

* Alan George Devlin

Barclays Bank PLC, Research Division - Director

* Andrew Baker

Citigroup Inc, Research Division - Analyst

* Andrew John Crean

Autonomous Research LLP - Managing Partner, Insurance

* Andrew Sinclair

BofA Merrill Lynch, Research Division - VP

* Colm Kelly

UBS Investment Bank, Research Division - Director, Co-Head of European Insurance & Equity Research Insurance Analyst

* Dominic Alexander O'Mahony

Exane BNP Paribas, Research Division - Research Analyst

* Fahad Usman Changazi

Mediobanca - Banca di credito finanziario S.p.A., Research Division - Equity Analyst

* Gordon Aitken

RBC Capital Markets, LLC, Research Division - Analyst

* Greig N. Paterson

Keefe, Bruyette & Woods Limited, Research Division - MD, SVP and U.K. Analyst

* Johnny Vo

Goldman Sachs Group Inc., Research Division - MD

* Jonathan Michael Hocking

Morgan Stanley, Research Division - MD

* Oliver George Nigel Steel

Deutsche Bank AG, Research Division - MD

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Presentation

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [1]

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Good morning, and welcome to our 2019 H1 presentation. Firstly, a couple of bits of housekeeping. Here are the usual forward-looking statements. Please switch off mobile phones. And if there is a fire alarm, the home team will shepherd you downstairs.

The jet engine on the screen reflects one of our 3 standout deals of the first half of 2019, the largest ever U.K. PRT deal over GBP 4.6 billion for Rolls Royce. The other 2 records were: the partnership with Oxford University, which we announced a few weeks ago, which will deliver up to GBP 4 billion of investment over the next decade. We expect a significant amount of these assets will support our PRT business. So Oxford University postgraduate engineers, they will be living and working in facilities which fund the pensions of their Rolls Royce predecessors. This is an example of inclusive capitalism in practice.

The third record for LGIM was the award of a $50 billion mandate from GPIF in Japan, adding to record international inflows. These deals reflect skills and capacity across the L&G group; real asset expertise in LGIM and LGC; appetite for long-dated real assets in LGR; new expertise in science-based real estate through our Bruntwood Scitech JV; and the desire to execute transactions, which we demonstrate repeatedly that we are economically successful, socially useful and increasingly international. I'm delighted the business is performing so well and at scale.

Scale, technology and trust are 3 of the most important assets a financial business can have, and we have all 3. These trends will step the management track record and strong presence in markets with opportunities, meaning that all 5 businesses should contribute to our future growth.

The sale of mature savings in GI enables us to focus on businesses where we have a leading market share and into adjacencies where we see outstanding growth potential. That success is reflected in our financial metrics. 12 years ago, in 2007, full year operating profit from divisions was just over GBP 650 million. It took us 175 years to make our first GBP 1 billion profit.

In the last 6 months, we made GBP 1.2 billion, up 12%. EPS of 14.74p is also up 13%. Operational surplus generation at GBP 800 million is up by 17%, and ROE is again at the 20% level. Book value of GBP 8.7 billion is GBP 1 billion ahead of this time last year and up by 13%. And as expected, our dividend is 4.93p, that's 30% of the 2018 full year dividend payment. This is not outstanding or in any sense, a flash in the pan. It is part of a consistent long-term growth story over a decade. Since 2011, we've delivered 11% compound growth in operating profit, 10% growth in EPS, 14% growth in DPS and 7% growth in book value per share. The credit for this is due to our strategic clarity, excellence in delivery and a strong and collaborative management team, who are with us here today. So I'd like to thank Jeff; Bernie; Laura; Chris; Kerrigan; as well as Cheryl and Claire, who are overseeing the sales of GI and Mature Savings.

And welcome Michelle Scrimgeour to the team as the new CEO of LGIM. That team manages a focused set of 5 growing and profitable businesses and delivers the synergies that make them significantly more than the sum of the individual parts. L&G is a clear global leader in pension risk transfer.

And LGRI had a fantastic H1 with operating profit up 45% to GBP 524 million. We have a 30% market share in the U.K., but only 3% of the similarly sized U.S. market, so there is plenty of headroom. And since the end of June, we've executed further U.S. business breaking away from the under $100 million deals and into the midsize scheme brackets.

LGIM is, by some margin, the largest U.K. investment manager with GBP 1.1 trillion of AUM. But we only have 1.7% of the global market; again, headroom for growth.

LGC is a unique business delivering 12% compound growth in operating profit as well as being a successful business in its own right, it is the funnel for assets for LGRI and LGIM, key to our success.

The insurance business has around 1/4 of the U.K. life market and is growing premiums. It is a key driver of our digital efforts, delivering growth through customer-centric technology, which also brings down operating costs. LGRR, the Retail Retirement business, had a fantastic half year delivering 47% growth in individual annuity sales. Rumors of that market's demise due to pensions freedom were, as Mark Twain said when he read his own arbitrary, greatly exaggerated. We have transformed the U.K. lifetime mortgage market. The market has grown from GBP 1 billion to GBP 4 billion, and our share is close to 30%. Other competitors are now following, so we have to continue to evolve and innovate our own product suite.

Looking across the 5 businesses. Flows for those businesses are strong annual compound growth rates ranging from 9% for insurance, up to 45% for individual annuities over the last 3 years. And in terms of H1 2019 versus H1 2018, all 5 divisions have grown sales.

Our strong track record within the 5 businesses is underpinned by a mutually reinforcing business model. This provides us with unique synergies in asset manufacturing and management. Our model also benefits from this capital synergies and diversification provided by LGI.

Our retirement business has helped to provide LGC with capital, which it uses to create and structure real assets to back liabilities in the retirement division and to drive shareholder returns.

LGC also provides assets for third-party clients by LGIM, our investment management business. LGIM, in turn, acts as an important lead generator for our PRT business through its relationships with DB pension trustees and its focus on LDI. LGIM is also an important source of third-party co-investment for LGC and, of course, provides asset management services for both of these businesses. Each of our businesses, therefore, make important contributions to and benefit significantly from one another. This is a mutually beneficial and unique combination and a key source of our long-term competitive advantage. For Legal & General, this has been a strong first half, and we're also starting H2 strongly with a pipeline of opportunities across all 5 divisions. I will come back to outlook later, but I'll now hand over to Jeff to take you through the H1 financial performance in more detail.

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Stuart Jeffrey Davies, Legal & General Group Plc - Group CFO & Director [2]

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Thank you, Nigel. Good morning, everyone. This morning, I'm going to cover the financials for the first half of the year on both the group and divisional basis, the management of our credit asset portfolio and lastly, our capital position together with a bit more detail on how we think about the impact of growing PRT volumes over the medium term.

Kerrigan will cover LGC's results separately in his presentation. In the first half, the group delivered another strong set of results. Operating profit from divisions was up 12%, benefited from an exceptional performance in U.K. PRT and increasing market share in U.K. individual annuities. As we previously flagged in our 2018 results, we're continuing to make measured investments into our business in order to improve efficiencies, gain access to growth areas, enhance customer experience and to comply with the evolving regulatory framework. In the first half of 2019, this resulted in a GBP 20 million increase in group investment spend. Operating profit increased by 11% to just over GBP 1 billion. PBT was up 12% as a result of higher investment variance due to positive equity market performance and an accounting gain arising on the valuation of assets in the group's defined benefit pension scheme. This was partially offset by lower long-term interest rates impacting LGI reserves as we've seen in other periods.

As Nigel mentioned earlier, the synergies between our businesses drive profits and fuel future growth. This is demonstrated by the group delivering a return on equity of 20.2%. Given the number of known factors, including lower rates, our Solvency II coverage ratio reduced to 171%. Operational surplus generation was GBP 0.8 billion, up 17%, and we expect a similar level of OSG in the second half.

I'll cover our capital position in more detail later, but turning to operating profit from our divisions. LGR has continued the momentum from the second half of last year growing operating profit by 36% to GBP 655 million. This was driven by the ongoing delivery of prudential margin releases from the back book and the new business surplus emerging from our record global PRT volumes of GBP 6.7 billion. Both our retirement businesses performed strongly. With the volume increase, our institutional business grew operating profit by 45% to GBP 524 million, whilst our retail business grew operating profit by 10% to GBP 131 million. We continue to exhibit discipline in our pricing approach and originated significant direct investments to support our new business.

With DI, AUM grown by GBP 4.9 billion since half one -- H1 2018. The U.K. annuity business we transacted in the first half was written at attractive margins in line with prior periods.

As we mentioned in the 2018 year-end results, we're currently investigating the appropriateness of moving to CMI '17. Based on our analysis so far, the trend of slower mortality improvement is continuing, and we currently estimate the impact of change to our assumptions could result in the release of the order of GBP 200 million. We'll finalize our analysis in the second half and expect to make any changes at year-end following the completion of this work.

Moving on to retail retirement. Our individual annuity business is a leading provider in the U.K. market. Sales increased 47% to GBP 497 million, benefiting from wider market penetration and improved pricing sophistication. Lifetime mortgage advances were GBP 489 million down slightly from last year as we maintained pricing discipline in a competitive market.

