Legal & General Group H1 2026 Earnings Report

Legal & General Group EPS Results

• Actual EPS: GBX 8.01
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Legal & General Group Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Legal & General Group Announcement Details

• Quarter: H1 2026
• Date: 8/5/2026
• Time: Before Market Opens
• Conference Call Date: Wednesday, August 5, 2026
• Conference Call Time: 5:00AM ET

Legal & General Group (LON:LGEN) provides various insurance products and services in the United Kingdom, the United States, and internationally. It operates in Legal & General Retirement Institutional (LGRI), Legal & General Investment Management (LGIM), Legal & General Capital (LGC), and Retail segments. The LGRI segment offers annuity contracts with guaranteed income for a specified time; and longevity insurance products. The LGIM segment offers index fund management; active fixed income funds and liquidity funds; active equity management; solution and liability driven investment; multi-asset funds; corporate pension scheme solutions; and real assets. The LGC segment provides investment strategy and implementation, and direct investment and structuring services. The Retail segment offers protection products, such as health, disability, critical illness, and accident; individual term assurance; reinsurance; savings and death benefits; annuities; lifetime mortgages; lifetime care plans; retirement interest only mortgages; and workplace savings scheme that provides corporate pension scheme solutions. It is also involved in the unit trust and institutional fund management, mortgage finance, treasury, building project and modular housing development, general insurance, and open-ended investment businesses. In addition, the company engages in the investment, operation, management, trading, and letting and operation of leased real estate; and construction of commercial buildings, financial intermediation, pension tracing and transfer, insurance agents and brokers, fund general partner, commercial lending, venture capital investing, contractual scheme, investor alternative investment fund, collective asset-management, and investment management activities; and provision of investment advisory, business information consultancy, and technology services. Legal & General Group Plc was founded in 1836 and is headquartered in London, the United Kingdom.

Legal & General Group H1 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Core operating EPS increased 11% year over year, exceeding the company’s 6%-9% full-year guidance range. L&G raised its interim dividend 2% to £0.0624 per share and had completed approximately £450 million of its £1.2 billion share buyback.
• Positive Sentiment: Asset management was the standout performer, with fee-related earnings up 37%, annualized net new revenue of £23 million, revenue margins rising to 9.6 basis points, and the cost-to-income ratio improving to 71% from 75%. Management said it remains on track for £500 million-£600 million of operating profit in 2028, with more than 80% fee-related.
• Neutral Sentiment: Institutional retirement wrote or secured £5.7 billion of pension risk transfer business, but first-half new business margins declined to 4.2% and strain rose to 3.4% amid tight credit spreads and competition. Management emphasized pricing discipline and raised its asset-optimization expectation to more than £400 million annually, while maintaining a 14% minimum return hurdle.
• Positive Sentiment: Retail momentum remained strong, with workplace pension net flows up 35%, individual annuity premiums up 36%, and protection sales up 22%. End-to-end workplace profit more than doubled to £48 million, supporting the target to reach £180 million by 2028.
• Neutral Sentiment: L&G reported a robust 201% solvency ratio, or 209% pro forma after refinancing, but expects it to move toward its 160%-190% operating range as capital is deployed for growth. Management also noted that PRT volumes may fluctuate by year and that future regulatory changes could affect the use of funded reinsurance.

Presentation

[Andy Sinclair, Chief Strategy and Investor Relations Officer at Legal & General]

Good morning, a warm welcome both to those of you in the room and to those joining online. Thank you for your interest in Legal & General. I'm Andy Sinclair, L&G's Chief Strategy and Investor Relations Officer. Our running order for today will be as follows. António will open with an update on progress we've made delivering our strategy, along with the highlights from H1. Andrew will cover the results in more detail, and then António will be back with some more comments on our outlook before opening to Q&A. At which point, António will be joined by Andrew and the CEOs of our three businesses to take your questions. For Q&A, again, we'll be keeping it to two questions each. Thank you for your cooperation last time round. With that, over to you, António.

[António Simões, Group CEO at Legal & General]

Thank you, Andy, and good morning, everyone. It's great to see you here. I'm pleased with what we have delivered so far in 2026. We are delivering on our promises, and this starts with our 30 million customers. We want to be the best company for them to invest and retire with, and we're doing that at scale. First, as the U.K.'s leading annuity player, we provide income every month to 1 million retirees. Actually, you can see it on the slide. Those payments were over GBP 3.7 billion in the first half of 2026. As the U.K.'s largest asset manager, we're trusted to invest on behalf of both institutional clients and individuals, including more than 5.2 million workplace customers. Finally, on the right-hand side, since we were founded in 1836, we've always provided protection insurance.

[António Simões, Group CEO at Legal & General]

In the first half of this year, we have paid almost GBP 700 million to support customers and their families. We are delivering for shareholders. As you can see on the slide, we have generated year-on-year predictable growth in our headline earnings. These are clean numbers, if you remember, we talked about this at the full year, now that we've drawn a line under legacy issues. Core operating EPS is up 11%. That's above the top end of our guidance of 6%-9%. OSG per share is up 7% year-on-year, and our solvency coverage ratio was 201% at the end of June. This is a strong capital position, well above our 160%-190% target range, allowing us to continue to deploy capital for growth.

[António Simões, Group CEO at Legal & General]

We are committed to increasing shareholder returns with an interim dividend per share up 2% to GBP 0.0624, and we have now completed around GBP 450 million of our GBP 1.2 billion share buyback program. That's of a couple of days ago. L&G is now a growing, simpler, better-connected business, and we're firmly on track to meet our financial targets. We have scope to deliver more, as we will discuss later. We have strong growth momentum in each one of our three market-leading businesses. We have written or are exclusive on GBP 6.9 billion. You can see it there on the slide of overall annuity volumes. That includes GBP 5.7 billion of PRT and GBP 1.2 billion of individual annuities. Our asset manager delivered GBP 23 million of annualized net new revenue, ANNR, in the first half, which is the highest we've ever reported.

[António Simões, Group CEO at Legal & General]

In workplace pensions, we attracted GBP 6.2 billion of net inflows, benefiting from the onboarding of new schemes that we won last year. We now have almost GBP 1 billion per month from recurring flows. Let me now go into each one of the businesses. As I mentioned, in institutional retirement, we have written or are exclusive on GBP 5.7 billion of PRT year-to-date. This compares to GBP 5.2 billion at the same stage last year. We have remained disciplined in what is a competitive market. This is important. For the GBP 2.1 billion of business that we have written, as you can see, we have written GBP 2.1 billion, and we are exclusive of have since written the GBP 3.6 billion. Just on the GBP 2.1 billion that we have written in the first half, our new business margin declined to 4.2%, and the strain rose to 3.4%.

[António Simões, Group CEO at Legal & General]

We are still beating our 14% IRR, the internal rate of return, and we're still above that hurdle, while at the same time locking in optionality for the future. In fact, this is what you can see in our numbers. In the first half, we have generated GBP 288 million of asset optimization. This is across institutional retirement and retail, and that number compares to GBP 212 million in the first half of last year. You remember this from when we were sitting here back in March, we guided to more than GBP 300 million of asset optimization per year. What I'm now saying is that we can deliver more than GBP 400 million this year and going forward, even in benign markets. Credit spreads widening, because I'm sure you're going to ask me this question, would provide further upside potential on top of that number.

[António Simões, Group CEO at Legal & General]

We are on track to hit our target of 5%-7% compound annual growth rate in operating profit. Turning to asset management. Asset management is the standout performance in the first half of the year, with fee-related earnings up 37% year-on-year. We have delivered, as I mentioned before, an impressive GBP 23 million in annualized net new revenues during the period, this ANNR will support earnings growth further into the second half and into 2027. We have increased revenue margins over the last three years. You probably remember first time I talked about this. Back in 2023, the average revenue margin was seven basis points. That number is now 9.6 basis points, and we are ahead of plan for a revenue margin over 10 basis points. We continue to grow our private markets franchise with AUM rising by GBP 4 billion in the first half to GBP 79 billion.

[António Simões, Group CEO at Legal & General]

Again, here we are on track to exceed our GBP 85 billion AUM private markets target. Our cost-to-income ratio, it's worth spending a moment on this, reduced from 75%-71%. This is the first time this ratio has reduced in a decade, and it will continue to reduce further to hit our below the 70% target. We've made great progress in asset management and there is more to come. We're on track to meet our GBP 500 million-GBP 600 million target operating profit in 2028, with more than 80% coming from fee-related earnings. This is really important. The quality of that number is with more than 80% coming from fee-related earnings. Finally, retail. In retail, we serve over 12 million customers across three structurally growing markets. First, workplace savings, second, individual annuities, and finally, protection. Let me go through the three of them. They've all performed really well.

[António Simões, Group CEO at Legal & General]

Workplace net flows are up 35% year-on-year. If you remember, we talked about this before, our end-to-end workplace profits, and that includes both the admin and the asset management part of those profits, I was talking to some of you outside about this, more than doubled to GBP 48 million, and we'll talk about this a bit later. We continue to be the number one player in the open market in individual annuities, and you can see the number there. Premiums rose by 36% year-on-year. Finally, our protection business saw both an increase in margins and a 22% step-up in sales. We also have new distribution agreements with two large banks that you'll see that in our future numbers. Again, we are on track to hit our 4%-6% operating profit growth target. I've talked about the three businesses.

