Legal & General Group Plc (LGEN) Earnings Call Transcript & Summary

Good morning to everyone. Welcome to Legal & General's Full Year Results for 2021. It is a real pleasure to see many of you back here at a physical event. Whilst I'm pleased we are able to report on L&G's results today, our thoughts are on the human tragedy in the Ukraine. We are trying to play our part to help the refugees. In 2021, L&G returned to its 10-year growth trend across our key financial metrics, with operating profit from divisions of GBP 2.7 billion, EPS of 34.2p, and ROE was once again over 20%, a standout in the financial sector. And our dividend of 18.45p, once again up by 5%. The usual disclaimers about forward-looking statements apply. We are delivering profitable, sustainable and inclusive growth. Today, I will take you through the top line results and strategic direction, and Jeff will cover the financials in more depth. We delivered strong financial numbers in 2021. Operating profits were up by 11% compared with 2020. EPS was 72% higher than last year but also 19% higher than in 2019. Our Solvency II coverage ratio was 187% at the year-end, and now is higher, a 198% as of Monday, while our OSG of GBP 1.6 billion is up 12%. All our divisions performed well. Operating profit growth from business divisions was led by Legal & General Capital, where the GBP 461 million represented a 68% increase. LGI delivered operating profits of GBP 268 million, up 42%. Retail retirement with operating profits of GBP 352 million, and LGIM at GBP 422 million were up by 9% and 4%, respectively. LGRI, our pension risk transfer business with operating profits of GBP 1.2 billion was down 6%, reflecting the unusually high margins and higher COVID deaths that we experienced in 2020. We are well diversified. Last year, our 5, now 4 divisions, each performed well. LGC is already ahead of the ambitions we set out on our Capital Markets Day last year, delivering GBP 461 million of profit and creating significant optionality for deploying assets to the front and/or the back book. The U.K. annuity business was self-financing again in 2021, and we expect it to be so again in 2022. By bringing together our retail businesses in 1 division, we create a real scale of business with GBP 600 million in profits. LGIM had strong flows, and has now achieved GBP 1 billion in revenue. 1/3 of its AUM. That's GBP 479 billion is international. And collectively, we have delivered over EUR 2 billion of post-tax earnings for the first time. In fact, it took us 177 years to get to GBP 1 billion. It's taken us 8 years to get to EUR 2 billion. These numbers, after a pause year of 2020, should return to our 10-year trend rate of growth. 9% compound annual growth in operating profit, 11% in both EPS and DPS, and 7% in book value per share. This was achieved across Solvency II, Brexit, pension screening and COVID. They underscore the quality and resilience of our business and the effectiveness of our management actions. The highly synergistic nature of our business underpins our 20% ROE, and is a unique feature of L&G. And a virtuous circle of internal demand and supply, creating serial profit streams across different divisions as we create, invest and manage assets. This has been demonstrated again and again. We are extending this synergistic approach by combining our retail retirement and insurance businesses into a single retail division led by Bernie Hickman. We have around 12 million retail policyholders, and workplace members include 4.4 million workplace DC pension services. We can serve them better by leveraging technology, and extending our offering. We start from a position of strength with successful established businesses in Workplace DC, individual annuities and group and retail protection. And we will leverage our investments in Fintech companies like SalaryFinance and Smarter365. L&G is different from our insurance sector peers as a result of our ability to manufacture and manage assets whilst providing retirement solutions for institutions, for corporates and for individuals. We are, however, similar to other highly successful diversified financial companies, which operate by gathering and creating assets and then gathering liabilities to match like Blackstone or BlackRock or Brookfield. Their financial metrics compared to ours are shown in the appendix. To build on that point, LGC is a powerful origination engine for assets, housing assets, infrastructure, clean energy and SME finance, and is increasingly able to work with LGIM clients who can co-invest. LGIM in turn is a GBP 1.4 trillion asset manager with a global footprint and deep pensions expertise. LGRI is unique as a global provider of pension risk transfer solutions and, again, works closely with LGIM and LGC. And our retail business providing retirement and protection solutions in the U.K. and the U.S. adds further scales. We have 4 divisions but we work as 1 L&G. We collaborate. Our business model is driven by asset origination and asset management. These underpin our retirement and protection solutions and give us our competitive advantage. We co-invest in science and technology infrastructure through Bruntwood SciTech, with NatWest Group pension fund in our Inspired Villages led Life Living business, with PGGM in build-to-rent housing, and in SME financing through Pemberton, and it's a 147 LPs. By partnering, we can scale up faster and offer