In the second half, we plan to launch our retirement interest-only mortgages to address the growing number of individuals reaching retirement with interest-only mortgages, adding to our existing solutions for this segment of the market.

Our LGR asset portfolio, which is managed by LGIM has now grown to GBP 72 billion, whilst maintaining high credit quality and good diversification by sector. 16% of the portfolio is in sovereign-like assets, and the proportion of direct investments is 20%.

Since the 2008 financial crisis, we've reduced our holdings in banks and insurers in order to reduce our financial correlation risk and to improve our sector diversification. LGIM managed the portfolio to avoid downgrades and defaults and has been extremely successful at this, realizing less than GBP 25 million of default losses and traded credit since 2007 whilst maintaining an overall portfolio credit quality.

As further protection, we continue to hold a substantial credit default reserve, which has grown to GBP 3.2 billion. We've covered our DI portfolio in some detail in previous presentations. So on this slide, we focus on U.K.-listed corporate credit. This comprises just 23% of LGR's bond portfolio. With many of these holdings being multinational companies, such as GSK, Vodafone and Unilever with significant overseas earnings.

In total, the credit quality of our U.K. investments is similar to that of LGR's aggregate asset portfolio with over 70% of U.K. assets A-rated or higher. Our portfolio is also geographically diversified. Whilst the vast majority of our liabilities are denominated in Sterling, we hedge our currency exposure to deliver matching Sterling asset cash flows.

In LGIM, operating profit was up 1% to GBP 205 million, reflecting increased revenues from flows and positive markets. As previously guided, this was offset by continued investment in the business, specifically on the automation of our processes, system developments and customer experience enhancements. Reflecting this investment, the cost-income ratio of 53% has increased marginally from last year. Total AUM is now over GBP 1.1 trillion with international assets accounting for almost 30% to GBP 343 billion. External net flows were GBP 60 billion representing 5.9% of opening AUM. Of this international net flows were an impressive GBP 45 billion and included the $37 billion passive mandate with the Japan Government Pension Investment Fund, leveraging our strong ESG approach and providing LGIM's Asian business for the platform for future growth. U.K. DC had another good performance with AUM now exceeding GBP 86 billion. This includes over GBP 7 billion in our Master Trust, one of the largest- and fastest-growing in the U.K.

Moving on to our Protection division, LGI, operating profit was down GBP 20 million to GBP 134 million largely due to the prior year benefiting from model refinements. In the U.K., both our retail and group protection businesses continued to generate good profits with U.K. margins improving in the first half.

In the U.S., operating profit was up GBP 23 million to GBP 41 million primarily due to a reserve release following improvements to the new IFRS methodology and lower adverse mortality compared to the prior period. Total new business annual premiums were up 9% to GBP 178 million, and gross written premiums were up 7% to GBP 1.4 billion. The business continues to grow at good levels of profitability. And looking forward, we expect the full year LGI operating result to be in a similar range to 2018.

Moving on to our capital position. The group Solvency II surplus stands at GBP 5.9 billion, and our coverage ratio was 171% at the end of June. The quality of our capital remains strong. 78% of our own funds is core Tier 1, and we remain confident in the resilience and capacity of our balance sheet to withstand significant shocks. We have bridged the Solvency II surplus to help explain the movement since the year-end. Operational surplus generation from the back book was GBP 0.8 billion, up 17% on the prior year. There were a number of well-understood movements during the period including the one-off redemption of GBP 400 million of sub-debt previously flagged at the year-end; the larger of the 2 dividend payments for the year; and a noneconomic impact of lower interest rates on the valuation of our balance sheet, which was partially offset by positive equity markets; and the discretionary deployment of GBP 0.3 billion of capital to fund significant U.K. PRT volumes, which remains low strain at circa 4%.

In the second half, we anticipate a similar level of OSG, a modest contribution from the disposal of the GI business and the potential mortality release. This will comfortably cover the smaller second half dividend we paid whilst also providing additional capital to support further new business with the final ratio is subject, of course, to market movements.

This slide shows our capital requirements before diversification. Given our focus on annuities, our primary risk exposures are to longevity and credit. In the context of recent rate moves, we note that our economic exposure to interest rates is low, just 1% of our SCR is held against rates. And finally, as we grow our direct investments, it's worth emphasizing again that, in many cases, our primary exposure is to the counterparty and not to the underlying property. Property constitutes just 8% by year-end SCR.

L&G is well positioned to benefit from the ongoing structural growth opportunity in PRT. Whilst new PRT business requires Solvency Capital to be put against it on day 1. This capital commitment pays back quickly and generates an attractive and long-term flow of operating surplus for the business. To help illustrate this, we've modeled a cumulative Solvency II surface generation for a notional GBP 10 billion of annual U.K. PRT sales. This is based on the mix of PRT business we've written over the last 3 years. For L&G, U.K. PRT new business has a capital strain of around 4% on day 1 and generates approximately GBP 100 million per annum in OSG over the next few years resulting in a typical payback period of around 5 years. Over the life of this business, we expect to generate significantly more than GBP 1 billion of surplus. Clearly, the level of new business stream will vary depending on the makeup of in payment and deferred annuities. We manage the mix of business carefully to achieve the desired balance between strain and profitability. As we have shown, PRT is one of the contributors to OSG growth. We've been growing dividends at 7% per annum since 2017. Since that time, OSG has grown on average at 11% per annum. And we'd hope to continue at around the 10% level over the medium term. This provides plenty of capacity to write desired levels of new business. OSG net of dividends paid has grown at 19% per annum given increased coverage on this particular metric. Given the level of market opportunity in PRT and the significant surplus generation we've shown as well as the strength of our balance sheet, we are happy periodically to deploy more capital in the period than we generated. For example, this may be the case in the second half. We will, of course, remain disciplined in the deployment of our surplus capital to ensure we meet or exceed our return targets.

So to conclude, our businesses produced a good financial performance in the first half with double-digit growth of key metrics. LGR performed strongly in a buoyant U.K. PRT market, and this business remains highly attractive to us. As we write this business, the group's OSG earnings and cash continue to increase at double digits giving us optionality to invest in new business. We continue to achieve a return on equity of around 20%. And the synergies between our businesses are a unique source of competitive advantage. LGC is a key part of those synergies, and I'll hand over now to Kerrigan to go into more detail on the first half performance of his business and the exciting developments we've been announcing there.

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Kerrigan William Procter, Legal & General Group Plc - CEO of Legal & General Capital and Director [3]

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Thank you, Jeff. Starting with the H1 financials. LGC divisional operating profit was GBP 173 million, slightly up compared to H1 2018's GBP 172 million. Within that direct investment, operating profit was GBP 99 million, just down on the previous GBP 104 million and reflecting a U.K. market for housing that was more challenging at the start of 2019 from the first half of 2018.

Earnings overall were up more significantly at GBP 278 million compared to GBP 82 million given the relative performance of the roughly GBP 2 billion invested in an internationally diversified portfolio of equities and multiasset.

Our direct investment portfolio has grown from GBP 2 billion a year ago to over GBP 2.6 billion at 30th of June. Legal & General capital invested GBP 7.8 billion of assets, of which GBP 2.6 billion is direct investment in 3 growing business lines, namely L&G Homes, Future Cities and SME Finance.

We expect to double the investment to over GBP 5 billion in these 3 business lines over the next 3 to 5 years. Our investments cover residential and commercial real estate, infrastructure, private credit and venture capital. Our planning assumptions for our rail assets offer double-digit returns in development with high single-digit returns for developed and operational assets giving a target blended return on the direct investment portfolio of 8% to 10% overall.

I plan to spend the next few minutes on how we are investing both in a way that is consistent with L&G's structural growth drivers including creating real assets, today's capital and aging demographics and in a way that supports asset creation for LGR's annuity portfolio and for LGIM clients. L&G's 3-legged asset strategy of asset funding through pension risk transfer and individual annuities, asset management through LGIM and asset creation through LGC has been in place for several years now. 3 examples of LGC creating real assets to back annuities or to facilitate the launch of new LGIM funds are Affordable Homes, private sector Build-to-Rent and the Oxford University partnership announced in June.

The Legal & General Affordable Homes business was created in 2018. Since then, the business has been seeking to acquire, build and manage new affordable homes across England, working in collaboration with housing associations and local authorities. Contracts have been exchanged with 4 affordable schemes and the first scheme in Croydon completed at the start of July. Many more schemes are in the pipeline. L&G Affordable Homes will be near breakeven in its first year of operation, and we expect it to be profitable in 2020.

Furthermore, the affordable rents on these homes pay CPI-linked rental income creating a portfolio of assets that can be structured as CPI-linked assets. We will start using these assets to back PRT business late this year or early next year. LGIM's Build-to-Rent fund, which holds a portfolio of urban apartment buildings for private sector rent is a product in demand from pension schemes given the stable cash flows that can be achieved from multi-occupancy rental accommodation. It has 13 schemes across the U.K delivering around 4,500 homes for elective renters. In time, the BTR fund will be large enough and mature enough to be able to fund the development of a pipeline of new apartment buildings. But to get the fund started, a combination of Legal & General's capital and PGGM's capital is being used to fund the initial development pipeline with new sites in H1 in Glasgow and Wandsworth.