[António Simões, Group CEO at Legal & General]

The three businesses show good momentum, as we've just discussed, and importantly, they support each other with clear synergies. Typically, you can see that 80% of PRT transactions come from asset management relationships. Eric and Gareth are sitting next to each other there. Actually, the number in the first half of this year was 98%. Virtually every single PRT deal that we did this year came from a longstanding asset management relationship. Then, and this is what you have here, 90% of the annuity assets are then managed by our own asset manager. A good example of that in the first half is the GBP 1.6 billion of investment-grade private credit sourced by asset management for our annuity book.

[António Simões, Group CEO at Legal & General]

On the right-hand side, as I mentioned, we have very exciting growth in workplace pensions, but this is particularly important to us because, and this is very specific to L&G, 95% of those flows are managed by our asset manager. A great example here is the L&G Private Markets Access Fund that we have, which is now over GBP 3 billion. Effectively, our institutional retirement and retail businesses represent controlled distribution for our asset manager. In the first half of this year, that accounted for more than half of the ANR. Talking about the bottom of the page, for most of our 190-year history, we have used scale as a competitive advantage. We increasingly share operations and teams across business units, and our large customer base and proprietary data are a source of competitive advantage in an AI world., two examples.

[António Simões, Group CEO at Legal & General]

We have launched an AI-driven agent desktop, which Laura talked about in the capital markets event that we did in the retail business, which is now driving efficiency improvements. Second, we were the first large U.K. provider to get approval for targeted support, the new FCA regime that has now also launched with AI-driven nudges supporting customer decisions, and we have seen good early engagement. We can talk about that with Laura in the Q&A. There is more to come. Work is underway to make L&G a more efficient and a more competitive business. We understand the importance of a sustainable growing dividend. In the first half, the performance that we had supported another 2% dividend increase, as I said, to GBP 0.0624 per share. Our earnings are growing faster than our dividend, with EPS up 11% year-on-year and OSG per share up 7%.

[António Simões, Group CEO at Legal & General]

We expect, and this is what you can see on the chart, our dividend to be covered by core operating EPS this year, and that that cover will further improve in 2027. As I mentioned at the full-year results back in March, also, our NSG will cover our dividend by 2027. On that note, let me hand you over to our Chief Financial Officer. Andrew, over to you.

[Andrew Kail, Group CFO at Legal & General]

Thank you, António, and good morning, everybody. I'm delighted to be here presenting a strong set of results. Importantly, these IFRS results are clean and predictable after we drew a line under legacy complexities at our full-year results in March. We've delivered 7% growth in core operating profit, supported by 5% growth in institutional retirement, 10% growth in asset management, and 5% growth in retail, all while holding central expenses and debt costs flat year-on-year. Our core operating EPS was up 11%, and we now expect to be above the top end of our 6%-9% target range for the full year. Our profit before tax benefits from the sale of our U.S. protection business, as we previously guided. We have a significantly smaller impact from the investment variances, which I'll cover in more detail later.

[Andrew Kail, Group CFO at Legal & General]

On this slide, you can see a summary of the solid trading metrics across the group in the first half of the year, with each business delivering good growth and on track to meet our 2028 targets. Let's discuss these results in more detail. Starting with institutional retirement, our largest business. We delivered GBP 646 million core operating profit in H1, with asset optimization increasing 38% to GBP 227 million as we took advantage of market opportunities. This is ahead of our guided run rate, and as António mentioned, we're now on track to deliver greater than GBP 400 million per annum of asset optimization across institutional retirement and retail annuities, even in benign markets. That's up from our prior guidance of GBP 300 million, as we've industrialized our processes. The flat CSM is a function of the sovereign-based investment strategies we're using in a tight credit spread environment.

[Andrew Kail, Group CFO at Legal & General]

In this environment, asset optimization is a greater driver of our profit growth, and we'll discuss more of that in a moment. Further spread tightening through 2026, alongside the competitive pressure, has increased the upfront new business strain we're reporting, even though our investment approach and capital requirements have broadly been consistent. Despite markets and competition, we continue to deliver strong returns on our capital. We remain highly selective and disciplined in the transactions that we go after. On this slide, you can see our long-term track record of success in institutional retirement. We've written around GBP 95 billion of PRT over the past decade, typically averaging 20%-25% market share. This has supported growth in our PRT assets every year, excluding market impacts. The slide also shows the impact of the move to IFRS 17 accounting.

[Andrew Kail, Group CFO at Legal & General]

This changed the timing of profit recognition, but it has led to a more steadily growing, predictable stream of profits from the institutional retirement business. We continue to rigorously apply our minimum 14% IRR threshold to all capital allocation decisions. New business margins have reduced, though, so let's dig into that further. In a competitive market with tighter credit spreads, we've used sovereign-based investment strategies to back our new business, and this has led to lower day one new business margins. The optionality for the future is created through asset optimization profits. Sovereigns, as you can see, are now 29% of our asset portfolio, up from just 10% in 2022. Asset optimization generated GBP 288 million across our total annuity portfolio in the half year, and writing new business on sovereign-based investment strategies feeds this optionality and growth. Asset optimization doesn't require large market volatility.

[Andrew Kail, Group CFO at Legal & General]

We have the optionality to rotate across ratings, currencies, and sectors, in credit and in sovereigns. We increased our sovereign exposure, reduced derivative-related exposure, and remained cash flow matched in H1, and in so doing, delivered earnings and capital with no increase in our capital requirement. We're confident in delivering asset optimization of more than GBP 400 million per year across our greater than GBP 90 billion annuity portfolio. We believe we have the optionality across the various components to deliver this, and we see further upside as and when spreads widen. Moving to asset management, which António has mentioned is really the highlight of today's update. Fee-based earnings grew 37% year-on-year as revenue grew and costs were controlled.

[Andrew Kail, Group CFO at Legal & General]

Balance sheet earnings of GBP 53 million are consistent with our guidance of GBP 80 million-GBP 100 million for the full year. We have substantially lower investment variances than we've seen in prior periods. Annualized net new revenues, ANNR, were GBP 23 million in H1, which is more than we generated cumulatively over the period 2020-2024. We're positioned well as the U.K.'s largest asset manager, with GBP 1.2 trillion of AUM and an improving business mix, as I'll cover on the next slide. Our cost-income ratio reduced year-on-year for the first time in a decade, from 75% in 2025 to 71%, with operating profit returning to growth up 10% compared to half year 2025. We are building momentum, there's definitely more to come.

[Andrew Kail, Group CFO at Legal & General]

Our ANR growth and cost discipline will drive further operating profit growth in coming periods and support the delivery of our GBP 500 million-GBP 600 million operating profit target for 2028. In both public and private markets in H1, we've seen ANR growth even with net outflows in public markets, as you can see on the slide. Our revenue margins have increased annually from 7 basis points in 2023 to 9.6 basis points in H1 2026. This contrasts with the industry trend of declining margins. We are consistently improving our revenue margins by attracting net inflows in higher margin mandates, which more than offset the net outflows from the lower margin mandates. We said that 2025 would be the pivot point for asset management, we're delivering on that. The cost-income ratio improved by 4 percentage points to 71%, driven by strong revenue growth and disciplined cost management.

[Andrew Kail, Group CFO at Legal & General]

Revenue grew 13% year-over-year, with around half of this increase driven by net new revenues generated over the last 18 months. Cost growth of 5% reflects increased variable compensation linked to those higher revenues in the first half and our continued investment in the business. Underlying costs are flat on a nominal basis, i.e., down in real terms, reflecting the cost action we've taken in the business. This is an important milestone, but not the destination. We remain on track, as António said, to reduce the cost-income ratio below 70%. Retail saw similar trends to institutional retirement, with a small increase in the CSM release and a step-up in asset optimization. As a reminder, our annuity portfolio is managed as one across PRT and individual annuities. Workplace admin profitability is improving as underlying profitability growth continues to fund investment in our proposition.

[Andrew Kail, Group CFO at Legal & General]

In H1, we invested GBP 25 million in our admin proposition, admin was profitable on an underlying basis in the half year. As we've outlined previously, we manage workplace profitability across both asset management and retail, and I'll touch on this a bit more later. Our new business margins also improved for both retail annuities and protection. We have impressive growth trajectories across our retail franchises. Workplace pensions assets under administration grew nearly 20% compound over the past decade, and our recent win rate suggests this momentum continues. We're not the largest, but we are growing fast. Individual annuity sales have increased in recent years, and we see structural growth, which will further support us as the market leader. In protection, this is a steady growth business with gross written premiums growing by more than a third over the past decade.

[Andrew Kail, Group CFO at Legal & General]

As you can see here, our workplace pensions business is starting to open its profitability jaws. Our end-to-end profitability for the first half more than doubled year-over-year to GBP 48 million. A simple doubling of this suggests a significant step up in 2025's profits for the full year. We have a strong proposition in which we continue to invest. Our app, for example, is top rated in the market, and we already have two default funds above the government's GBP 25 billion minimum threshold. We're on track to deliver our commitment for a tripling of end-to-end workplace profits to GBP 180 million by 2028. Workplace pensions, it's our hidden gem, a business which has grown significantly and is beginning to benefit from the scale that it has. It might still be small in the group profit context, but we see a really attractive trajectory. Turning to investment variances.