new opportunities to the 3,000 institutional clients that work with us. This ability to originate assets using internally sourced capital as well as that of external third parties who join us either through funds or directly or strategic co-investors, delivers profit at several levels. First, the direct profit in LGC. Secondly, it enables us to attract third-party participation and to earn recurring long-duration performance fees. And thirdly, the skill creation and curation of assets provides a yield uplift of 50 to 200 basis points in the annuity business. Looking now at LGC, we see the strong growth in the alternative assets AUM since 2016. Alternatives, a diversified portfolio of GBP 3.4 billion, including real assets and SME financing assets, now account for 40% of the total assets in LGC. And as you can see from the right-hand graph, alternatives now deliver over 3x the operating profit of the traded and treasury portfolio. Climate Technology, ESG investing, digital infrastructure and housing markets are all scalable assets and terrific for Legal & General. The U.K. is underinvested, and has about 1.2 million housing -- on the housing waiting list and a chronic supply shortage of this asset and many other infrastructure assets. The approach we take to the changing frontier enables us to invest in and follow businesses on a journey from startup through scale-up to grownup. For example, Cala growing from GBP 250 million of revenue to GBP 1.25 billion and rising. We are similarly scaling up Pemberton, Bruntwood SciTech, SalaryFinance and Pod Point, and we have promising startups, including [ Onto ], Kensa and Oxford PV, which we can support as they move through funding stages. We also demonstrate and realize value. Current health is an excellent example. This is a full ecosystem for corporate growth, which we will replicate internationally. Here are 4 examples from LGC with more detail in the appendix. First, CALA Homes, profit has grown 12x to GBP 132 million since we first invested in 2013. Our 5-year ambition is to grow to 4,000 homes, GBP 1.7 billion of revenue and operating profit over GBP 270 million. Affordable Homes started in 2019. It now has over 1,600 homes in operation on a 5-year view, a pipeline of around 7,000 homes. Profit of GBP 26 million in 2021, we have an ambition for over GBP 100 million in 5 years' time. We are developing over 11,000 Build-to-rent homes with a GDV close to GBP 4 billion. This has benefits across the group, the LGIM and its clients who can provide third-party investment for LDC who capture the uplift in the construction phase and for LGRI who can use BTR assets in their portfolio. Since inception in 2016, Pemberton's AUM has grown tenfold to GBP 11.3 billion in 2021. And our ambition is to move that to double or more i.e., GBP 27 billion over the next 5 years. LGC is demonstrating strong value creation. Here are our 4 value creation proof points just from the last year. MediaCity, we sold to land securities by 1.6x. The co-investment by NatWest Group pension fund into Inspired Villages or Later Life business at 1.3x. Pod Point now successfully IPO-ed at 3.8x. And Current Health, which turned us 5.3x. We've previously talked about the U.K. annuity portfolio reaching self sustainability as it continues to scale. This means generating net surplus after new business strain and dividends. We achieved this in both 2020 and 2021, and we expect to do this again in 2022, thanks to double-digit growth in OSG. We expect to generate around GBP 1.8 billion of OSG in 2022. This is an important aspect of LGRI's PRT business. It is capital efficient with the annuity back book strongly capital generative. LGC's ability to create assets, creates optionality for us. We can put these higher-yielding assets to new business to benefit customers or we can deploy them in the back book to improve the yield on the portfolio, enhancing shareholder value. We are growing our presence internationally across the U.S., Europe, the Middle East and Asia. In Asia, for example, LGIM now manages $138 billion of AUM. Our business model and our strategic growth drivers are hugely relevant today. The aging demographic is even faster paced in most Asian countries than in the West, creating demand for long-term serving, investment and pension products. There are significant opportunities to create source and manage assets. And Asian investors are very aware of the role of institutions like Legal & General in addressing such important issues as climate change. We are on the ground in Asia. Our brand and culture travel well and the scale and pace of our activity will grow as we accelerate our international ambition. Before I hand over to Jeff, let me just finish by flagging the clear purpose we have. Inclusive capitalism, which benefits our customers, our shareholders, employees and indeed, the broader society. It is a growth formula. It has moved us ahead of and positioned us very strongly for market trends like ESHG, investing and policy changes, like decarbonization and leveling up. Our approach is authentic, whether we are applying these principles to the way we operate, invest from our balance sheet or influence through LGIM stewardship. It is evidenced and measured. It inspires our people and our strategy. And indeed, it inspires me and my executive colleagues who are here today. I'll now hand over to Jeff to take you through the financials.