The third example is one of future asset creation. In June, L&G announced a 50-50 partnership with Oxford University to develop projects in and around Oxford covering affordable homes, key work homes, student accommodation, commercial property and the creation of science and innovation districts with modern workspace and research facilities. Through this partnership, we expect to be able to create up to GBP 4 billion of assets over the next 10 years, much of which were back annuities or to form part of LGIM managed funds.

Moving on to homes, where our strategy has 3 dimensions through which our L&G Homes customers can buy a home, rent a home or enjoy later life in their own home.

Firstly, on homes to buy, which is all on the CALA's mature operations and governance. CALA sold just under 1,100 homes in H1 2019 compared to just over 1,200 in the first half of 2018.

Secondly, on homes to rent covering affordable homes and private sector rental. L&G's platform for developing and operating homes to rent delivers good returns for shareholders, diversifies our exposure to the housing market, stimulates the economy through construction and development and create assets to pay pensions.

Thirdly, on homes for Later Living, which is where L&G's long-term themes on the need for real assets and the aging demographic meet. I believe that this is a significant investment opportunity presented by the longevity of economy that goes beyond the traditional view of opportunities to sell pills and cruises. The Later Living business was profitable in 2018, and we expect the combined business to deliver similar profits this year. Later Living is also an interesting asset class for L&G. It delivers returns from property development and sales, but also delivers recurring income through management fees and rental income, which can, in time, be structured to pay pensions. My presentation in March included a look North, when I talked about our future cities investment in Manchester, leads in New Castle. And I've just talked about Oxford in England's economic Heartland, but we also go West with further investment in Cardiff and Bath committed since the start of the year.

Last week, we announced the latest stage of investment in Cardiff Central Square in partnership with the Welsh government and Rightacres property. This development will provide a transport interchange, build-to-rent apartments for our BTR fund and office space with a long lease to back pensions.

Earlier in 2019, we announced the redevelopment of Bath Quays North, a 5.5-acre riverside site and in May, we announced the first urban later living community would be in Bath. To future-proof their regional economies, local stakeholders and cities need to support education, jobs, homes and communities, but future cities also need to be connected and clean, which is why we have been investing in renewables infrastructure and digital infrastructure.

In renewables infrastructure, LGC has invested around GBP 130 million in 19 onshore wind and solar assets across Europe with our partner NTR including further deployment of funds in H1. Put together with over GBP 850 million of U.K. offshore wind infrastructure debt managed by LGIM real assets for LGR, Legal & General is becoming a meaningful U.K. investor in renewables. We see electric vehicle infrastructure becoming an extension of this strategy, which is why we took a 13% stake in Pod Point, a U.K. provider of electric vehicle charging points in February.

Digital infrastructure is the integration of digital technologies with physical infrastructure to deliver connected and resilient assets to form the backbone of future cities. It is one of the fastest-growing segments of infrastructure. We made our first investment in this sector in January with a circa GBP 60 million investment in the Kao Data Center, a new data center in Harlow, targeting the Cambridge to London corridor.

Our third LGC business line is SME Finance covering private credit and venture capital. Within SME Finance, we have seen good progress with our investment in the private credit manager Pemberton, in which L&G is a 40% shareholder. Pemberton has raised over EUR 2.5 billion of funds over the last 12 months. And as of half year at AUM of approximately EUR 5.5 billion. Of LGC circa GBP 400 million of assets in the SME Finance portfolio, approximately GBP 300 million are cornerstone investments in Pemberton's private credit funds. These have performed well. The SME Finance venture capital investment approach is via a fund-to-funds strategy with over GBP 100 million committed across 9 managers and good initial returns.

Our next step is to introduce an investment vehicle to allow LGIM to find contribution investors access to the fund of funds approach. So VC into DC.

In summary, the assets Legal & General Capital manage need to support liquidity, capital coverage and deliver a good long-term return for shareholders. However, given the long-term nature of the capital, Legal & General strategy is to do more with these assets and use them as a catalyst to create other assets for the group. We are delivering on our plans to do this in Homes, Future Cities and SME Finance in a way that is good customers, shareholders and more broadly, the U.K. covenant. Thank you.

I'll now hand back to Nigel.

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [4]

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Thank you, Jeff, and thank you, Kerrigan. To deliver a decade of consistent double-digit growth, we have a lined-out strategy with 6 global macro trends, which are structural rather cyclical. We've also reap the benefits of leaning in. We deliberately have a combination of businesses focused on 2 types of markets. We have big markets where we have a relatively small market share where we can outpace market growth, for example, in global asset managements, U.S. PRT and U.K. Housing. And also growth markets where we already have a big market share and where we can grow by retaining market leadership. This includes DC pensions, lifetime mortgages, U.K. PRT and insurance.

We've exited declining markets, like Mature Savings, on those where we'll always be subscale, like GI. To pick some examples from the data, in PRT, we have a 30% market share in the U.K. and expect the market to exceed GBP 30 billion annually over the next few years. It used to be a GBP 3 billion annual market, so this is a 10x increase in terms of flow and a step-change in terms of accumulation of stock. In the U.S., we expect a similar market performance, but we start from a 3% market share. In global asset markets, our market share has grown from 1.2% in 2007 to 1.7% today. We expect this market to grow and our share to keep growing faster. Our share of global revenues should grow faster still as we improve our product mix. We've executed well in the U.S. and in entering Asia, 10 years ago where U.K. DB index house. Today, the growth we are delivering is in international, in DC, in solutions and multi-asset products backed with a leading ESG focus.

In real assets, the combination of LGC, LGRR and LGIM gives us a significant advantage. In U.K. housing, we have, in macro terms, a government target of 300,000 homes per year, a huge shortfall; a market share for L&G of 2%; and in the housebuilding sector, a unique balance sheet and a trusted brand to deliver at scale.

In U.K. DC, we have GBP 86 billion of assets and a 19% market share. ISAs will more than double over the next 5 years, and we can grow our current 1% market share. Our ecosystem approach in our scale will enable us to improve returns for pension service, including innovative ideas like VC into DC. This is a live and exciting piece of government policy. Another driver is technology, which is most obviously visible in retail facing products. Adoption improves the cost base and the user experience. We can see this in pensions, in mortgages, in surveying and in protection. It also makes it possible to operate economically with a low-cost of entry in adjacent markets, which are currently broken. There are several examples of this, including SalaryFinance to disintermediate payday lending, Care Sourcer to connect social care users and care providers and Pemberton to lend SMEs. Our business model is tried and tested in the U.K. and is increasingly being transferred to international markets.

Looking at DB pensions, we see across 6 markets, a total market size of almost GBP 10 trillion and we operate in 85% of the global DB market. As those markets develop, we can build out our model with its unique combination of asset management, pension risk transfer expertise, retirement solutions and capital investment. We've already achieved market entry in PRT in the Netherlands, Canada and Ireland. And in the United States, we're moving up through the size brackets for PRT. And we are already a top 3 international asset manager in Japan. China is rapidly liberalizing its markets to permit establishment of 100% foreign ownership subsidiaries. And indeed, after supportive discussions, we are progressing our application for wholly owned foreign subsidiary in 2020.

Here you see the doubling of both international PRT premiums and LGIM's international AUM since 2016. We expect this growth trajectory to continue. Our partnership with Brookfield has enabled us to do our first Canadian PRT deal this year. We can genuinely claim to be the only global PRT player. We've also written in excess of GBP 1 billion of PRT business in July alone and have a pipeline of GBP 20 billion-plus. Our strategic ambition should be in no doubt. Historically, we've delivered 10% EPS growth from 2011 to 2015 and we're on track to replicate this for 2015 to 2020. By backing the global growth drivers, being focused and delivering well, we've managed fluctuations from regulatory change and mitigated risks for market volatility. In the second half of the year, strategic clarity and excellent delivery, top line and bottom line across all our divisions will be our priority as we work through a period where there will be a lot of external political noise from Brexit and global trade issues. We are well prepared. Beyond that, we will accelerate our global ambition based on the tried-and-tested model, which is now -- which we now have in the U.K. and which is now delivering for us also in the United States. I have every confidence that the management team here can deliver that goal. We can scale up success, we can be financially and socially useful and we are a leader already in financial solutions and a globally trusted brand. Now we're happy to take questions. Start in the front. If you can say your name then people will...

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Questions and Answers

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Alan George Devlin, Barclays Bank PLC, Research Division - Director [1]

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It's Alan Devlin from Barclays. A couple of questions. First of all, on the PRT volumes, I think you've ready written GBP 8 billion year-to-date, including the stuff and this half, what is your kind of capacity to continue earning more volume this year? Is it the -- and what is constraint to that? Is it the Solvency Capital? Is it the access to direct investments and can you continue to writing more volume probably a kind of GBP 10 billion level you've quoted before?

And then secondly, on L&G capital, obviously, you still continued significant growth in the direct investments, but the earnings haven't come through relatively flat. I think you talked about the J-curve in the press release. When do you expect the earnings to come through from these investments?

And given your target of writings, the GBP 5 billion of direct investments at a 8% to 10% return, you should be expecting that business to earn GBP 400 million plus in the next 3 to 5 years, which will be material uplift in the earnings, not just around LGC but also for the group?