[Andrew Kail, Group CFO at Legal & General]

I've maintained the same format as presented in March, separating out insurance and shareholder asset impacts. Importantly, the legacy items that previously drove larger adverse variances in the blue boxes on the slide are behind us, and I'm pleased with the immaterial experience recorded in the first half. The investment variance in the insurance business, the green boxes, was primarily driven by day-to-day market movements in the annuity portfolio, particularly from changes inflation, interest rates, and property. We're accounting for asset and liability movements, doesn't perfectly offset. The largest impact there came from higher short-term inflation expectations and no corresponding increase at longer tenors, which increased our liabilities more than our assets. Importantly, we hold these assets for their cash flows, not their short-term price.

[Andrew Kail, Group CFO at Legal & General]

The risk we care most about with our annuity assets is defaults, and this investment variance doesn't reflect any deterioration in the underlying credit quality. These rates and inflation impacts reflect exposures that we intentionally retain as part of our strategy to manage the size and volatility of our Solvency II capital requirements. Consequently, we accept a degree of market volatility in IFRS, which remains consistent with our risk appetite. Last year, for example, movements in rates inflation delivered a positive investment variance. Our store of future profit, including the CSM and risk adjustment, was down slightly in H1. The underlying fall was around 1% before the impacts from experience and modeling refinements. This is largely due to the sovereign-based strategies we're using to back the annuity business, which contribute less CSM than historic business, but as I've said previously, increase our asset optimization opportunities.

[Andrew Kail, Group CFO at Legal & General]

We would like to get back to a world with wider credit spreads, which would support a return to more significant CSM growth, but we will not chase yield when credit spreads are tight. As I've discussed earlier, we have a significant asset optimization opportunity to drive our profit growth. Our solvency ratio is 201%, which is robust and remains well above our 100%-190%, 160%-190% target operating range. We reiterate our intention to organically move down this operating range over the coming years as we invest in growth opportunities. Over the first half, our solvency position benefited from the sale of our U.S. protection business to Meiji Yasuda, net of the cost of our share buyback announcement. We also adjust for the final dividend for 2025, which is seasonally larger than our interim dividend payment in the second half.

[Andrew Kail, Group CFO at Legal & General]

Operating variances reduced the ratio by five points, reflecting changes to ALM management, improvements to cash flow modeling, and capital model strengthening. This was partially offset by market movements, including a positive impact from higher interest rates over the period, which reduces our SCR net of adverse inflation impacts. As you can see, our recent debt refinancing took advantage of attractive RT1 pricing and leads to a step-up in the pro forma solvency ratio to 209%. Whilst we don't formally report our debt leverage at the half year, we've seen a modest uptick in the ratio due to seasonal factors like dividend payments. But to reiterate what I said at the full year, we're committed to reducing this ratio in the medium term. This slide is a reminder of our asset portfolio. More than 99% of our bond portfolio is investment grade, so less than 1% sub-investment grade.

[Andrew Kail, Group CFO at Legal & General]

The portfolio is well diversified by sector and internationally with our public credit more U.S. focused, but our private credit more U.K. biased. Further details on this are contained in the appendix to the pack. At the full year results, I committed to greater transparency in our discussions with investors. I heard some of you talk about the importance of cash disclosure. So we're moving there. Today, we're disclosing our stock of cash at holding company for the first time, and you see it's GBP 1.4 billion at 31 December 2025. Our Holdco cash is around one times our Holdco outgoings for a full year and is likely to stay at that level for a foreseeable future. We think this is an appropriate level for our business. We have further liquidity held in our business units, which is material and available to invest in growth.

[Andrew Kail, Group CFO at Legal & General]

We're well-positioned to meet our continued growth objectives and support the attractive dividend. On that point, I shall hand back to António.

[António Simões, Group CEO at Legal & General]

Thank you, Andrew. I'm pleased with the growing momentum of our key metrics, which you can see here on the slide in the first half of this year. There is more to come from L&G. We have strong positions in structurally growing markets. First, we see a golden era of PRT with over GBP 1 trillion of global flows over the next 10 years, including GBP 500 billion here in the U.K., where, as you know, we are the market leader with 20%-25% market share. This is a competitive market, as both Andrew and I have just said, particularly with tight credit spreads, but we are still beating our IRR hurdles while locking in optionality for the future. We also continue to win in international markets, including the U.S., where we are now quoting on jumbo deals.

[António Simões, Group CEO at Legal & General]

Jumbo deals are the ones above $1 billion, thanks to our partnership with Meiji Yasuda. Second, DC pensions are set to double to GBP 1.5 trillion by 2034. We are the fastest-growing player in the workplace pensions market and the only one with a global asset manager, which manages 95% of flows. We are future-proofing L&G with DC providing an additional growth engine beyond DB. Third, the same growth that we're seeing in DC is a structural tailwind for individual annuities where we are the market leader. We see, as you can see there on the slide, annuity market flows more than doubling from GBP 8 billion in 2025-GBP 20 billion by 2034. Bigger pension saving pots will lead to larger annuity purchases and better retirement incomes for our customers as they reach retirement age.

[António Simões, Group CEO at Legal & General]

For reference, this is important, the average age of our workplace pension customers today is only 44 years old. Our protection business will also deliver steady growth with an opportunity to grow, particularly whole life assurance following the inheritance tax changes in the U.K. Our synergistic business model, which is the flywheel you can see here on the left, puts us at a competitive advantage to benefit from these structural trends I've talked about and better serve our customers. We have scope to do this more efficiently. Work is underway to drive efficiency improvements across L&G. We naturally see lots of opportunities from technology, particularly AI, but we also see opportunities from a simpler operating model and a leaner business.

[António Simões, Group CEO at Legal & General]

As I say here on the slide, we will reinvest some of these savings in growth initiatives and further efficiency improvements, but only where the payback periods are short. You can see the initial results of this effort in asset management, and Eric can talk about this more later, where the cost actions that we've taken help drive our cost to income down from 75%-71%. There's more to go, and we will give operational efficiency a bigger focus in our future updates. Andrew said this, but just to reinforce, we expect EPS at full year to be above our 6%-9% EPS target. As you can see on the slide, we are on track to meet or exceed the rest of our targets. I believe we can go further. Why do I say that? We have three arguments.

[António Simões, Group CEO at Legal & General]

Market leading businesses with 20%+ market shares in structurally growing markets. Second, our synergistic business model is unlike any of our peers and puts us at the competitive advantage. As I've just said, we see opportunities to use our scale to drive further efficiencies. Finally, this supports attractive, sustainable, and growing capital returns to shareholders. We flag today that we may have not seen this, that we will introduce quarterly trading updates. The first one will be our third quarter update on Monday, the 16th of November. With that, Andrew, Laura, Gareth, and Eric will join me on stage to take your questions, which Andy will be facilitating.

[Andy Sinclair, Chief Strategy and Investor Relations Officer at Legal & General]

Thanks, everyone. Thanks for hands already going up. Remember, two questions each. Please say your name and the organization that you represent. Let's start in the middle with Farooq. Just the other way.

[Farooq Hanif, Analyst at JPMorgan]

Hi, thank you very much. First question on asset optimization and second on dividend cover. With asset optimization, there are lots of questions on this, obviously, as you can understand. Can you give us an example maybe of something that you did in 1H, roughly what basis point increase it gave and how that capitalizes, just so that we can get comfort that this is a business as usual type of harvesting that you're generating? I'm guessing that this harvesting will grow with the size of the annuity portfolio when you talk about the greater than 400. That's question one. Question two, on dividend cover, I think there's obviously a question over your dividend cover from solvency percentage points rather than just earnings or net surplus generation. Can you give us some comfort around that? You've given a 160-190 target range.

[Farooq Hanif, Analyst at JPMorgan]

Is there a level at which solvency will ultimately fall to and stabilize at? I saw the slides on stock and flow as well that you gave. What conditions would make that come sooner, that stabilization? Thank you.

[António Simões, Group CEO at Legal & General]

Great. Thank you, Farooq. Gareth, you should give a specific example on asset optimization, then we'll come back to Andrew, and [inaudible] had a word on that as well. Why don't you go first, Gareth?

[Gareth Mee, CEO of Institutional Retirement at Legal & General]

Sure. Thanks for the question. A few examples. U.K. to U.S. sovereigns. We see both the U.K. and the U.S. as being default risk-free, therefore, we will look for opportunities where we can optimize from one to the other. We also saw opportunities this year in selling out of Triple B credit and into Single A credit. There's a range of others as well. We're looking for opportunities where we are taking little or no additional risk, where we think that we can get an uplift. The uplift might be 10 basis points or more. It needs to be big enough to make it worthwhile. Because of our scale, we're able to trade and generate large numbers.

[Gareth Mee, CEO of Institutional Retirement at Legal & General]

One of the reasons that the number will grow over time is because as our book grows, the size of the trades we can do are relatively larger.