Thank you, Nigel. Hello, everyone. And as Nigel says, great to see so many familiar faces back in person. In 2021, Legal & General demonstrated the strength of its diversified business model, delivering operating profit of GBP 2.3 billion, up 11%. EPS was 34p, materially higher than 2020, but also up 19% compared to 2019. This represents another year of strong returns for our shareholders, demonstrated by an ROE of 20.5%. In light of significant market volatility over the last 2 years, we view these results as a return to our long-term growth rate. All our businesses are strategically well positioned to deliver in line with our ambitions for cash and capital generation, and for dividends. There was a strong contribution from all businesses, which I will cover shortly. Investment variance was positive at GBP 226 million, reflecting the increase in rates in the U.S. and U.K., which primarily impacted LGI reserves. Although the flattening curve over the second half of the year reduced the overall benefit. We also experienced strong portfolio performance in LGR as reported at the half year. In aggregate, profit before tax was significantly up on the prior year, GBP 2.5 billion. Finally, the group's Solvency II operational surplus generation was GBP 1.6 billion, up 12%. And the coverage ratio for year-end was 187%, which has also increased significantly in '22, in line with interest rates. Turning to our divisions. LGR delivered operating profit of GBP 1.5 billion. This performance was driven by ongoing predictable delivery and prudential margin releases from our growing back book. The new business surplus generated from robust volumes of PRT and individual annuities and positive variances from routine assumption updates. I'll cover our PRT sales performance in more detail on the next slide. But looking at our retail retirement business, individual annuity volumes were up 5%, and lifetime mortgage advances were up 7% as these markets continue their post-pandemic recovery. A combination of dynamic pricing and working closely with our partners and intermediaries has enabled us to grow external market share in individual annuities to over 38%. To update on longevity releases, as guided, we've moved to CMI19 but not recognized an explicit release given the uncertainty in the data. However, we do anticipate release of any of this additional margin to flow through the P&L for the next 2 to 3 years as we get more clarity on longevity data. During the year, LGRI rose GBP 7.2 billion of global PRT across 57 transactions. In the U.K., around 2/3 of our transactions were small scheme solutions where we were able to leverage technology, and we also now have 11 umbrella agreements with major institutions. Once again, over half of our U.K. transactions were with LGIM clients, demonstrating the strength of our client relationships and the resilience provided by our unique position as the only firm operating across the full derisking journey. In 2021, U.K. annuities delivered a healthy Solvency II new business margin of 9.1%, and U.K. PRT capital strain was just below our 4% target. In the U.S., we won $1.1 billion of PRT, including our second largest transaction of $293 million, and we remain excited about future growth in this maturing market. We also secured another Canadian deal through a new strategic partnership with a second Canadian insurer. High-quality asset sourcing is one of our key competitive advantages. This allows LGRI to deliver consistent earnings as we have the optionality to deploy our originated assets to the back book as well as to new business. This means going forward, we can remain focused on value creation whilst hitting our key metrics. In 2022, we have won or are in exclusive negotiations on around GBP 1 billion of deals, and our pipeline is as active as ever. We continue to anticipate long-term institutional demand to derisk DB pension portfolios, and remain confident in achieving our 5-year ambition of writing GBP 40 billion to GBP 50 billion of U.K. PRT and $10 billion of international PRT. As usual, we've provided an overview of our A- rated annuity asset portfolio. The diversified bond portfolio is defensively positioned, and we currently hold a GBP 3.4 billion credit default reserve, which remains unutilized. During the year, LGR originated GBP 4.6 billion of new direct investments, and the portfolio now stands at GBP 28.4 billion, approximately 32% of LGR's total assets. Our ambition is to continue to strengthen our asset sourcing capabilities with a strong ESG focus. We aim to deliver inclusive capitalism through the creation of real jobs, improving infrastructure across our towns and cities and tackling societal issues, including climate change and housing. For example, during 2021, LGR committed GBP 270 million to fund L&G affordable homes investments. We expect this partnership to generate around GBP 1.5 billion of assets by 2025. Moving on to our asset origination business, LGC. Operating profit was up 68% at GBP 461 million, and is also up 27% on pre-COVID levels. This reflects increased profits from our alternative asset portfolio due to a bounce back in the house building market and valuation increases from investments in our maturing clean energy and venture capital portfolios. This rebound was also reflected in profit before tax of GBP 480 million and a net portfolio return of 8.5%. As our businesses continue to mature, we expect this return to increase to 10% to 12% by 2025. Our alternative asset portfolio increased by 10% to GBP 3.4 billion. By 2025, we expect to manage around GBP 5 billion of alternative AUM, increased third-party capital to over GBP 25 billion and deliver at least GBP 600 million to GBP 700 million of operating profit. Nigel covered this in more detail earlier, but just to recap, during 2021, we deployed cash on new investments and funded growth in existing ventures to support asset creation opportunities such as urban regeneration in Sheffield, our first suburban build-to-rent site and initiation of the Oxford Life of Mine building. In our existing portfolio, we continue to generate value in our venture capital business, and also through positive trading performances in our wholly owned subsidiaries, including Cala and affordable homes. As the alternative portfolio is maturing, LGC also demonstrated a number of value-creating proof points in 2021, generating proceeds to be recycled into new sectors and projects to drive future growth. In LGIM, operating profit was up 4% to GBP 422 million, in line with our ambition. This reflects increased revenues, which surpassed GBP 1 billion for the first time, and was driven by strong flows and favorable business mix in