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [2]

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Great questions, Alan. I'm now going to delegate the answering of those questions to my learned colleagues on my right. But the -- you're right in a sense in both of them that we've said it will -- we are expecting to write about GBP 50 billion over 5 years and there's nothing that we can see that's going to blow us off track from doing that. And indeed, LGC has to drive up the returns, as you suggested, but I'll let Jeff do the first and Kerrigan do the second.

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Stuart Jeffrey Davies, Legal & General Group Plc - Group CFO & Director [3]

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Yes, well, I just covered in, in sort of the medium term, we're definitely open for business in the second half. We showed that we have considerable surplus generation on an ongoing basis, so we will look at what's available in the market. We balance off value versus capital usage. Profitability puts us in a strong position. We flex the structures as well for the scale of those deals to make sure that we can write the ones that are most attractive. No constraint on the asset origination. You saw a significant number we brought in over the last 12 months. We continue to generate the direct investments we need from that and now actually been very successful around the credit side of things as well in writing deals, so we're making all the metrics stack up with the assets that we're sourcing and don't see constraints on that. So looking at -- we tend to look slightly longer than 6 months. And as I look in 12 to 18 months, as plenty of pipeline there, we can pick the ones we want and we're happy to write those.

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Kerrigan William Procter, Legal & General Group Plc - CEO of Legal & General Capital and Director [4]

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Great. Thanks, Alan. Just on the other points. In terms of the GBP 5 billion, we wrote about GBP 500 million of investment -- GBP 500 million of net new investment over the last year in total, which gets from the 2.5 to 5 years. Obviously, it depends on -- investing is about not what, but when. So it depends on precisely when we get that into the market, but we feel confident that, that pace we can get to the GBP 5 billion and there are enough attractive opportunities around both the development of new real assets and then the operational real assets to get that blended return, so I'm feeling good about the quantum of investment opportunities and the potential of returns that we talked about in that portfolio. So yes to answer there.

In terms of when some of those investments come through, some of these investments are literally investments in land that we're building things on. When you first buy the land, that's cash out, but then it takes a while to develop and the profit comes in when you actually move on or stabilize those assets. So there's a bit of a time line between getting real assets in the ground, sometimes literally in the ground and then turning around, which could be Affordable Homes business pretty much straight away, Late Living about a year later and then some of the other businesses might take a couple of years to see that return come through.

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [5]

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Yes, just want to -- if we just work along the line, and then if you just pass the microphone...

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Oliver George Nigel Steel, Deutsche Bank AG, Research Division - MD [6]

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Oliver Steel, Deutsche Bank. Two questions. The first is that assets at LGC actually fell in the first 6 months. And I know there was a strong mix change, but the overall assets fell, so why did that happen?

And then secondly, Jeff, I mean you talk about -- I should ask it as simple. In the first half, the market moves on Solvency, but quite a lot less bad than expected. Can you explain why that's happened? And what the market move in the second half, the date has been?

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [7]

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Kerrigan, do you want to go with the first one?

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Kerrigan William Procter, Legal & General Group Plc - CEO of Legal & General Capital and Director [8]

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Yes. I mean it's a reasonably simple answer in that 3 real parts of the portfolio. There's direct investment, which you saw growing GBP 2.2 billion to GBP 2.6 billion over the last year. The equity portfolio roughly GBP 2 billion of equities and multi-asset, which has moved with markets effectively, we didn't move it around.

And then the cash element, the cash element includes our treasury balance and it's that treasury balance that's moved in and out that gets repaid or dividends get paid, so it's the treasury balance and cash that's really moving around there.

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Stuart Jeffrey Davies, Legal & General Group Plc - Group CFO & Director [9]

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Yes, you're right. The market movements, it wasn't so evident on the slide, I think it was minus GBP 0.2 billion was the number. Obviously, there's of certain items within that, as we said. So you saw, you all -- we're pretty close on consensus. So therefore, it was all in line with our sensitivities. The rates was down significantly in that point to, as you all know, and then that was offset by uplift from equities, but also sterling weakening is a benefit to us, was all our surplus capital in the states is certainly worth a lot more in our calculation. We get pluses and minuses for shapes of inflation changes, so there is a lot goes in there.

Spreads did different things over the first half. It's never quite as simple as the sensitivity, relative differences between BBBs, BBs and As, et cetera. But the big, big movements were rates down and equity is up a bit. So therefore, they largely offset within that. Yes, second half, there's been movement, it was a month and been quite a bit of movement in the last few days. That has been noticed, but yes, generally, the rates moved in line with the sensitivities as you'd expect, but there is offset in items on that. Again, FX has obviously gone in our favor. The surplus generation is now significant. We're adding 2% to the Solvency ratio every month just from surplus generation, so that's significant as we move forward. So yes, there would have been movement in line with the sensitivities on rates, but with some offset in items on that.

We also did get significant amount of money, the check for GBP 5 billion, not quite, but it's a lot of assets landed right at the end of June. We've optimized those a bit as well in the start of July and that's almost GBP 100 million back on that operating variance that you saw, so there is always bits moving around within the balance sheet.

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Dominic Alexander O'Mahony, Exane BNP Paribas, Research Division - Research Analyst [10]

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Dom O'Mahony, Exane BNP Paribas. Three questions, if that's all right. You made reference to some of the potential macro tail risk from horizon. I wonder if you could just refresh us on your capital management policy around that. If I remember correctly, in the past, you talked about 140% threshold to sort of thinking about whether the things need to be done and indeed hedging the best estimate rather than the full Solvency balance sheet, any update or color on that would be helpful. And in particular, is there anything -- something changed in terms of your -- the way you run the business as you sort of approached that number or if you write GBP 150, do you continue to write bulk annuities in the same manner as you would today?

Second question, just on the LGC, it looks like quite considerable growth in direct investments to come. Is there a capital strain from that? How does that impact the insurance balance sheet on a Solvency basis?

And then thirdly, just on bulk annuities, clearly, very strong volumes. If I look at what you've said, you talked about a GBP 30 billion market. And actually, sort of roughly GBP 30 billion a year for about 5 years. The pipeline number, I don't think has changed since full year. First thing, Stuart, as you might say that's flat or a sort of an outlook that's flat with the market share that's already very high, but also, you'd see this as a sort of growth opportunity, I think. Could you help me square that circle?

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [11]

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Only somebody in this industry would say that was flat. I think you've got to and work in retailers so that -- as a sector for a period of time. Laura, why don't you explain why there's lots more market opportunities than even the GBP 20 billion number that we're putting on right now? And then Jeff can answer those rather technical questions.

On the threshold, 140%, that -- we -- as we explained ever since we did that, that wasn't really a threshold. It was sort of more a sort of an initial thinking around something as long as it's been put in the bottom at all.

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Catherine Laura Mason, Legal & General Group Plc - CEO of Legal & General Retirement - Institutional [12]

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Yes. So Dom, I think we are -- we're always sense it in terms of the number that we can actually say we're quoting on. So I'm not exactly sure how we define it. So I think it's the numbers of -- where we've actually put a quote out.

In terms of the actual pipeline, I think Nigel's sort of estimate of GBP 30 billion over the next 5 years is a relatively conservative one. It is a business that doesn't have a sort of smooth trajectory. And they're conservative. And so I don't think it's -- well, I think there's -- and so when we -- we didn't think about this. We had said GBP 27 billion in March. We said GBP 20 billion now, and that is just how we sort of calculated the number of deals that we're -- or the amount that we're actually quoting on. But certainly, we're seeing the actual number of visible deals in the U.K. are sort of coming in almost on a daily basis. So very confident they will grow.

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [13]

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Yes. We've -- well, obviously, going up the gears in the United States as well. And we did a $200 million-plus deal as only this had been below $100 million. And we've got more access to direct investments and more future access to direct investments, and those are the -- and all those things come together. We've opened up Canadian markets, The Netherlands market and the Irish market. And so actually, there's an enormous pipeline of stuff coming at us. But as Jeff will tell you, it is pretty miserable, the capital he sees. And he's rubbing his hands together. And we will just do the deals that we think are in the long-term interest of our shareholders. I'm deeply hurt about being called conservative.

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Stuart Jeffrey Davies, Legal & General Group Plc - Group CFO & Director [14]

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Yes. But has it ever happened? Yes. I mean in terms of managing the balance sheet, as Nigel said, we don't like to set a range. I mean the ratio is just one of the things we look at. The quantum of surplus, et cetera, gets distorted, as we're seeing now from rates. It's moving from one pocket to another. As Tim likes to say, a bit of own funds to SCR moves the ratio. But I still have the same pounds the day after to pay the claim.

We do look at that, obviously, as it would reduce. But at the levels we're at, we're very comfortable, as Simon constantly stresses it for various scenarios, and we look at that on an ongoing basis. But we still hedge in the same way. It's not quite the bell we hedged sort of IFRS cash flows for an IFRS profitability. Therefore, for the annuity business, they move around and get closer or further away from the Solvency II bell at different points in time. But that's generally how we look at that. So there isn't -- there's nothing we've done fundamentally to shift it. But at the moment, we'll always look at it as anything opportunistic, but there's nothing at the moment.