[António Simões, Group CEO at Legal & General]

It's important, actually, Andrew mentioned this, that in this GBP 400 million we're talking about, we're not consuming additional capital. We have talked about, I forgot if you asked, Farooq. If we rotate, the additional credit spread widening with a rotation, that could consume capital, but it would still meet the same 14% IRR. We feel good about the GBP 400 million plus even in benign markets.

[Andrew Kail, Group CFO at Legal & General]

Yeah.

[António Simões, Group CEO at Legal & General]

Andrew.

[Andrew Kail, Group CFO at Legal & General]

Very high-quality earnings. I think absolutely. Farooq, on your dividend, maybe just repeat some comments we said the full year when we talked about the range. Solvency ratio we reported today, 201%, 209% on a pro forma basis. I think if we looked at it today, it's even higher given the rates environment. We're very comfortable where the ratio is right now. We've also guided that as we price business in the 160%-190% range and we write more business, we would expect and plan to come down to that range over time. It's a range because it's dynamic, and you talk about the stock and flow and the examples we've given in the appendix I hope were helpful to give you an illustration of how that moves.

[Andrew Kail, Group CFO at Legal & General]

We would be expecting over the next few years that ratio to trend down to the 160%-190%. I think repeating something that we also said at the year end, we're still very comfortable supporting the dividend at 160% and writing business. Below that, we take actions to bring it back. We've got actions that we could do to do that. We gave the range for a reason, and we're comfortable operating at that level.

[António Simões, Group CEO at Legal & General]

Yeah. We're still saying what I said at the full year, what we said at full year, NSG will cover the dividend by 2027. That's obviously in pound terms. The ratio itself we expect to come down.

[Andy Sinclair, Chief Strategy and Investor Relations Officer at Legal & General]

Andrew Baker, just pass it along.

[Andrew Baker, Analyst at Goldman Sachs]

Hi, Andrew Baker, Goldman Sachs. Thanks for taking my questions. First one, obviously we saw the asset optimization upgrade on the IFRS side. No change to the OSG growth. Can you just talk through the sort of dynamics of what's happening on the OSG side that we're not sort of seeing an upgrade there? Then I guess just more generally on that sort of comment around dividend covered by NSG 2027, you're very clear that it's under normal new business strain scenarios. There's a lot going on on the strain side with Funded Reinsurance, obviously gilt heavy versus traditional. Are you able just to give us a sense of what is a normal new business strain scenario?

[Andrew Baker, Analyst at Goldman Sachs]

Secondly, I guess just on the volume side. You've got your GBP 50 billion-GBP 65 billion, 2024-2028 target for U.K. PRT. Just related to the Funded Reinsurance potential changes. That's a gross target, is my understanding. Is there a chance we should look more at the net volumes that you've done in the last few years, and therefore there may be some downward pressure there? Any comments around that would be really helpful. Thank you.

[António Simões, Group CEO at Legal & General]

I think actually, Gareth, we should start with you on volumes, and if you can say something about Funded Reinsurance there, then we'll come to Andrew for the OSG generation and the asset optimization.

[Gareth Mee, CEO of Institutional Retirement at Legal & General]

Sure. Volumes, the first thing to say, António talked about the golden decade, the 1 trillion opportunity. We see this as a really attractive market. Pipeline is bigger than we've ever seen as we sit here right now. In terms of the opportunity ahead of us, then, we think it's really large. We find ourselves particularly well-placed at the larger end as well, and so as those larger schemes look to buy out, then we find ourselves in a really good position. I think that's the first thing to say. On Funded Reinsurance, the consultation's just closed. We have been presenting some, what we think are, robust arguments back to the regulator. We continue to see Funded Reinsurance as an attractive opportunity.

[Gareth Mee, CEO of Institutional Retirement at Legal & General]

In the current market, the modeling suggests that we will expect to still see that in the future, and we will continue to use Funded Reinsurance where we see it as being economically attractive.

[António Simões, Group CEO at Legal & General]

Just one point to add on that. I gave all of those targets, but if you remember, because you were sitting here, Andrew, in June 2024, I said all of the other numbers were targets, but that the GBP 50 billion-GBP 65 billion was guidance. The reason why I'm just stressing that is we will not chase volume, and we'll see this in the second half of this year in terms of disciplined pricing. We're printing today, probably something that surprised most of you positively in terms of the GBP 5.7 billion. In the second half, if the conditions are not there, we'll write less PRT. There is, and this comes from the board to me and from me to Gareth and the team, our object, even the 20%-25% market share is not a target. The target is the pricing discipline and creating value.

[António Simões, Group CEO at Legal & General]

We gave guidance at that time that we thought that will be GBP 50-GBP 65. We still think that. We still think the potential is there. It's important that the other ones are actual targets. I would be comfortable if we didn't meet it for the right reasons, which is we're creating value for shareholders.

[Andrew Kail, Group CFO at Legal & General]

Andrew, on the OSG point, we haven't formally updated the guidance for the asset optimization under OSG. A couple of points, though. Directionally, you should expect it to flow. We're doing more from an IFRS side. It will flow through to OSG in a natural way, but there are some structural differences. The really obvious one, and very mechanical one, is tax. It's a post-tax basis. We can adjust for that. When we optimize assets in a Solvency II world, we may have to deploy additional capital to achieve the optimization. That's something Gareth and the team take into account, and we'd only do it on a post-strain basis if it works. Giving quantitative guidance when you have that strain dynamic is just a bit more complicated. We'll reflect on your question, but absolutely aware of you should expect that to flow directionally.

[Andrew Kail, Group CFO at Legal & General]

On the strain, I think you'll see the strain is up on the deals that we've written in the half. I think the deals coming after that this year, on the exclusive piece, are sort of lower. We've said before, the IRR and hitting our capital target's the most important thing. Therefore we're reminded when we look at transactions, of course, we consider the strain carefully. Actually, if we can deploy capital for the right return, for us, that's a good trade. The normal level will depend on conditions, but it's the return that's more important than the strain. Mindful of the fact, the conversation we've had about capital deployment, NSG dividend cover, we have to take all of that into the round.

[António Simões, Group CEO at Legal & General]

Yeah. Everything else being equal, it's 3.4% globally. It's 3.1% in the U.K. We expect the U.K. number to come down. The strain in the U.K., that is abnormally high for the GBP 2.1 billion, we expect that number to come down in the second half.

[Andy Sinclair, Chief Strategy and Investor Relations Officer at Legal & General]

Good. I'm going to keep moving along the row, Fahad.

[Fahad Changazi, Analyst at Kepler Cheuvreux]

Thank you. Good morning. It's Fahad Changazi from Kepler Cheuvreux. Could I just touch upon the asset optimization strategy in terms of what sort of infrastructure you have in place for talent and teams, and how dynamic will you be versus what you were doing previously? Whether it be daily trading, for example. Another point, appreciate what's happening with new business on IFRS CSM. The CSM release ratio, it sort of ticks up. Is it expected to continue to tick up a little bit given the new cohorts of business from post-Solvency II coming through? Thank you.

[António Simões, Group CEO at Legal & General]

Thank you. I think on CSM, you should comment, Andrew. I think you should talk, Gareth, about the new hires we have in terms of new CIO. Maybe there's an opportunity for Eric to add, because this is done obviously jointly between asset management and institutional retirement. Maybe, Gareth, you want to start, and then can say a couple of words, Eric.

[Gareth Mee, CEO of Institutional Retirement at Legal & General]

Sure. I started as CIO 18 months ago, and at that time, working closely with Eric, we started looking at what infrastructure we needed to be able to build. Last year, we talked about having done a relatively smaller number of larger transactions from back book optimization. We've increased the number of transactions. We're not doing daily trading. We're looking at relative value opportunities. We have created a team across asset management and institutional retirement that works on this, looks at relative value opportunities together, enhanced our system so that we're looking at the same data together and looking at working together as a team, and that's one of the reasons it's driven some of the increase in activity over the first half of the year.

[Eric Adler, CEO of Asset Management at Legal & General]

Yeah, not a lot to add to that, actually. We're really excited about this prospect of a more dynamic approach to our asset optimization. As I think you know, we're well known for our solutions business, and a lot of what our most important client, in Gareth's team needs is a more active approach to both public and private markets. Derivative overlays is something we understand really well. This is actually quite a motivating factor for our teams that are delivering similar solutions for a lot of third-party clients. As we get into, if you think about things like our cost income ratio, I think Andrew mentioned, on a like-for-like basis, we really have a lot of control over our cost.

[Eric Adler, CEO of Asset Management at Legal & General]

Because we have the revenue to do it, we are very focused on variable compensation right now to make sure that we can continue to pay our talent to do what they've been doing so well this first half in a competitive market. Again, we're really set up to be able to drive this kind of dynamism in partnership with Institutional Retirement.

[Andy Sinclair, Chief Strategy and Investor Relations Officer at Legal & General]

Fantastic. Along to Derald and then Will.

[Andrew Kail, Group CFO at Legal & General]

Yeah. [crosstalk]. Just CSM

[Andrew Kail, Group CFO at Legal & General]

On the CSM release. CSM release, I mean, broadly flat proportionally in institutional retirement, actually slightly up in retail. I wouldn't guide to expecting significant changes in that.