higher-margin products. Total AUM reached GBP 1.4 trillion, up 11% with international assets accounting for approximately 34% at GBP 479 billion. We remain a market leader in U.K. DC where our strong customer focus has helped grow AUM to GBP 138 billion, covering over 4.4 million workplace members. And our retail business continues to make good progress, with AUM reaching GBP 49 billion, and ranking second in gross flows in the U.K. during 2021. We are making strategic progress to modernize, diversify and internationalize so that we can deliver on our long-term growth ambitions. The global ESG market is expected to quadruple to $30 trillion by 2030. As a leader in ESG, we're committed to leveraging our position as one of the largest global investors, integrating forward-thinking ideas in the space. At the end of the year, LGIM managed approximately GBP 290 billion in responsible investment strategies, explicitly linked to ESG criteria, and we expect this to accelerate with circa 80% of new product activity in 2021 linked to ESG, accelerating our presence in a rapidly growing market. The increase in AUM during the year was driven by strong external net flows of GBP 35 billion, including growth in higher-margin areas such as thematic ETFs and multi-asset. Positive net flows were diversified across the business and driven by, amongst other things: strong international growth with net inflows outside of the U.K., representing around 85% of LGIM's total; U.K. DC, where we had 87 scheme wins, many of which use our multi-asset or target date funds as their default; our ETF business, which continues to expand, primarily in the European thematic ETF market, in which we ranked second on both flows and AUM, and have over 16% market share; and also ongoing demand for LDI solutions from our DB clients. Part of the increase in fee revenue seen during the year has been driven by our increasing focus on higher-margin areas. Annualized net new revenue was up significantly year-on-year, supported by growth in multi assets, our expanded ETF range and real assets. This [ ANNR ] was also spread broadly across our geographies demonstrating the diversified nature of our new business flows. Though this is only 1 data point, there are early signs that the strategy is working. We expect growth in these products to continue, and we remain confident in LGIM's ability to continue to grow profits in the range of 3% to 6% per annum. Now moving on to our protection business, LGI. Operating profit increased 42% to GBP 268 million, reflecting new business growth in U.K. retail protection and modeling refinements to the liability discount rate. This was partially offset by adverse mortality experience in the U.S. COVID-related claims were approximately GBP 185 million, exceeding the GBP 110 million provision set up at the end of 2020. This experience has continued into '22, albeit at a lower level. So we've included a GBP 57 million provision to allow for potential COVID claims in the coming year. Profit before tax was GBP 379 million, with the increase largely due to the formulaic impact on reserves of rising interest rates, as mentioned earlier. Both the U.K. and U.S. traded well. New business annual premium and gross premiums were up 2%, with the latter up 5%, assuming constant exchange rates, continued product innovation in the U.K. and digital transformation in the U.S. has driven that -- those increases in volumes. The business continues to grow at good levels of profitability with Solvency II new business value of GBP 262 million. Moving on to capital. At the end of 2021, the group Solvency II surplus was GBP 82 billion, and the coverage ratio of 187%. The quality of our capital remains strong. And as demonstrated, we remain confident in the resilience and capacity of our balance sheet to withstand future shocks. As of the seventh of March, the coverage ratio was estimated at 198% following positive market movements, broadly in line with the sensitivities highlighted here. We've bridged the Solvency II surplus to help explain the movement during the year. OSG from the growing back book was up 12% at GBP 1.6 billion, demonstrating the predictable nature of our capital. After allowing for efficient new business strain of GBP 350 million, net surplus generation was GBP 1.3 billion, comfortably in excess of external dividends paid, illustrating the self-sustainability Nigel talked about. Market movements were GBP 0.7 billion, predominantly driven by the impact of higher interest rates and improved equity returns. Our portfolio is well matched, and the group is not materially exposed to inflation risk. Any associated downside would also likely be more than offset by a corresponding increase in rates. We will, of course, remain disciplined in the deployment of our surplus capital to ensure we meet or exceed our target returns and remain within our risk tolerances. Since 2020, our strategy has delivered strong and resilient returns for our shareholders. These returns are underpinned by the long duration, highly predictable and stable capital generated from our growing back books. For example, our in-force annuity back book is expected to generate GBP 14 billion of capital over its lifetime, excluding management actions. We've provided new disclosure of these cash flow projections in the analyst pack. We are continuing to build these back books, which has contributed to our double-digit growth in cash and capital, both up 12% this year. Since the beginning of 2020, we've generated GBP 3.2 billion of cash and GBP 3.1 billion of capital, representing good progress against our GBP 8 billion to GBP 9 billion ambition. We are confident that every division can deliver on their targets, each making an important contribution to the group as a whole. Today, we have announced a full year dividend of 18.45p, up 5%, in line with our stated ambition. So to conclude, all 5 businesses made strong contributions in '21, resulting in an ROE above 20%, and we continue to make excellent progress against the group's 5-year ambitions. The group balance sheet is as strong as ever, and continues to generate predictable levels of cash and capital, underpinning our dividend-paying capacity. And our diversified and actively managed credit portfolio continues to perform as expected. Our business model provides a unique combination of powerful asset origination and asset management capabilities alongside leading retirement and protection solutions. We continue to be well positioned to deliver further profitable growth with the business making a good start in '22, both in terms of new business volumes and asset creation. Thank you. Just a few more words now from Nigel.