And in terms of the DI, I mean, I can answer it I mean it's a -- I mean part of the strategy, we talked about selling down some of the traded equity over time. General rule, therefore, it'll be reasonably like-for-like if we were to move cash even into DI, some of which we did, as you can see, over the first sort of 6 months. It, again, generally diversifies away extremely well. You saw those numbers, have a very big credit, very big longevity. So you put in a bit of direct investments against that, we'll show a very different risk profile and they diversify away. So the overall capital impact is lower than -- it's very efficient on a risk-adjusted return basis.

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [15]

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Sorry. Move.

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Unidentified Analyst, [16]

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[Jamie Wesley] from Loomis, Sayles. Couple of questions. First is on LGIM. Just wondering about the cost progression outlook there and if there'll be any change not in strategy but maybe in emphasis with a change in leadership there. And just as a second question, you mentioned pricing discipline in lifetime mortgage. How do you see the current pricing environment?

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [17]

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Yes, Chris, you cover the second question. I'll just take first. Michelle isn't here. Then we had an LGIM American Board meeting and decided it was actually better for her to go over there and meet all the colleagues there than you lost basically. Good choice as well. And so she's definitely coming at the year-end when we go into some of her own initial strategic thinking around it. But she's inheriting a pretty fantastic business in many ways. But we've got lots of optionality for growth, and that's one of the things that we're really spending time on because there's -- because there isn't that we're in already because there's adjacencies to those areas where we can expand into. And we found the international expansion relatively straightforward so far.

We've done America incredibly successfully. We've got a major -- we got our license in Japan in 6 weeks, which is probably somewhere a record. And I've never seen the Chinese so friendly towards us, I think can't why, on the 2 visits I've had so far this year. So you are likely to see a radical change in strategy, but there's a whole bunch of people that we've hired to expand into areas that we're not really in already. And our options for growth have expanded massively in the last couple of years. So we'd hope to see an acceleration in revenue rather than a deceleration in revenue. But on a go-forward basis. Chris?

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Chris J. Knight, Legal & General Group Plc - CEO of Legal & General Retail Retirement [18]

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Yes.

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [19]

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You can put your book down if you want.

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Chris J. Knight, Legal & General Group Plc - CEO of Legal & General Retail Retirement [20]

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Yes. I think plus the mortgage market's sort of growth has seen support in the first half of this year. We don't think there's a long-term factor that -- dynamics driving that in the long run. GBP 1.5 trillion of equity owned by the over 60s, so still very much they have a bit of perhaps Brexit uncertainty creeping on that.

From a customer perspective, the rates you can get for a lifetime mortgage are very low. LTV now down sort of 3.3%, which I think is pretty reasonable deal for people. We had a 29% market share in Q2, and we don't feel the need to chase what is a soft market in the short term for us. Long term, very strong growth dynamics still.

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [21]

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Thank you. Then just [work around] the line to you.

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Jonathan Michael Hocking, Morgan Stanley, Research Division - MD [22]

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Okay. It's Jonathan Hocking, Morgan Stanley. I've got 3 questions, please. Firstly, coming back to the solvency. I'm guessing you're solvent at 160s on a mark-to-market basis. And as you said, you're going to rebuild solvency in the second half. Sort of what comfort can you give us that if we had a combination of stresses from a hard Brexit -- just looking at your sensitivities, if you take a scenario where property markets are down, equity markets are down, rates are down, which I guess would be the outcome of a hard Brexit October, there could be a very large drawdown in the Solvency ratio at least on a mark-to-market basis. How is the Board got -- comfortable with that risk into the second half is the first question.

Second question, just looking at the workplace business, the number of members is up a lot. Can you talk a little about why that's happening? I would have thought a lot of the -- those schemes have sort of settled ahead of open enrollment. Are you winning new schemes? Are you actually populating existing schemes with more measures? And then just on the LGIM business, you've been guiding for a while that the cost-income ratio is tipping up a little bit. Is the 53% for the first half, is that something we should annualize for the full year?

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [23]

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Good. Jeff, do you want to take -- look I'll take the 2 LGIM questions.

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Stuart Jeffrey Davies, Legal & General Group Plc - Group CFO & Director [24]

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Yes. Sure. Yes, I mean, as I said earlier, the rates were limited down starting at 170. That's going to take you into the 160. So it would have down a few percentage points. We would have already generated surplus for a month to offset that FX or done it -- you can pick any day you like for equities or spreads and say where it is, and those move around. But core central is it's just gone down a bit, rates have gone up a bit for some other stuff. And so -- but we're comfortable where that is.

On the bigger picture question, interesting, we can all guess what will happen to the economic environment at that point in time. And we purposely don't when we present it to the Board because you can imagine the devalue it would have. So we don't attribute them to any particular happening. And the Board are very comfortable. We've looked at all of those, whether it's rates down, up, what's happening to equities, what's happening to sterling. Invariably, someone will pick the worst of most of those as well. And clearly, we are comfortable to be standing here talking about rate and volumes, but we'll manage that on an ongoing basis. They all stay, in the vast majority of scenarios, stay well within our risk appetite, and when we're comfortable with those. I mean one instant point, people talk about rates down. Of course, you may well get a steepening of the yield curve, which then will have a different impact again. So there are always offsets in all of these. But we've modeled a wide, wide range of scenarios and very comfortable where the balance sheet is.

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [25]

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On workplace, is Emma here? Oh, no, she isn't. So this -- the -- we're winning a lot of new schemes and continue to win schemes. And in fact, the biggest scheme we've ever won in terms of assets, we won but hasn't yet funded. And so we're feeling very confident about the future floors. And it is right on the chessboard. As we get more schemes and people contribute more, I think you'll just get a natural growth around that. And so our ambition is by no means achieved at 3.4 million in the U.K. We're looking for a much higher number over time. And also for the U.S. We're still in the very early days in the U.S., but we've gotten some great clients already in the United States. Again, we won a very big client in H2 already. So the team are feeling happy about the floors that we're getting in the U.S., which, as Nigel pointed out, was a little bit lighter than we expected in the first half of this year, but it picked up already in the second half of the year.

In terms of the cost-to-income ratio, in part that's Michelle's to decide how does she want to add to the cost base relative to the revenue base. We certainly feel as though we have lots of opportunities for growing revenue quicker. In some ways, we have to moderate the rate of growth of cost. Part of that is going to come through when we have eventually a slowdown in the IT spend partly related to regulation in cyber and various other areas but also because we've been modernizing the business as we got into these -- in these new areas.

We don't really have a target for cost-to-income ratio. It's a number that's just arisen at around the level it's at, at the moment. But we do have a sort of ambition to grow the bottom line, but -- more than we've done in the first half of this year and indeed in the latter part of last year.

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Andrew Baker, Citigroup Inc, Research Division - Analyst [26]

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Andrew Baker, Citi. 3 questions, please. First, your bulk annuity pipeline in the U.K. and U.S. is strong. You've seen rates come back, potentially widening funding gaps for unhedged plans. Is that -- do you see low rates impacting the demand for bulks moving forward? Secondly, in your release this morning, you mentioned that you bolstered your structuring expertise in the PRT space in order to develop capital-light solutions. Is there anything new that you're doing there? And if you could just give a little bit on that, that will be great. And then third, you mentioned on the longevity releases, target GBP 200 million. Or, I shouldn't say target, a guidance of greater than GBP 200 million. This is less than maybe a number that you've given last year for the 2019 estimate. Does this take into account lower deaths in 2019 that you're seeing? Or is there something else that's sort of why you're looking at that or that number has come down a little bit?

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [27]

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Yes. On -- Laura, give -- maybe give a little bit extra on this. But the lower rates, we always have lower rates for long periods of time. And if I had said to you 3 or 4 years ago, by the way, the market is going to be GBP 30 billion and rates are going to be 0.5%, you would all have said, well, that's just ludicrous when it's at GBP 3 billion. So the correlation between rates and demand is just not there in part because so many of them are hedged and so many of them are already hedged with us because we've got a 42% share of the LDI market. In terms of innovation, we'd go to Laura. Maybe you can talk a little bit about that, and then Jeff can answer the question on mortality.

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Catherine Laura Mason, Legal & General Group Plc - CEO of Legal & General Retirement - Institutional [28]

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So some of the new structures that we're looking at, these include different reinsurance structures with external counterparties as well as our own internal counterparty LGRI. And certainly, some of the assets that we're working on with Kerrigan's business where we're able to find structures that work well from a capital perspective are also helping. So really, a sort of combination of reinsurance and asset structures.

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Stuart Jeffrey Davies, Legal & General Group Plc - Group CFO & Director [29]

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Yes. And on the longevity, I mean, we had been steering that we would be cautious and potentially maybe spread these out a bit more. We've done more and more [analysis] on it. We do want to make sure we understand the cause of death. We want to make sure we understand the impacts of socioeconomic class. We are still only looking at '17. We know in theory there's quite a bit to come in '18. So we think there's prudence within that. '19 experience is lighter than it's been in the last couple of years, but it's still reasonably neutral, I would say. I think that's in line with what peers are saying. That's not weighing heavily on our decision on what we do on the future improvements. Don't forget this is what we feed in for improvements blend in over 10, 15 years. So this is much more. We will look at our data as it's coming through, but it's much more via fundamental analysis of what is driving tour long-term assumption and, therefore, how you blend into that long-term assumption. But I mean, yes, it'd be one of the factors. But that's not impacting. So a bigger picture of what's driving it, what's the causes of death, what's the differences by socioeconomic group, which are not that material for us, but we just always want to understand it. And -- obviously, that is to be a bit cautious and -- to release more.