[Andy Sinclair, Chief Strategy and Investor Relations Officer at Legal & General]

Sorry. Derald.

[Derald Goh, Analyst at Jefferies]

Hey, it's Derald Goh from Jefferies. Two questions, please. The first one, could you help me understand the movement in the PRT new business margin and strain? Because margin's gone down and strain's gone up, whereas I would have thought they would have moved in tandem. Secondly, the five percentage point hit to your solvency from those hedging, it looks like it was a bigger number if you're to exclude the benefit from interest rates. Maybe could you go into a bit more detail as to what is the impact there? Could you clarify if that has anything to do with the high levels of asset optimization you've taken? Thank you.

[António Simões, Group CEO at Legal & General]

I think we've covered some of that. Why don't you cover solvency first? Gareth, can you come back on the strain and new business margin? Maybe double click on what I said earlier about the 3.1% coming down. Thank you, Derald.

[Andrew Kail, Group CFO at Legal & General]

Yeah, on the solvency, rates was a component. A larger component was inflation. Then we had some model refinements that are the balance. I think in terms of the 5%, we made some changes to our sort of hedging strategy in sort of foreign exchange and inflation, that added to our SCR, which therefore deteriorated the ratio. The bigger component was inflation, not interest rates.

[Andy Sinclair, Chief Strategy and Investor Relations Officer at Legal & General]

If you look at the market sensitivities, really the only one that's slightly different to the market sensitivity would be inflation, which is to do with the shape of the curve. It was the other things that really led to that miss there, as Andrew mentioned.

[Gareth Mee, CEO of Institutional Retirement at Legal & General]

On the new business margin, so market's competitive. It was competitive last year. The thing that's really changed from last year to this year is that credit spreads are tighter, we have preferred to retain optionality. Instead of me incentivizing my team to lock into long dated spreads that we don't think are attractive, we've preferred to print an underwritten new business margin at 4.2%. We give ourselves the optionality to trade up on that over time, which we've demonstrated we've been able to do. We're fine with that in the current market. The strain, as António said, we're expecting to come down.

[Gareth Mee, CEO of Institutional Retirement at Legal & General]

We will see opportunities at times to, for example, optimize when we use reinsurance, this is a little bit higher because we'd seen an opportunity to not reinsure some of the business that we might ordinarily do, because we saw a good return on capital on not doing that in isolation.

[Andy Sinclair, Chief Strategy and Investor Relations Officer at Legal & General]

Very good. Mr. Hawkins.

[William Hawkins, Analyst at KBW]

Thank you. William Hawkins from KBW. I wanted to ask another one on PRT, I think we've probably had a lot.

[António Simões, Group CEO at Legal & General]

I think Eric and Laura to answer something, yes.

[William Hawkins, Analyst at KBW]

Maybe, could you just flesh out a little bit more, António, about what you're thinking about in terms of scope for operating efficiency as you look to the future, and also how we're going to see that in your numbers? My view is you joined a business that was already quite cost focused, where you see further to go is interesting. Also the risk of being a nerd, a lot of your profits kind of come from the CSM and how it unwinds. It's not just a simple thing of saying, right, we'll cut costs and they'll drop to profits.

[William Hawkins, Analyst at KBW]

If you could talk a little bit about how you're thinking about operational efficiency, please. Secondly, again, sorry if I'm just navigating the slides slowly, but the workplace profits of GBP 48 million, can you just remind me where we see that in the P&L? Because the P&L's got a -GBP 14 for admin expenses somewhere, but I'm still not quite sure where I kind of see that number and therefore get visibility about how it's taking off in the future.

[António Simões, Group CEO at Legal & General]

Thank you.

[William Hawkins, Analyst at KBW]

Thank you.

[António Simões, Group CEO at Legal & General]

Why don't I give that to Laura, because it gives you also an opportunity to talk a bit more about that business. Let me comment on your cost point. Actually, we haven't talked a lot about costs externally. The fact that we're talking about it today tells you that it's an important thing for me internally. Yes, you're right, that the way, particularly in our insurance businesses, and I'm including in that PRT and individual annuities, a lot of mechanically how anything, but particularly costs, go through the CSM, and then it would be a release, it would make our profitability better. That's the simple answer to that question.

[António Simões, Group CEO at Legal & General]

The bigger point here, you can see it in our asset management numbers, by keeping our nominal costs flat, which means that our real costs were down, we've been able to reinvest some of that into growth areas, that's what we want to see across all of our businesses. I'm the largest annuity player in the country. I'm the largest asset manager. We have 20%+ market shares in many of our businesses. You would expect us to be looking for efficiencies. We're at the moment where technology, particularly AI, gives us an opportunity to do things in a much more efficient way, to be a leaner organization with more efficiency. We can expect, as I present results, trading updates and results, to hear more about the results of what we're doing.

[António Simões, Group CEO at Legal & General]

I was going to go to Laura, maybe, do you want to say a word, Eric, on what we've done in asset management in terms of cost efficiencies and

[Eric Adler, CEO of Asset Management at Legal & General]

We really didn't think about it in terms of pure cost. We thought about what does it take to be one of the leaders in the asset management world while it's consolidating and while you're seeing more and more being asked of us from the largest clients around the world. They're looking for much more partnership-led type solutions. What that means is you need to be incredibly efficient. You need to be seamless and very transversely connected. You need to be less manual than I think we and others have been in the past to be able to deliver a wide range of solutions in a way that's not clunky.

[Eric Adler, CEO of Asset Management at Legal & General]

When you think about that, what you're really thinking about is maximum efficiency and maximum ability to deploy resources where you think you need them quickly, ability to pull a lot of different resources together to win these new mandates. When you think through that, what you end up with is quite a bit more discipline and control over your business as usual costs, because you need to know where to direct them. You need to also be able to react to a very volatile economic world. What you've seen, I'd say that some of our cost efforts are just as apparent in the 13% increase in revenues as they are in the cost number, because we are now winning more sophisticated mandates at a speed with which I think we would've been more challenged to do that.

[Eric Adler, CEO of Asset Management at Legal & General]

In many ways, if you think about rewiring the organization for efficiency and connectivity, the costs are a result of that versus the actual aim. That's how we've looked at asset management.

[António Simões, Group CEO at Legal & General]

Yeah, great. Thank you, Laura.

[Laura Mason, CEO of Retail at Legal & General]

On your workplace numbers question. The GBP 48 million number is the end-to-end workplace profit, comparing the number we gave to you in the Capital Markets event last October. Effectively a 140% increase in the sort of end to end, asset management and retail profits. That doesn't actually include the new business that we've won but not yet funded, the GBP 9 billion of business that we will sort of onboard over the next 6-12 months. Your question on the minus GBP 14 million, which is on Andrew's retail slide. That's effectively the retail profits taking into account the investment spend as well. The GBP 48 doesn't actually include the sort of non-BAU investment spend, the investment spend we're making on things like efficiencies, customer agent desktop, and the app, et cetera.

[António Simões, Group CEO at Legal & General]

If you have a follow-up, with Andy and the team, we can reconcile all the numbers on that.

[Andy Sinclair, Chief Strategy and Investor Relations Officer at Legal & General]

Okay, cool. We'll go to Nasib.

[Nasib Ahmed, Analyst at UBS]

Thanks. Nasib Ahmed from UBS. Loving the stage here. It's a nice setup.

[António Simões, Group CEO at Legal & General]

Thank you for the feedback.

[Nasib Ahmed, Analyst at UBS]

No worries. António, when you set the targets on IFRS, you had the asset optimization at GBP 200 million. Now it's gone to GBP 400 million. That's significant in terms of the uplift that you could get in our projections, right? Why haven't you upgraded targets, is the short question. What's the delta? Have you seen any negatives that's offsetting that GBP 200 million that you're getting from asset optimization? Second question, technical one, maybe for Andrew. In the shareholders' equity, there's GBP 1 billion that's moving from reserves into P&L. Why have you done that? I know a lot of other companies are doing it. Is it because you want more distributable capital? Were you running out of road? Thanks.

[António Simões, Group CEO at Legal & General]

Nasib, thank you. On the targets, look, I set out the targets in June 2024, our role here across this table is to deliver those targets and ideally exceed them. What I haven't done is upgrade targets because my job here is to put something out there and deliver, that's the simple answer. The reason why we've gone from GBP 200-GBP 300-GBP 400 is the change that Gareth was describing, which is we're getting less of that profit up front from a CSM day one margin, we're getting it more from an asset optimization perspective. As you go back and update your models, I'm sure Andy and the IR team can help you after this. You need to balance the two, I didn't want you to leave today without knowing that this is what we're doing.

[António Simões, Group CEO at Legal & General]

We're delivering more than GBP 400 million in asset optimization. It's important for you to know that number. At some point next year, I'll need to give you the next targets and the next three years, that's not the purpose of today.

[Andrew Kail, Group CFO at Legal & General]

To your question, we undertook a capital reduction exercise at the Holdco, which you said a number of other companies have done post IFRS 17. We caught approval to move share premium reserves and capital redemption reserves into distributable, which basically we've done it for flexibility, just gives us more flexibility having it in distributable rather than non-distributable reserves.

[Andy Sinclair, Chief Strategy and Investor Relations Officer at Legal & General]

Good. Just keep passing along.