Thank you, Jeff. Legal & General has a compelling investment case. To summarize, we have a track record of consistent profitable growth across our financial metrics. That stands out in the financial sector and inspires confidence. Our business model is diversified. Our 4 divisions benefit from synergies, which underpin our 20% ROE. And our strategy is clear, and aligned to long-term growth drivers. This is a model which has been repeatedly proven to work. The long-term nature of our business with asset accumulation and decumulation over 30 to 40 years, makes growth predictable as assets grow. DC pensions is a great example. The balance sheet is demonstrably robust and resilient with a Solvency II ratio of 198%. And again, no defaults last year. We deal in informed rewarded risks. We have a clear purpose. We are both economically successful and socially useful, aligned to the expectations of our clients and our customers. Our growth ambitions, including for the dividend, are very clear, and we are executing successfully. There is significant valuation upside, particularly when compared with the small peer group of businesses, which brought -- with broadly similar business mix. Thank you. I'll now open up the floor to questions. As some people are on video, we're going to hand around the mic. And if you just say your name so that people can -- yes, Suzy's got mics and Ed's got mics. Andy?

Yes. Andrew Sinclair from Bank of America. Three for me, please. Firstly was on LGC. Great year for LGC earnings. But I just really wondered if you can tell us a little bit more about how much of LGC earnings are cash? How does cash compare to earnings? How much is just annual cash from things like Cala, mature investments? How much is disposal proceeds, how much marking up values? That's my first question. Secondly is on LGR. Great to see that we're self-sustaining. What does that mean in terms of new business that you can write? So you said you expect to be kind of self-sustaining in 2022 as well? How far can you push in terms of growth and still be self-sustaining? Are you able to push a little bit harder, even harder now? And thirdly is on the dividend. LGR self-sustaining, LGC, I'm guessing starting to throw off more cash. I just really wondering what allows you to push from 5% growth up to a 6% growth at the top end of the range. Is that feasible?