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Fahad Usman Changazi, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Equity Analyst [30]

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It's Fahad Changazi from Mediobanca. Could I -- a couple of questions. Could I just chase up on the Solvency II because Jeff, you sort of mentioned that it's down by a bit because of markets? When I mark-to-market it, I think I wasn't getting up to 10% on market rules. And that's not including FX. That's wrong. Fair enough. Maybe you can just clarify that.

The other thing is on the H2 bridge for the Solvency II. There is GBP 0.7 billion OSG, H2. H1, it was GBP 0.8 billion. You have GBP 200 million in mortality leases coming. So does that imply you're writing more bulks? Or is that recording more bulks in H2 versus H1? Or is there something else going on there given that you've got mortality releases?

And the final thing is on new business margin in annuities. This has gone up in H1. Could you guys talk about pricing? Because there's so much demand, is pricing benefiting? Or is it just going back to historic levels and there was a blip like we had before to new business margins?

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [31]

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Yes. The sample size is always so small if -- kind of when you're doing it for your large deals. But I think in general, they're well-informed buyers and well-informed sellers. And so I mean, you should expect just minor movements in margins.

Jeff and Laura, do you want to answer those 2 questions?

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Stuart Jeffrey Davies, Legal & General Group Plc - Group CFO & Director [32]

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Yes.

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [33]

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The 10%.

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Stuart Jeffrey Davies, Legal & General Group Plc - Group CFO & Director [34]

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Yes, yes. Sure, sure. Yes. Clearly, it's not 10%.

And so it is a few percentage points down. If you apply the, as I say, the interest rate sensitivity, and then this will come back. That's sort of what you're looking at. There's nothing that's moved more than the sensitivities. Obviously, you can pick a day. What was it, Monday, when equities were down. And then that's back again. But it's nowhere near the -- whatever you would have it, 161 or something in that case. That's not the case. Now the bridge, I think that the longevity is separate, so that's not within that. The GBP 800 million, GBP 700 million is just rounding. One was a little bit over GBP 750 million, one is a bit below GBP 750 million. So we're saying it's at GBP 1.5 billion roughly, but it wasn't quite comfortable putting it as another GBP 800 million because we thought that may round to too high a number. We'll see what actually plays out, but we thought that was the safer side to put it. And the longevity is on top of that, so that's -- none of those numbers include anything for PRT in new business.

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Catherine Laura Mason, Legal & General Group Plc - CEO of Legal & General Retirement - Institutional [35]

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And I agree with what Nigel said in terms of the...

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [36]

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And redeem myself now.

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Catherine Laura Mason, Legal & General Group Plc - CEO of Legal & General Retirement - Institutional [37]

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I mean the growing pipeline has been well flagged, so I think we and a number of our competitors have been well prepared for this pipeline. So we do expect overall margins to be fairly consistent, and we will maintain our pricing discipline.

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [38]

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You don't need a microphone.

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Greig N. Paterson, Keefe, Bruyette & Woods Limited, Research Division - MD, SVP and U.K. Analyst [39]

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Greig Paterson, KBW. Three questions. One is, I wonder if you can just talk about -- I know we haven't had a lot of downgrades, but is there any early signs of that? Because obviously, that's a key as to your solvency. I wonder if you can just talk about the downgrade environment and what we're seeing now.

Second point is on the retail LGI. I, mean, obviously, there's a wave of fintech in that area, and that's obviously putting pressure on margins. I wonder if you can just talk about the trajectory of margins there and also just about the group margin trend because obviously, that's going to be lumpy and that's interesting.

And the third question is I know there's some weak or they're not 1-on-1 correlation. But in terms of your capitalization and the rating agencies and your AA- financial strength rating, at what point, if the Solvency II ratio fell, would the rating agencies start -- would be -- or sort of start being worried about it? There must be some level. I mean if it's 100, you're going to get downgraded. Just to understand where [to] now at 100 is an issue.

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [40]

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Jeff, do you want to take the first and third? And then, Bernie, you cover the second one after Jeff's over the first and third one, which are broadly the same question.

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Stuart Jeffrey Davies, Legal & General Group Plc - Group CFO & Director [41]

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Yes. I mean downgrades in our credit portfolio, there's nothing particular we've got on the horizon at all. Even Simon's agreeing with me. And Tesco was upgraded, wasn't it, which was good. So yes, the sort of sectors wherein we show the diversification, we're not seeing that. You're not seeing, I don't know, utilities, for example, being downgraded. So no, we're -- there's nothing we're seeing on the horizon on that. We've obviously, for the half year, been through a thorough process as well on the internal ratings on our own direct investment portfolio. And again, we're not seeing that. There is a few pluses and minuses of external valuations on that stuff, but nothing on the debt that we're holding. So no, nothing on the downgrades.

Yes. On the rating side of things, well, as you know, I mean, S&P in particular have their own model that's completely separate driven off the Solvency II balance sheet with a bit of vetting. Now those numbers don't change fundamentally for what's happened into your Solvency II ratio. There will be different impacts of market movements on a ratings model. Ultimately, at some point along way down, there would be a question about market performance and can you sell a business.

And clearly, that's nowhere near where any of these companies are. So it's nothing that has come up. And we've just recently been through all our conversations where the rating agency is all very positive, as you've seen in the press releases. There was very much a continuation of the same position. They recognize our strength in the businesses that we're in, market-leading positions, but also they do recognize the diversification start to come through from the international expansion, which is seen as a positive by the rating agency. Yes.

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Bernard Leigh Hickman, Legal & General Group Plc - CEO of Legal & General Insurance Division [42]

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So on the U.K. margins, actually it's slightly improved first half to first half. And that's good. We're actively looking to optimize our pricing, optimize our product mix, optimize everything to improve margin. At the same time, we realize dividends are paid in pounds, not percentages, and so we're looking to always optimize that pound as well. So technology, you referenced. Yes, that's a really important point. But the key point is we've been leading that technology innovation, and that's been driving our unit costs down, which we will put back into pricing if that's what we need to do to optimize the outcome, or if we cannot optimize and increase margins, we will do.

So yes, we're, I'd say, at the leading edge of the curve on technology and intend to remain there and are continuing to invest in our technology platforms and partnering with technology players, fintechs as well, to make sure we're at the cutting edge of technology. And so yes, going forwards, we're delivering good margins and we'd be confident we can carry on with all our competitive advantages to deliver good margins going forward.

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [43]

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Understanding about the American one.

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Unidentified Analyst, [44]

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(inaudible) the group as well, (inaudible) the group as well.

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [45]

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Yes. I'll come on the group, yes.

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Bernard Leigh Hickman, Legal & General Group Plc - CEO of Legal & General Insurance Division [46]

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Yes. So yes, America, we're doing a similar technology investment pattern there and hope to get unit cost savings, part of which will go back into price, part of which would help to improve margins. There, the margins have come down slightly at both markets, our competitive markets, and the margin will fluctuate over time. Obviously, we're always doing everything that we can to improve margins. Group protection has gone up slightly. That just varies a little bit depending on product mix as well.

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [47]

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Yes. Technology is inherently deflationary, as we found in lots of different industries. And financial services is going to be the same. That's why you're just going to see price competition. You can see that in the asset management industry, it's very pronounced right now. Our central case is for not for real price increases over the next years, but technology to drive down prices. But we have to use technology to get our cost base down. We've been very good at doing that so far. We -- when -- but certainly, we believe that we're as competitive as everybody else that was anybody else in any of the areas that we compete in. But we're not standing still. There's a huge amount of efforts. And all the guys are nodding because we're in sort of the preliminary budget stages for next year is that we have to use technology both to give better value to customers but to also drive down our costs. And you have to perform and transform. And unless we perform and transform, we will lose market share, and that's sort of not at all what we want to do.

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Colm Kelly, UBS Investment Bank, Research Division - Director, Co-Head of European Insurance & Equity Research Insurance Analyst [48]

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Colm Kelly, UBS. Just a question on the Solvency ratio of the Insurance entity. So the operational surplus generation, GBP 1.5 billion, is important. Thank you for the guidance. I suppose as important from a dividend perspective is getting that out of the entities, and the Insurance entity clearly is a vast majority of that. Given the capital optimization program that you have, the Insurance entity solvency starting point is much lower than at the group level. I think it was in the mid-150s at the start of the year. It is subject to similar market impacts as to the group ratio. A little bit different to the group ratio, there is a large cash remit typically coming out in the second half. So I think the question for me will be when are you able to update even broadly on where the Insurance entity solvency ratio is at the half or even currently.

Secondly, at what level would that solvency ratio of that entity need to get to before you would be in any way concerned around constraints over cash remittances from that entity to the group?

And just thirdly, you mentioned the risk appetite that you have. Can you maybe you articulate a bit more -- in a bit more detail what the risk appetite is for that entry? Because clearly, it will be in the risk appetite statements, et cetera.