[David Beck, Managing Director at RBC Capital Markets]

David Beck, RBC Capital Markets. Thank you for taking my questions. Most of them on asset optimization have been answered. On the asset management side, I guess cost-to-income ratio trajectory, you're already at 71% against the target of below 70% by FY 2028. I guess given the progress on the revenue mix and the cost discipline that you delivered this half, I guess if that momentum continues, where do you think realistically you could land in terms of the cost-income ratio? I guess on margin, strong progress there as well, the path to double digits seems very likely. Again, was the ceiling there, you've got positive underlying dynamic of the outflows that are coming out being lower margin than inflows being higher margin. I just wondered if you could share more color or where do you see it going forward? Thank you.

[António Simões, Group CEO at Legal & General]

Thank you. I think they're both squarely with Eric. You're doing my half-year review with him yesterday, which is of course we want to move faster, again, to the previous question, we're not changing the targets, we certainly want to beat them. With that, you want to talk about both the cost-to-income dynamic and the margin dynamic.

[Eric Adler, CEO of Asset Management at Legal & General]

Yeah. I couldn't be more pleased with the trend and the underlying substance behind them. We alluded to it in the answer to the last question, I think we're now at a point where we've got a very good handle on where we want to spend to grow. Revenues have a lot of intrinsic factors to go along with tailwinds we've had in the market today, we can go over those. There is more intrinsic factors that give us a lot of confidence that we can continue to drive that cost-income ratio down. I don't think we want to be setting new targets now, I'm really pleased with the fact that so far ahead of 2028, we're close to it. I do think the trend will continue to be positive. Frankly, it's a similar story on the revenue margins.

[Eric Adler, CEO of Asset Management at Legal & General]

I described a very dynamic situation. We can do a lot of different things for clients, and they're asking for new types of partnership-like mandates versus the pure product mandates before. I really want to make sure the team has maximum flexibility to move across asset classes and across types of mandates. Without getting into where costing the revenue margin could get, again, very positive trend. We are moving towards more and more sophisticated strategies, more in the private markets. We think that trend will continue, and that's naturally going to have a positive effect on these numbers.

[Andy Sinclair, Chief Strategy and Investor Relations Officer at Legal & General]

Very good. Michael?

[Michael Huttner, Analyst at Berenberg]

Thank you very much. Two. One is, I asked Laura before, but I wanted some numbers. The default deaccumulation. How much more do we get? I know it's 2028 or 2029. Similarly, Eric, you've spoken a lot. I think you've danced around the plot, really. GBP 500 million-GBP 600 million. Can you give us a feel? I know you don't want to raise guidance. I don't know how to phrase the question, it looks like you'll achieve this one to one and a half years early. Is that the best way of asking the question? Maybe you can kind of help a bit on this.

[António Simões, Group CEO at Legal & General]

Michael, on the first question, which is default accumulation, meaning the default DC fund.

[Michael Huttner, Analyst at Berenberg]

Correct. You've spoken a lot about workplace the extra bit of workplace is this thing.

[Laura Mason, CEO of Retail at Legal & General]

Yeah.

[António Simões, Group CEO at Legal & General]

Okay. Laura first, then come to Eric.

[Laura Mason, CEO of Retail at Legal & General]

Default deaccumulation, which is part of the pensions review and the Pensions Act that is now in force. By 2029, all workplace DC master trust providers will have to have what's being called a default deaccumulation. Effectively, a sort of default option for their members to go into. Members who don't actively choose to go into an annuity or something else will be put into a default deaccumulation, which we are designing, and alongside many of our competitors. That will look like a sort of combination, if you like, of annuity and drawdown. In the numbers that we showed, I think on António's, probably one of your last.

[Laura Mason, CEO of Retail at Legal & General]

Where it showed sort of just the annuity market going from GBP 8 billion-GBP 20 billion over the next decade, which is really a sort of ratio in how much do we think, how many people will have the AUM, if you like, that is going into retirement. That number actually only projects what we think is sort of happening today. It's just a sort of simple ratio. The default deaccumulation bit, we think will actually be sort of additional to that. It's hard to give you an exact number on that, but you can sort of think of that GBP 20 billion as almost there'll be extra annuities or sort of on top of that, all else being equal.

[António Simões, Group CEO at Legal & General]

Yeah. That's why I've said that today, the standout performance today on the results is asset management, but the most exciting long-term point is what's happening in DC. I know several of you have asked me this before in terms of does it really generate money. It generates money, as we say, on the 180, but as Laura is saying, on everything else we can do on those customers, individual annuities, hybrid solutions in terms of deaccumulation and annuities. Eric?

[Eric Adler, CEO of Asset Management at Legal & General]

Yeah. Look, I think I couldn't be happier with where we're at in terms of the objectives we've set for ourselves in 2028. It's true, it's relatively early in that phase, right? I think if I were to point to what I'm most pleased about, António mentioned it earlier, it's the trend in terms of the quality of those earnings. The fact that we're now targeting something near 80% of that being fee-related earnings, I think that is what's really important qualitatively. Secondly, we know the other piece of it. There's fee-related earnings, there's balance sheet investments. I'm really pleased by, Andrew alluded to it, the profit before tax number, right? Because what really is important is we also have a very good handle on the bottom line of our balance sheet investments.

[Eric Adler, CEO of Asset Management at Legal & General]

We are targeting towards GBP 80 million-GBP 100 million of that in terms of operating profit. The fact that we've really got a handle on, as you said, sort of the proverbial drawing of a line under the real understanding of that portfolio, I think we've got a lot of control over it. Those two aspects together for me are really pleasing. Clearly, we are fairly early in the game for the 2028 results, and we're on a positive trend, no question.

[António Simões, Group CEO at Legal & General]

My standard answer, next year, we'll update guidance, meaning we'll update rather than new. New guidance. Oops, Freudian slip there. We'll update the new targets.

[Andy Sinclair, Chief Strategy and Investor Relations Officer at Legal & General]

Andrew Crean at the front.

[Andrew Crean, Analyst at Autonomous]

Good morning. It's Andrew Crean. It's Autonomous. Couple of questions. Firstly, on the dividend cover, which is just breaching 100% on both IFRS earnings and on net surplus generation, what level of cover do you need to get to grow the dividend in line with the earnings and the operating surplus generation? Secondly, on the BPAs, I understand you're operating a leverage gilt strategy, so you're backing with more gilts. Can you tell me about the leverage, how much the leverage is, and when the leverage unwinds, what is the new business profit underlying, and what is the IRR underlying?

[António Simões, Group CEO at Legal & General]

Thank you, Andrew. We can start there with Gareth. It's a structured sovereigns, actually we should call it that rather than leverage. You could explain that, but it's a really good question for everybody, actually. Then I'll come back on your coverage point.

[Gareth Mee, CEO of Institutional Retirement at Legal & General]

Bearing in mind that some people will be less familiar with this than you, Andrew. We trade really three types of structured sovereigns. We trade sovereigns on asset swap, where we use a swap with a bank and a government bond. We trade cash flow swapped gilts and treasuries, and we also use forward starting, where we like the future cash flows, and we purchase those. The amount of embedded leverage, as you describe, differs. In some cases there's no leverage, and in other cases there is some leverage. I think I said previously that with all of those, the way that we look at the transaction is that they've all got to be liquidity self-sufficient, i.e., that in very severe scenarios, even beyond Solvency II scenarios, we would be able to post the collateral of the underlying to cover that movement.

[Gareth Mee, CEO of Institutional Retirement at Legal & General]

If interest rates went up or down, we could post the underlying government bond into the collateral pool. That's really important. That is the way that we make sure that we don't take on more leverage than we would feel comfortable with. The point on the unwind. The first thing that we say to all of our banks is that we can and will, if needs be, hold these assets to maturity. We buy these assets with a view that we don't have to do anything with them. However, we have seen lots of opportunities in the last 18 months to restructure the transactions. It's been a contribution to our back book optimization profit, and we expect that to be the case in the future as well.

[Gareth Mee, CEO of Institutional Retirement at Legal & General]

We never need to unwind them, and we will only unwind them if we see a positive benefit, effectively an increase in our IRR. We've already seen that over the last 18 months and would expect to continue to see that.

[António Simões, Group CEO at Legal & General]

That over GBP 400 million that we're guiding for is clearly after those costs of unwinding or changing anything. That's what we're guiding for.

[Andrew Crean, Analyst at Autonomous]

Sorry, what's the IRR if you didn't execute a leverage strategy?

[António Simões, Group CEO at Legal & General]

That's like saying what's the IRR if you chose to invest in different assets. We choose to invest in structured sovereigns because we think they're really good assets to back our liabilities alongside corporate public credit and private credit. At some point in the future, we might choose to trade out of them and into something else. At the moment, we want to invest in structured sovereigns because we think that they give really good match to our cash flows, and we like the economics of the transaction.

[António Simões, Group CEO at Legal & General]

The answer, Andrew, has to be, it would be above 14, otherwise we wouldn't write it. It's true that we probably wouldn't write some of that business if we were not using structured sovereigns, because simply the assets and liabilities The answer is, it's always above 14, and we have rejected, and actually you should make the point, Gareth, many transactions where we decided simply not to quote because we didn't think that they were appropriate. Can I come back to your coverage point? It's an important point. My number one priority is dividend sustainability. I've been doing that for the last two and a half years, and I know you know this, but it's worth for everybody in the room and dialing in. The GBP 1.9 billion that I will have done of share buybacks.