Well, why don't I start on the first one. I'll leave the second one to you, Jeff. And since the third one is an easy one. I'll answer the first question. I think the point you make on cash is very valid. We haven't given a total breakdown of cash in LGC. It's quite a noisy year from LGC in that you're asking for realization events and proof points. And so we've come up with a whole bunch of proof points. As you can see from the slides, you can reverse engineer how much we got for each of those things. And you'll find that the absolute level of cash was greater than profits. But we don't think that's a fair indicator of where we intend to be because we will be investing for growth, which covers your last point. We very much see ourselves as a growth company, and we very much want to invest for growth. We've got a much stronger balance sheet. We've got great scale already in our businesses. And there's lots of opportunities for growth in the U.K. Jeff, do you want to capture...

Yes. I mean we do expect, based on our outlook for '22 to be self-sustaining. We're not saying we'll be self-sustaining every year. We still have the ambition GBP 8 billion to GBP 10 billion. We always say this is lumpy business. But equally, we're talking about the amount of growth that we have in OSG. That gives us a lot of headroom for additional volume at a 4% strain when you're creating billions of extra OSG. That gives you a lot of headroom to write additional business. So we stand by the GBP 8 billion to GBP 10 billion, GBP 40 billion to GBP 50 billion, but that could be GBP 7 billion, GBP 8 billion, as we've done in other years. It could be bigger in other years. We can manage for value. We've got the optionality for the back book, but we're not limiting ourselves by any means if the business is there to be done.

On the other point, it's sort of good news for shareholders in a sense that we've got much greater coverage of the dividend and a lot more capital, as Jeff just highlighted to invest, right across the businesses. I know the 4 CEOs who are sitting in the front row here are all very enthusiastic capital investors for their particular business. And it's great to have that competition for capital across the world, actually, not just here in the U.K., and we're expecting to bridging new opportunities in America as well as the U.K. on a go-forward basis. So I think let's not be greedy. 5%, it's a pretty attractive dividend. We're in an amazing yield. And whether it's 5% or 6%, I don't think it's going to make a huge difference to the valuation of the company. I think there's some other issues we've got to convince investors across the world that we are truly resilient and robust as the evidence seems to suggest.

It's Andrew Crean of Autonomous. Can I do 3 questions as well? Firstly, is Solvency II reform -- could be -- you've always said it would be neutral, but it could potentially be positive. If you do get a windfall, I suspect your not likely to give a buyback. What would you do with the excess money or from higher interest rates as you're just flagging. I mean does that likely to break your GBP 8 billion to GBP 10 billion BPAs upwards or what are the businesses. That's the first question. Secondly, you've flagged the 20%-plus ROEs on an IFRS basis. If you do it on own funds, I think the return is more like 10% to 12%. Could you just give us some thoughts around the differential there? And thirdly, when you're creating the retail business, do you feel that you've got a weakness in D2C platforms? And if so, what would you want to do about that [indiscernible] agrees is prices down?

Yes. We wouldn't mention that I'll take the first, you take the second. And Bernie, would you like to answer the third question, explain my we're going to create a world-leading platform, and whatever? I think the good news on Solvency II reform is that after a mere 6 years, we're finally making progress, and it's demonstrable progress. As you saw from the sensitivity slide, the 25 basis points -- 25 basis point increase in interest rates, of which the government Bank of England promise 4% for this year is worth 5% for each of the 25 basis points, and we saw a 19% increase, if there's a 100 basis point increase. We expect if we get a gain on Solvency II coverage ratio to be in the 5% to 7% range, given the discussions that we've had, which is positive, and it's good, and it helps. But that's not a strategy-changing difference for that. I think the good news is we have more headroom, therefore, we can take on more risks. And some of the projects that we've got. It's fair to say that Oxford and Manchester, and these projects, people want to accelerate them rather than decelerate. They want us to lean in to these investment opportunities. And the more successful we are, the more opportunities we get. I'm -- John has taken the whole Board up to Manchester to see the profound impact we've had not just in Manchester itself and current but also in the future. But in only [indiscernible], which is an amazing SciTech investment that we've got there with over 230 start-ups on-site. People are now visiting all these proof points that we have around the country, and that doors are leading to doors. So, the extra capital that we have, we think we will deploy that for the long-term benefit for shareholders. And hopefully, at some point in the future, that may give us some further dividend headroom. But at the moment, I think 5% is a really good number to have, and it will stick to 5%. Jeff, do you want to take the second question?

Yes. Sure. Yes, return on own funds, well, it's another metric. I mean it's another way of looking at the business. Clearly, we can't really compare like-for-like at this stage. And there's a difference in the metrics. New business being an obvious one, for example, one gives you a profit on IFRS. One is Australian and Solvency II, then comes out over time. I think the thinking will develop around some of these metrics, as you say in your commentary previously, as IFRS 17 develops and Solvency II thinking develops, we will develop these metrics so that people are looking at them. I mean important for us on that metric, in particular, is the growth in OSG. I mean that's what drives -- ultimately drives the answer, and that's what we're showing. And we believe there's more upside in what we can do around that where we put capital to work, the more it drives future OSG as the businesses grow.

I think just on OSG, that's now one of the metrics we get measured on as an executive team for increasing the growth of the company. So we've added two Solvency II metrics to the performance that all of us get judged on. Bernie?