Last question is just on Canadian bulk annuities or PRT. Positive entry into that market this year. It's a large market. Do you think the experience and expertise that has been built up in the U.S. will help you scale that business up more quickly than the U.S. did? Or should we expect a similar trajectory of growth in Canada as we have for the U.S.

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [49]

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Well, I'll take the easy one, which is the last one. Just -- we're going to have a measured approach to all of our international -- too many bridge businesses have taken a sort of slightly cavalier approach to international expansion with risky acquisitions and everything else. We've got such tremendous momentum in all of our businesses. We can be very measured. We didn't do a Chinese joint venture in insurance like lots of the other firms. We haven't got any legacy issues when we expand into these markets because we've got legacy assets or legacy businesses from the past, so -- which is the continuum and measurement approach.

Jeff, do you want to answer all the questions on LGAS? And Simon is going to give his views on the risk appetite and how we think about it and how we measure ourselves against this.

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Stuart Jeffrey Davies, Legal & General Group Plc - Group CFO & Director [50]

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Yes. LGAS, you're right. It was from [153] year-end. It's near SFCR that it's published. And so we gave that number. But it's significantly less exposed to movements than we've seen at the group because we obviously don't have the debt repayment and the dividend payment, which was the other big item. It doesn't come out. And in fact, we have much smaller remittances from the entities in the first half, as you say, that's in the second half. So the impacts we've seen at group is much, much less on the individual insurance entity on LGAS.

We -- again, we model all the scenarios. We don't have concerns over dividend requirements in the second half. Don't forget the things that are positives. A surplus sits in the surplus generation from the annuity back book, and longevity releases all flow through for that business. So we're comfortable as a -- we have 3 of the Board members here actually. We're comfortable as a Board on the dividend remittances from LGAS. And we again have modeled that. As part of the group modeling, we model the individual subsidiaries and where are they against the risk appetite.

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [51]

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Okay, Simon.

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Simon Gadd, Legal & General Group Plc - Group Chief Risk Officer [52]

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Maybe just a follow-up on that. And so we don't have a hard line for LGAS in the same way as we don't have a hard line for group. We very much look at this, right, through the scenario and stress testing lens, looking -- playing out different scenarios, what does that do to the coverage ratio. I think the only thing I would differentiate between LGAS and the group is there are different management actions available to manage the downside in LGAS. Clearly, there's one from the group, but there's also the ability to move business around the group to make it as most efficient deployment of our capital as possible. And we have a reinsurance mix that are in LGRI that helps us do that. So yes, no hard and fast rules. But as Jeff said, it's about making sure that we're on top of all the stresses, understanding how they behave. Big dependence on Laura's business in terms of making sure that their credit portfolio is properly diversified. We're really on top of the areas where there's potential vulnerability to those stresses like Brexit, and we've done a lot over the last year or so to prepare ourselves for that. So we have plenty of warning. So yes, that's the broad picture.

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Colm Kelly, UBS Investment Bank, Research Division - Director, Co-Head of European Insurance & Equity Research Insurance Analyst [53]

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Sorry, just to follow up on that, if I can. I mean in the risk appetite segment, does the regulator not look for a limit such that post those stresses, your solvency won't go below a certain number? Or is that just simply a 100% minimum requirement?

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Simon Gadd, Legal & General Group Plc - Group Chief Risk Officer [54]

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From a regulatory perspective, it's 100%, yes. So anything above that is at the management's discretion and as the Board and requirements align with that. So the Board has its own view as to what it wants to be able to do and how -- what stresses it wants to bow to be resilient to. And that's what I -- the one I just answered previously.

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [55]

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Johnny and then Andrew.

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Johnny Vo, Goldman Sachs Group Inc., Research Division - MD [56]

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Okay. It's Johnny Vo from Goldman Sachs. Just a couple of questions. I guess I was kind of surprised by the [NA] spread that you recorded for the half year at [121%], which is quite resilient from [138%]. And I think you're at one of the higher ends in terms of MA spreads that I can see and broadly in line with where most players were at the year-end when spreads were very wide. So what -- or how is that spread developed over the last few years? Can you just give us some data points on that?

In terms of the NA spread for new business, is that different to the overall book? Are you applying more illiquid assets to new business as an asset mix rather than your existing book?

And finally, in terms of just following on from the question from Colm, I mean, is there a risk that some of the treasury assets that sit in L&G finance get used to support the LGAS solvency position in a down scenario given that you're looking for stress?

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [57]

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Jeff, do you want to take the first and the third one and Laura will take the second one?

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Stuart Jeffrey Davies, Legal & General Group Plc - Group CFO & Director [58]

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Sure as I think they all get wrapped up in one. So I mean, there's one big [NA] portfolio. We put the assets in there, so there's no difference. And Laura can talk about pricing assumption if you like.

Yes, I mean, we're not -- everything I looked at -- I looked at all the year-end SFCRs. That's sort of interesting character I am. And we didn't -- I didn't see anything particularly out of line. We obviously have some different mixes of business. We have LTM, which is very beneficial. We've secured a lot of these HMRC assets that we've talked about in the past. But we've done very well on trading, U.S. credit, for example, over the last 6, 12 months. But there's nothing we would say as unusual in that. There's nothing we've done differently in the NA . It has moved around broadly in line with a slight change in our mix in the [ethical pool]. We have been increasing the amount of DI, which you know is an uplift. It's been [flat]. If anything, it's probably been a bit flat as a proportion in the last 6 months. It hasn't changed dramatically because we've been writing a lot. We sold over GBP 4 billion. So there's nothing in particular. Now we're really happy to go through in more detail our guidance and stuff. But there's nothing I'm aware of there.

And then in terms of treasury assets, I mean, there's a long, long list of management actions we'd take at some point, and we're not foreseeing, going into the Treasury and saying let's put a lot of cash into LGAS today and by any means. So there is a long list of management's actions we could do.

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [59]

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Go ahead, Laura.

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Catherine Laura Mason, Legal & General Group Plc - CEO of Legal & General Retirement - Institutional [60]

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And in terms of the relative proportion of direct investments versus traded in new business, we have used a higher proportion of direct investments in new business than it has been in the back book. I think over the last half of last year, we increased our direct business in the overall book from about 17% to 20%. That's actually remained fairly constant over the year because we continue to make sure that we invest where we see the best value. I think as Jeff said earlier on, we saw some better relative value in the traded markets in terms of how we executed big deals we did this half year.

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [61]

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There's 3 more [questions] and then we'll -- okay, go ahead.

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Andrew John Crean, Autonomous Research LLP - Managing Partner, Insurance [62]

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It's Andrew Crean here from Autonomous. Can I ask 3 questions? The first one is a follow-up on the longevity question. Moving down your forecast for GBP 300 million to GBP 200 million is substantial. I just want to know whether that's stylistic or whether it is a response to data, i.e. are you just saying that you want to spread this out over a longer period of time, but you don't actually think that the quantum of releases in the future has changed at all? Or is it a more material issue?

Secondly, Slide 20, which was the profit signature on your BPA. Could you give us the IRRs around that and say, in terms of the capital invested, this is actually about 100%, obviously, or something higher?

And then stripping out LGR and looking at your other continuing businesses, they have, over time, not managed to grow at the same rate or even particularly at the sort of 10% target rate. Do you expect that to change over the next few years? Particularly, I think you're backing away from the LGIM 8% to 10% growth forecast because if they don't, they don't grow in line with the dividend and the dependency of the dividend on annuities increases, and that doesn't please the market.

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [63]

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Yes. And in terms of the third question, I'll answer that while just thinking of the answer to the first 2 questions.

If you look at the rate of growth of operating profits on Slide 6, you'll see LGC is at 12% over the last 3 years. And if you do the reverse math, which, from the numbers that Kerrigan was talking about, we definitely want to be looking for a higher rate of growth. So the principle that you're alluding to is the same. We haven't in any way backed away from LGIM, which is we've got a brand-new CEO. And the one message he gave me is "Please don't leave me then. Give me any hospital passes answering tricky questions from Andrew Crean in particular."

But the Retirement Solutions business has actually been the star performer in terms of its percentage growth on an annual basis. And as you rightly point out, we've done fantastically well out of PRT, and we can see the pipeline. So of the 5 businesses, 3 are performing at around the level that you were talking about. LGIM, we'll wait for Michelle to come back to us in March. And the Insurance business is getting higher top line than people expected. We haven't yet translated that into a higher bottom line. And that's because we're in the midst of this sort of second wave of technology transformation that Bernie talked about, and we've got to get America growing a bit faster than we have in the past to get its profitability up to level.

So when I mentioned earlier that not all businesses are firing on all cylinders despite this sort of 10% growth in all the key metrics over a long period of time, I still think we have a lot to do to get to an optimal performance across all our divisions, and all our divisions are not yet performing as well as they truly could perform. Jeff?

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Stuart Jeffrey Davies, Legal & General Group Plc - Group CFO & Director [64]

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Yes. On the longevity, I mean, it isn't that there's anything structural. I mean I don't think we've ever said it was GBP 300 million. We said mechanically, if you drop '17, then you'd get GBP 300 million, and some of you have done that. And mechanically, you drop '18, then you got a bigger number. But we had said we will be cautious. We just want to understand that there isn't obvious data. There is some movement for socioeconomic class that we want to understand more. Makes sense to potentially hold some back.