[António Simões, Group CEO at Legal & General]

The GBP 1.2, the GBP 500, and the GBP 200 have reduced the cost of the dividend by GBP 300 million, plus reducing the 5%-2%. That was very clear when I met many of you and the buy side as well for the first time, that dividend sustainability is my priority. What we're signaling today is two things, that core EPS now is expected to cover this year the dividend, and so that is important in that page, 11 I think it is, where we show that by next year, that dividend coverage will continue to improve on IFRS basis. Also, we need to look at the dividend cover from a Solvency II perspective, and I'm saying that NSG minus dividend will be covered by 2027. To answer your question directly, this is what I need to do next year.

[António Simões, Group CEO at Legal & General]

I need to say, my new capital distribution policy for the next three years is going to be X, here's what the dividend payout ratio is. I have a number in mind. It's not something we have yet agreed internally or disclosed to the market, that's what the next phase is. Having made it sustainable, there will be what is the right dividend payout ratio? I know you'll have a view. We have a view on that. Now I feel much more comfortable that the dividend today is much more sustainable, to be honest, than it was the day that I took over.

[Andy Sinclair, Chief Strategy and Investor Relations Officer at Legal & General]

Abid.

[Abid Hussain, Analyst at Panmure Liberum]

Thank you. It's Abid Hussain from Panmure Liberum. I've got a few questions. I'm just going to stick to two. The first one, I'm afraid, is going back to the PRT margin. Look, the move to the sovereign based strategy clearly defers the value into asset optimization, as you've said. Can you just help us understand the underlying economics a little bit more, just put a bit more color under it? For example, what was the cash IRR in the first half this year versus last year? Then could you perhaps give us an estimate of the lifetime IRR? I suspect that's probably closer to 20%. That's the first question.

[Abid Hussain, Analyst at Panmure Liberum]

The second one is on the asset management. The margin mix effect is clearly helping lift the revenues. Do you think that mix effect can still drive the numbers forward over the next few years, even if the public AUM remains in outflow? Thank you.

[António Simões, Group CEO at Legal & General]

I want to answer, I don't want just to get too dragged into details. I think from an IRR perspective, the simple answer, Gareth, you may add, is the day one IRR is above 14. Yes, if I include the lifetime value. I'm not accounting for the additional rotation and asset optimization later in my 14%. If, let's say, a deal is 15, let's say, clearly the lifetime value would be closer, to your point, I'm going to make it up, just use your number 20. That's true deal by deal. Anything else you want to say? Just brevity would be good.

[Gareth Mee, CEO of Institutional Retirement at Legal & General]

Maybe just a reminder of how many deals we've declined, and the fact that although we're really happy with the volumes that we've written, we have lost more deals than we quoted on, and we have declined to quote on 96 deals so far this year. We're looking for the areas of the market where we think that we've got a competitive advantage, and we will only be able to get something through our group investment committee if we can hit our minimum 14% IRR hurdle. Historically, we've cleared that comfortably, and obviously if that's a minimum, then we're expected to clear that comfortably this year. The final thing is just we can't calculate a lifetime IRR yet because we don't know what the future opportunity is. As António says, that sets a floor.

[Gareth Mee, CEO of Institutional Retirement at Legal & General]

The best way to answer your question is probably looking at some sensitivities of what you imagine that GBP 400 million does over the lifetime and what that adds to your IRR.

[Abid Hussain, Analyst at Panmure Liberum]

Can I just test it? That business that you've declined, is it because of the shape of that business, tighter spreads, or is it just competition?

[Gareth Mee, CEO of Institutional Retirement at Legal & General]

Lots of the smaller deals, we think we've got a structural advantage where our asset manager has an existing relationship, and so that's why the number is so high at 98%, particularly in the current market. We're seeing that that is important. With some of the smaller deals, we work on a sole insurer basis as well, and if the client is not prepared to work on a sole insurer basis, we might decline those. In other areas, we're just seeing there are spots in the market where we don't think that we will be able to generate as much value for our investors as others, and those are obviously good areas of the market to decline. That's obviously what Laura does in her business as well. We're looking for the best parts of the market where we think we can add the best value.

[Gareth Mee, CEO of Institutional Retirement at Legal & General]

We've got the best proposition for our clients.

[António Simões, Group CEO at Legal & General]

It's just that point is important, right? We play in small deals, medium sized deals, large deals, and in individual annuities. You saw that in this first half, the individual annuity margin went up by 0.8%, so 80 basis points. We also choose where we want to play across all of that being the largest annuity. You'd expect us to do that to generate more value. Further upside on the margins or on the mix?

[Eric Adler, CEO of Asset Management at Legal & General]

Yeah. The short answer is yes. I think we can sustain this in public markets as well. We're obviously very pleased with what's happening in the private markets. AUM has gone up nearly 40% in 18 months on the private side. There's clear momentum there. ANR is positive on the public side as well, including in this first half, and it's quite broad based, and it belies some real areas of strength in the public markets, and that's both in certain asset classes, but also distribution channels that we're really growing into. Some highlights are private wealth in Asia through some of our global unconstrained bond strategies is seeing a lot of positive growth.

[Eric Adler, CEO of Asset Management at Legal & General]

We're putting a lot of effort into widening our ETF strategies, and that's getting a lot of very near term traction already, and I think it'll continue in continental Europe, both in the institutional side, but also in the wholesale side. That mix that we have and all of that is in keeping with this moving towards higher revenue margin businesses. Feel it's very sustainable.

[Andy Sinclair, Chief Strategy and Investor Relations Officer at Legal & General]

Good. Thank you, question from Tom? Tom, just here.

[Thomas Bateman, Analyst at BNP Paribas]

Hi. Good morning. Thomas Bateman from BNP Paribas. Just touched on it, Eric, but maybe coming from a slightly different angle in terms of the pickup in ANR. How much of your DC funds are in private markets funds now? What's the allocation? I just want to get a sense of how much have transferred so far and what's kind of the target level there.

[Eric Adler, CEO of Asset Management at Legal & General]

Yeah. I actually don't have the weighted average number because we have different preferred strategies, different default strategies, and what we see in the DC space and what's working for us, Laura and I, we're really completely in lockstep on that business from end to end. You have solutions that still don't have a lot of private markets exposure, and we are winning some mandates where there, at least at an initial phase, there's not a lot of private markets exposure. Where we are seeing more private markets positive, if you will, strategies, the overall mix is about 15%. We think over a cycle, the right mix for DC, if you're looking for material private markets exposure, is 15% privates, 85% publics. Between the two strategies where we're getting a lot of momentum, we've got some weighted average between probably mid-single digits to a max of 15%.

[António Simões, Group CEO at Legal & General]

Yeah. Also, Tom, it's important that this is the flows, right? I do the media calls just before, so I get asked a lot about Mansion House and commitments. Our Private Markets Access Fund is above GBP 3 billion, which means for some of those default funds, we're already above the Mansion House commitment, which is the 10%, which Laura, you signed for me and you were there. The part of it, which is the U.K., we typically allocate a third.

[Laura Mason, CEO of Retail at Legal & General]

Yeah

[António Simões, Group CEO at Legal & General]

To the U.K., which means that we're meeting the 5%.

[Laura Mason, CEO of Retail at Legal & General]

Just picking up on what Andrew said about we have two default schemes that have private markets allocation that get to the average that Eric talked about. One, our L&G Lifetime Advantage Fund, which has the 15%, another one, our Target Date Fund, which has 10%. Those are the flows that we're seeing most of our new schemes coming into, if you like. As António says, very aligned with the Mansion House Compact.

[António Simões, Group CEO at Legal & General]

It's a decision by the employer. If the employer doesn't want to do that, we would do what the employer wants. Yeah.

[Andy Sinclair, Chief Strategy and Investor Relations Officer at Legal & General]

I've got [inaudible] at the back.

[Analyst at Bank of America]

Hi. [inaudible]. Two questions. The first one is just on the holding company cash. You talked about GBP 1.5 billion at the holding company, and there's some excess in the operating companies. If you were to bring those up, roughly, what does that look like? Second question is just on the new cabinet, new government, however you want to call it. Can you talk a little bit about your expectations around policy and how that could impact your business, where you see the most potential change, if you like?

[António Simões, Group CEO at Legal & General]

I'll try to say something from a shareholder perspective. Do you want to talk about the, it's GBP 1.4 billion, actually.

[Andrew Kail, Group CFO at Legal & General]

Yeah.

[António Simões, Group CEO at Legal & General]

Do you want to say that first, and I'll come back.

[Andrew Kail, Group CFO at Legal & General]

That's as at 31 December, because that's dynamic. We give a disclosure in the pack, in the RNS, which talks about total cash at a group level of being GBP 3.6 billion across the group. That's not saying that that cash can move up from subsidiaries. It's just to give you a cash figure. I mean, the actual amount in each subsidiary and when it could move is clearly dependent on a number of factors, but just gives you a sense, in the pack, of the detail of total level of cash.