Thank you for the question, Andrew. What I'd say is our focus when it comes to retail savings is DC pensions, and we start from a really strong position there with one of the largest master trust, LGM being the biggest DC asset manager. And so we start with lots of customers, lots of assets under management, and we've got lots of opportunities to improve our retail platform. So yes, that's a key part of what we're doing, bringing together the retail division. There's lots underway. Team have done a really great job so far. There is lots more to do, and we're pulling together all the expertise in technology data to deliver a significant improvement in that platform. And as we improve the platform, we're confident that we can keep customer money for longer. And LGIM and us can earn fees, retail can earn fees from that. So we see it as upside optionality and multiple years of investment in the platforms to become one of the best in the market is the aspiration very firmly centered in DC pensions.

Thanks, Bernie Mon. I think the key point, Andrew, is that we have about GBP 130 billion on the platform today. That's going to rise to GBP 300 billion. As we invest in all of these new asset classes, and we hope the DC pension reform comes around in the way that we hope perhaps when the chancellor speaks in a couple of weeks' time, that will give us a lot more opportunities to put more assets that are more relevant assets onto the platform itself, and saw that we will have a multitude of LGIM products, which are proving very successful in Europe to -- largely to wealth and retail investors. But we'd like to put more of those on the U.K. platform and achieve more revenue and more profits out of that for LGIM, and indeed for the retail division.

Alan Devlin from Goldman Sachs. A couple of questions. First of all, on LGIM on the impact of higher interest rates. I'm thinking on the PIMCO CEO at Allianz said this was a high interest rate [ Indiscernible ] business. Just wonder what do you think the impact is on AUM earnings, potentially net flows if interest rates continue to move higher, given it is a fixed income solutions bias? Second question, just a follow-up on the retail. Do you think most merging the retail businesses or most of the synergies going to be on the potential revenue synergies? Or is it more of a kind of expand synergies investing in the back office play?

I think on the latter one, Bernie slightly answered that already. We're going to have a much better slicker customer journey and much more integrated across our platforms. We're very confident that we'll get more revenue out of that. We don't think this is a cost synergy. It's a technology synergy, which I think Bernie articulated because we've got some outstanding teams they're all going to work together now much more closely. We're pretty good at collaboration. But it's sort of easier when the colleagues are sitting in the same room, working on stuff together. And I think that's been demonstrated across the group that this collaboration is a very important part. And then Jeff gets a bit more hands on this than I do. On LGIM, I have gone, if you want to add anything, Michelle, I'm more than pleased to do so. I mean there's just some math around this is that we have a position in fixed income, which is a very attractive position. As rates go up, the revenue comes down. If you say, it's a 101 calculation. But LGIM is definitely a wide variety of assets. And increasingly, those assets, as Jeff articulated, and I'm sure Michelle can add a few comments on -- we've got a much wider range of assets coming with our anticipation is that the one more than offsets the other, but that we can't predict exactly where interest rates are going to go in the coming year. And at a group level, the interest effect is very positive, both on the balance sheet and on the P&L. But for LGIM, that diversification works sadly in the wrong way for LGIM. Set you up perfectly, Michelle.

Thanks, Nigel. So yes, look, it's a really good question. And the answer is, I mean, really difficult to predict where things are going to land. What I would say overall for LGIM is the underlying business mix is roughly 1/3 fixed to 1/3 equity and 1/3 other, including private assets. So depending on where things land that would actually have a more neutralized impact. Nigel's rights, I mean the focus at the moment for our customers is on all of what's going on, sort of geopolitical mix, ESG mix and also clearly inflation as well as rates. You're correct to say that there is an impact on LDI. It can though be positive as well as negative, depends on where the scheme is in its maturity, how close they are to buy out. And that will, as Nigel -- we demonstrated with that virtuous circle that we have, our ability to pass those schemes into buyout is actually really important. So overall, Nigel is correct that the impact overall is actually not a huge impact for the business. But an asset manager, you will know when markets behave as they do, it makes my life much more difficult.

Louise Miles from Morgan Stanley. Can I get 3 questions, please, 2 on LGR and then one on Cala. So my first one is -- it looks like in LGR, the U.K. PRT, it looks like you had about 20%, 21% of the market share this year. In previous years, it's been anywhere between 20% and 25%, given the competitive landscape in this market, are you going to maintain margin and be at the kind of the closer end of 20% going forward? So that's the first one. The next one is on the financials in LGRI. Just trying to think about forecasting this going forward. In 2021, there was like a GBP 212 million change in the valuation assumptions. That number last year was about GBP 300-ish million. Can you just give us a bit of color as what actually went into this number? Just trying to think about -- obviously, these things are really lumpy in nature, but just trying to think about how that's forecasted going forward. And then the final question I have is on Cala actually. So obviously, it's a homebuilder, you said you've got a 5-year ambition to build 4,000 homes. Obviously, homebuilders, raw materials are really reliant on gas and the supply of gas and oil as well. Do you have any concerns about potential shortages in the coming years, and your ability to build the 4,000 homes?