Whether that means it all then eventually comes out 3 out instead of now or it comes out in 5, yes, is -- in some ways, it doesn't really matter, and it's better to understand what's there. And at the moment, being 1 year behind is working extremely well for us on that front because we get to see what is developing in '19. We know where we've got significant changes in '18 that we -- that can come through as well. So it works in our favor. So there isn't anything. We would be flagging it if we thought there was something we're seeing in the data, but that isn't the case. It's just we want to understand a little bit better, make some allowances for some of these. Well, we'll probably do even more work again before we release next year, to be honest.

On the other one, well, obviously, I'm not going to get BI, right? You can get rulers out. That's why we shortened it a bit because you all would. The simple answer on the -- you know that the -- obviously, you're going to know the strain number is at 100% and you can do whatever maths you want to do around that and what level you believe we should or shouldn't be allowing for in the 4% strain. And our -- I mean we talk about targeting a sort of a double-digit return on that stuff, but it's -- it goes back to one of Nigel's slides, that it's all about the synergies. It isn't really about how much do we make on an individual PRT business, not allowing for LGC returns, LGIM fees and the fact that we'll leverage up and add in other assets to it. So when you put all that in, you can have a range of 6 different metrics that have different targets. What -- then you have to factor in the profits we're making across the group, which is why you get to a 20% ROE.

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [65]

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I don't mind which microphone you get.

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Abid Hussain, Crédit Suisse AG, Research Division - Research Analyst [66]

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It's Abid Hussain from Crédit Suisse. Just 2 questions from me. Firstly, just going back to the longevity reserve releases. Can you give us an indication of what they might be once you move to CMI 2018 tails, please? And the second question is on liquidity. Can you just explain briefly the drivers behind the lower liquid resources? I think they dropped down to GBP 3.1 billion at the half year versus GBP 4.4 billion at the full year. And then linked to this, what is the group surplus liquidity running at, at the moment? I think the full year number was GBP 1.5 billion?

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [67]

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Okay. Jeff, I think they're both for you.

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Stuart Jeffrey Davies, Legal & General Group Plc - Group CFO & Director [68]

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Yes. Sure. No, I guess -- well, I said the same, my '18. I mean if you literally just drop it in, it's a much bigger number. You can get to GBP 400 million. But we don't just literally drop it in. So it will depend what we see in the data, what more analysis we do and how much we think it needs to be held back for we declare the work. So it can be an answer from 0 to GBP 400 million in that case. We may well choose to spread it out for the same reasons and apply some caution.

But on liquidity, yes, I mean, movements is the timing we talked earlier a little bit around -- in terms of treasury liquidity, in terms of dividend out versus dividend across the [period].

On the bigger picture, really what's happened is we've put quite a bit into direct investments. So you see the GBP 500 million, GBP 600 million that's gone into direct investment. Plus we passed the math in the external dividend and coupons, so there isn't really anything that's happened in there. The rest are small amounts here or there that's moved around, whether that's a bit of money spent on projects, a bit of money that's been taken back on deposit, not on deposits and entities. So there's nothing major that's moved apart from that.

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Gordon Aitken, RBC Capital Markets, LLC, Research Division - Analyst [69]

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Okay. Gordon Aitken from RBC. Just a couple of questions. One on annuity stream. We've just come from a presentation where management set a strain on bulks had drift in this half versus last 2018 for H1. You're still talking about 4% new business stream. Just if you can square those 2 statements.

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [70]

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What was the first ones?

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Gordon Aitken, RBC Capital Markets, LLC, Research Division - Analyst [71]

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Well, Phoenix seeing the strain on bulks the aggression this half is half of what it was.

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [72]

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What was it last? Well, material numbers?

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Gordon Aitken, RBC Capital Markets, LLC, Research Division - Analyst [73]

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They didn't give percentage out in terms -- I mean...

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [74]

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To be the masters, it's very hard to do then.

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Gordon Aitken, RBC Capital Markets, LLC, Research Division - Analyst [75]

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Well, I made a point. So I'll be -- I mean, if you're talking about GBP 60 billion of demand in the bulk market at the moment, I'll be surprised if you're not getting better pricing you were a year ago.

Second question is just on competition. Maybe you can give us a sense of competition in direct investments. I mean just the University of Oxford, they're obviously looking for a partner. Was there anyone else who could do that aside from you?

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [76]

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I think that perhaps of course in our long-term relationships. I had said that the recent Cardiff deal, there wasn't any competition fallout because it's sites that we own now and we've got a lot of optionality around those sites. And that happens right across the U.K. For new things, there will, of course, be competition. And indeed, there's not -- there's -- maybe Kerrigan can talk a little bit about the competition in Oxford or Bath or somewhere.

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Kerrigan William Procter, Legal & General Group Plc - CEO of Legal & General Capital and Director [77]

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Yes. Yes, well, just a few points on that. So I read a whole list of the sorts of things that Oxford University -- we're looking for in Oxford. And yes, there were people who can do parts of that. So affordable housing or student accommodation or key work housing or science and innovation districts. But we're able to bring all of that together and all the types of capital that might be required. So whether that's equity or debt. It could be LGIM managed funds or it could be LGR. So there's a -- over the years, we've built a pretty unique set of skills. So yes, there were people competing just right against the end in the Oxford University partner, for example, but it's quite a range of skills that we bring there. So we feel we're in a pretty good place to win the bits of direct investment business that we wanted.

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [78]

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Yes. We haven't lost very many of these pitches over the last years, and we're incredibly well positioned for a huge pipeline of these future deals that we haven't yet announced. I think just so you know, it's very hard to talk about what Phoenix are doing. But we're very happy with the numbers that we've got, and 4% is a pretty good number to use in all their models on a go-forward basis.

Andy, last question to you.

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Andrew Sinclair, BofA Merrill Lynch, Research Division - VP [79]

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It's Andy Sinclair from BofA Merrill. Just 2 from me just to tie it up. And firstly, mostly for Bernie just on U.K. Protection. We've touched on maybe a couple of elements of this already, but the release from operations and IFRS operating profits have been on a bit of a downward trend for a few years now despite, as you said, premiums climbing quite a bit over that period. When do you think that starts to turn around and for maybe that tech investment starts to pay off? So that's one. Secondly was just on the $2 billion pipeline in the U.S. for PRT. How much of that U.S. paper do you typically expect to convert? And how many deals within that, just given that it's -- there's starting to be some bigger ones, you're looking at?

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [80]

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Yes. Yes, Bernie and Laura, do you want to just answer those?

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Bernard Leigh Hickman, Legal & General Group Plc - CEO of Legal & General Insurance Division [81]

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Yes. So there's, as always, a few moving parts in the release from operations. U.K. was up a little bit half year-to-half year, which was good, but there is moving parts within there. There's a tax effect that's been ongoing for many years now. I think that drops away next year. So I'm more hopeful that we can have a kind of sustained period of growth next year. But there are other factors. The fintech is starting to come through as well, so that's been a positive. We've been changing some of the reinsurance between U.K. and the U.S. That's had a small negative on the U.K., obviously offset in the U.S. So they're all kind of single digit moving around positions really. So the underlying position remains the same. As we get growth in premiums, that should be -- they will be flowing through into release of prudent margins and actually long-term kind of position that we get into but with noise around that.

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [82]

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So yes, Laura is going to give a conservative view about the American prospects.

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Catherine Laura Mason, Legal & General Group Plc - CEO of Legal & General Retirement - Institutional [83]

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On the U.S., I think we're really pleased with the organic growth we've seen over the last couple of years and in particular moving from the smaller size of the market to slightly bigger and have executed a number of bigger deals this year and have a number of solutions to execute -- to accelerate that organic growth over the next few years.

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Andrew Sinclair, BofA Merrill Lynch, Research Division - VP [84]

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So -- and so...

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Catherine Laura Mason, Legal & General Group Plc - CEO of Legal & General Retirement - Institutional [85]

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I mean in terms of how much we can give a -- well, that's a very difficult question to answer because just as we do in the U.K., we maintain our pricing discipline. So we do put in prices that we would be happy to win at. So...

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Nigel David Wilson, Legal & General Group Plc - Group CEO & Director [86]

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Yes. As we move up the scale, the probability of us winning larger deals probably decreases. We've done very well in the under GBP 100 million. As we go into bigger classes, maybe the probability, because we're new into those classes, will be less. So it's a -- it isn't an easy mathematical question to answer. But we can -- I'll cover it -- we can cover it in a little bit more detail after we finish.

Thank you, everyone, for doing the 2 shows today. And hopefully, it will just be a one show at the year-end. Thank you for all of your questions, and thank you also to you who you've been supporting us for your continued support. And even Colm said well done and shook my hand at the start.

And so we've got it on -- we've got it -- John managed to get a little video clip that we're going to put on our site this afternoon. There's a first for everything I'm learning. But we look forward to seeing you all at the year-end, where, of course, we'll be joined by Michelle as well. So thank you.