[António Simões, Group CEO at Legal & General]

Without making too much of a political statement, from an actual results perspective, there's two areas where we can see, we don't know what's going to happen on the 28th of October, particularly with the budget. If you think about what we do as L&G, we do a lot of investments that are place-based investments. Think about affordable housing, think a lot of what we are known for and we do well. We've done that across the country, actually. We do that with the Greater Manchester Pension Fund, as it happens. We can see more of that. I think that direction is good for us as a business.

[António Simões, Group CEO at Legal & General]

Second, something that I've said publicly, particularly from your business, Laura, DC, I've advocated for an increase of an 8% auto-enrollment contributions going to 12% over time, recognizing that we have cost of living crisis and employers themselves are under pressure, but a gradual increase. The numbers we showed today are assuming the current auto-enrollment rates, as you probably know, there's a pension commission right now. If the proposals that we've put forward to increase that to 12%, of course, that's an upside from a workplace perspective. I think those things are good for the country, but they're certainly good for L&G.

[Andy Sinclair, Chief Strategy and Investor Relations Officer at Legal & General]

Before we go to any follow-ups in the room, I've got some questions coming through online. First of those is looking at PRT market volumes. Some suggestion that maybe it could be a bit lower than previously expected this year with some large transactions moving into 2027. A question on why those transactions are moving into 2027, expectations for 2026, and as an extension to that, expectations for global or U.S. PRT market volumes.

[António Simões, Group CEO at Legal & General]

Yeah. I think, Gareth, you should address that. I think I sort of answered the first question in terms of the longer term, you should talk about 2026 versus 2027 volumes, Gareth.

[Gareth Mee, CEO of Institutional Retirement at Legal & General]

Some deals are large and lumpy, and some of them will fall one side of a year-end, and some of them will fall on the other side of the year-end. We don't know as we sit here today where some of those really large deals will land. What we do see is the pipeline over the next five years being incredibly healthy. It is possible that some will tick into 2027. It's also possible that some larger deals will transact towards the back end of this year. It's much easier to predict longer term pipeline than really super short pipeline. Global market volumes, U.S. in particular, we see the U.S. as being roughly similar sort of size to the U.K., but in dollar terms. If it's a GBP 50 billion U.K. market, it's $50 billion in the U.S.

[Gareth Mee, CEO of Institutional Retirement at Legal & General]

That market is a very large market as well, and so could clearly grow, too. We're active in Canada. That's a big market, and we're also seeing whether there are other markets that could open up as well. António, your number on the GBP 1 trillion golden decade over the next 10 years, there could clearly be upside to that as well. That probably takes into account the current mature markets of the U.K. and U.S. and Canada.

[António Simões, Group CEO at Legal & General]

Yeah. Maybe just one point on the U.S., which is typically our market share in the U.S. tends to be around 5%. I'd say, if it was $40 billion more, we tend to do $2 billion or so in the U.S. I think the big difference is what I said earlier when I was talking about the future. What we're now doing with Meiji Yasuda is quoting on jumbo deals. If you think about it, we had 5% market share, but we were playing only in half the market. We had 10% market share of the lower bottom. What we can do with Meiji Yasuda is effectively do double the volume because we're now quoting for jumbo deals, which is the market above $1 billion.

[António Simões, Group CEO at Legal & General]

I think everything else being equal, we could double the volumes of which we keep 80% and Meiji Yasuda keeps 20%.

[Andy Sinclair, Chief Strategy and Investor Relations Officer at Legal & General]

Very good. Andrew at the front for a follow-up.

[Andrew Crean, Analyst at Autonomous]

A quick follow-up. You've given us the asset optimization on the operational surplus generation. What was the asset optimization on the strain, both in first half 2026 and first half 2025?

[Andrew Kail, Group CFO at Legal & General]

Asset optimization, I think it's actually in the pack.

[Andrew Crean, Analyst at Autonomous]

Yeah.

[Andrew Kail, Group CFO at Legal & General]

Institutional retirement was about GBP 10 million on the strain. I forget the retail. We'll give you that too after, Andrew.

[Andy Sinclair, Chief Strategy and Investor Relations Officer at Legal & General]

It's in the appendix slides, Andrew.

[Andrew Kail, Group CFO at Legal & General]

It's in the appendix.

[Andy Sinclair, Chief Strategy and Investor Relations Officer at Legal & General]

On slide 43, you've got the details broken down. It was relatively small. It was kind of.

[António Simões, Group CEO at Legal & General]

It's the biggest strategic point we made, which is the asset optimization we're doing right now involves very little strain. With credit spreads widening, it would include a bit more, but it would always meet our capital allocation framework of more than 14% IRR.

[Andy Sinclair, Chief Strategy and Investor Relations Officer at Legal & General]

To be clear, we'd be happy to deploy capital. We're well above our target range. Part of the reason why we're above our target range is because we're in a tight credit spread environment. If we get the opportunity of wider spreads, we'd really like to deploy capital and make a really attractive return on that. If those opportunities come along, we're happy to take advantage of them. Michael, for follow-up.

[Michael Huttner, Analyst at Berenberg]

You said you'd talk about defaults. You said there were no, but do you have any numbers? Then, the other question is, on debt leverage, maybe talk a little bit more about what the trajectory could look like. Thank you.

[António Simões, Group CEO at Legal & General]

Yes. I think both for you. Last time we had a default was 2008.

[Andrew Kail, Group CFO at Legal & General]

Yeah, this is credit defaults. António's answered the question. It was GBP 25 million in 2008 and 0. On the leverage, and again, we don't formally report it here, but it's in the R&S, that's sort of 33.9% as at the half year. As I communicated, the plan is to move that down. Over the medium term, we'll manage that down, to levels that are obviously lower than that.

[Andy Sinclair, Chief Strategy and Investor Relations Officer at Legal & General]

Let's bookend it with Farooq.

[Farooq Hanif, Analyst at JPMorgan]

Last but not least. Thank you. On the balance sheet investments in asset management, you've given obviously guidance of GBP 80 million-GBP 100 million this year. Is the idea to wind that down as a percentage of the total profit? Or would you say the assets invested there are sustainable and will grow because you like them? Just want to understand that part of the future.

[António Simões, Group CEO at Legal & General]

Yeah.

[António Simões, Group CEO at Legal & General]

Eric.

[Eric Adler, CEO of Asset Management at Legal & General]

Yeah, I'm happy to handle that. The real switch is that we use our balance sheet ideally to really incubate third-party assets, and that's really a lot of what's been driving our FRE. I think for this year, the GBP 80 million-GBP 100 million, we feel really good about it. We feel good about the quality of the assets we have. We have real estate. We know real estate is still in the downside of the market. We know interest rates are volatile. That's why we feel good about how we're managing those assets. In many ways, we want to use our balance sheet to maximize that FRE. You will continue to see balance sheet investment operating profit. That's why really the focus on that quality towards FRE is where we're guiding increasingly towards going forward.

[António Simões, Group CEO at Legal & General]

Yeah. If we do it mathematically, right, it's GBP 80-GBP 100, let's assume it continues the same until 2028. It's maximum 20% of the overall GBP 500-GBP 600. Really you're thinking more like 85% or so of the operating profit is fee-related earnings. The fee-related earnings keep on growing, and you have the balance sheet investments really stable now in a sustainable way. Right. That is the shape of that 2028 number.

[Andrew Kail, Group CFO at Legal & General]

I think that brings us to the end of our Q&A, so I'll hand back to António.

[António Simões, Group CEO at Legal & General]

Well, thank you everybody for the questions. We've covered a lot. As you have seen, and as we've also just discussed through Q&A, we have a combination of, on one hand, momentum in the businesses, but also scope to accelerate that further. Although I'm not giving further guidance, but you can see the potential that we have in the business. Our next update will be on the 16th of November. As Andrew said, we committed to be more transparent and update you more frequently, so you'll have the third quarter update on the 16th of November. In the meantime, Andy and the Investor Relations team are always available. We hope to meet many of you over the next weeks and months. I hope you have a good summer break. Thank you.

[Andrew Kail, Group CFO at Legal & General]

Thank you.

[Eric Adler, CEO of Asset Management at Legal & General]

Thanks.

Participants

Analysts

• Andy Sinclair, Chief Strategy and Investor Relations Officer at Legal & General
• António Simões, Group CEO at Legal & General
• Andrew Kail, Group CFO at Legal & General
• Farooq Hanif, Analyst at JPMorgan
• Gareth Mee, CEO of Institutional Retirement at Legal & General
• Andrew Baker, Analyst at Goldman Sachs
• Fahad Changazi, Analyst at Kepler Cheuvreux
• Eric Adler, CEO of Asset Management at Legal & General
• Derald Goh, Analyst at Jefferies
• William Hawkins, Analyst at KBW
• Laura Mason, CEO of Retail at Legal & General
• Nasib Ahmed, Analyst at UBS
• David Beck, Managing Director at RBC Capital Markets
• Michael Huttner, Analyst at Berenberg
• Andrew Crean, Analyst at Autonomous
• Abid Hussain, Analyst at Panmure Liberum
• Thomas Bateman, Analyst at BNP Paribas
• Analyst at Bank of America