I'm going to answer the third question, which is one of my favorite subjects. It's a really tricky second question, Jeff's volunteered to do that one. And then Andrew, you've got to lay up for the first question, which -- can you answer the first question?

Yes. Good morning, everybody. Yes, the market share question is a really good one. But I think, as Jeff has already outlined, our real focus is the market demand is there. We've -- we're expecting a 2022 market in the year got to be about the same size as the '21 market, and so in terms of opportunity. But the discipline will bring particularly around capital strain and pricing, we'll determine where the market share is. So I think we're -- the pipeline, as Jeff has already said, is really active. We're participating in a number of conversations. But whether we ultimately transact will be very much around sort of discipline on pricing and the market share will be what it will be.

Yes, I think the market forecast is anywhere between about GBP 35 billion and GBP 60 billion. So it's a big and our pipeline indicates that it's a pretty big market for 2022. We have a lot of these umbrella deals. We have 11 signed now, and they are a matter of timing over the years as to whether quite whether they come in 2022, '23 or '24, but there's a lot of repeat business that we're getting. Hopefully, we can get some repeat business internationally as well because Andrew is now spending quite a bit of time in the U.S. -- on the U.S. business. Jeff, do you want to have that really tricky second question?

Yes. Sure. I mean broadly, the recall in both years. It's a couple of hundred million. And they're really all excess prudence that is demonstrated by the assumption reviews that's pretty much business as usual. We had late retirement factors in 2020, which was significant. We actually had a little bit of work left to do on that. So there was a few tens of millions extra left on that because we haven't finished all the work to get to the detail. Then we had the spouse age assumption that came through this year of about GBP 100 million. And then it was just the BAU review of the tables, which just shows the prudence that we have in the basis. And it really is just truing up those year-on-year, which was around GBP 100 million. We continue to expect that to come through. We think we have prudence in the basis in terms of reviewing these, but obviously, it depends how experience plays out, which is why we've been prudent in the trend assumption and the way we've adopted the tables. So our assumption is we can continue to manage this business for volume, for margin, and hit the metrics that we need to, as we said, and applying assets to the back book at the same time.

Yes. I think Jeff mentioned that we would slightly adopting CMO in 90, so there's 2021 and whatever. There's a lot of natural prudence built into our model. And I think Chris did some work on -- it's about the same number every year for many years, and it's most likely to be a similar number on a go-forward basis. So I was to summarize it. On Cala, we on Kensa, or the largest share in Kensa, which is the largest ground source heat business in the U.K. We've used air source heating for a long time in both our Cala homes and in our Inspired Villages homes. And so we see it as a positive that what's happening not withstanding the tragedy of Ukraine that actually sources of renewable energy are going to become more important. People want them as a feature in their house. We're the leading practitioner at an aggregate level in the economy, but also specifically in the housing industry. And I know John was looking at some of our houses on last Friday, and they're tremendously high quality, very sustainability. We've officially set ourselves a net-zero target in operational terms for 2030. We'd be bitty disappointed the focus effort driver has been put behind it, and then it sits on the board of Cala with me that we want more and hit the targets well before 2030.

Andrew Baker from Citi. Two questions from me, please. First, on LGI. Are you able to give a little bit more detail on the model refinements and also some of the assumptions underlying the GBP 57 million provisioning that you took. And then the second one is on the annuity self-sustainability. What would that look like if you were to attain all longevity risk going forward? Just -- I know that -- I know there's no requirement to do that, but just interested to see what I would look like.

So it's a hypothetical on a hypothetical [indiscernible]

Yes. That's right. How long do we got? Ted has put his hand up as well. It requires a 15-minute answer. Tim's is the man, telling you that, but you can have both of the -- get straightforward.

Yes. I mean the LGI model refinements, I mean, this was really just looking at what is the profile of the cash flows now on the U.K. term book in particular. And it's much more likely that we will be holding real assets to back this business, whereas previously, we haven't had to hold any assets given the nature of the cash flows there. And so we will be setting up some reserves. Therefore, we already have assets that are around. We can allocate some of those. We looked at the yield on those assets, and simply added some liquidity premium to the risk in a prudent way. So that's GBP 90 million when you discount in such a big liability or asset is really just a small change on the liquidity premium. You have 2 questions really because the COVID one is separate. Yes, the GBP 57 million, I mean, we followed the same methodology. We looked at the latest projections in the U.S. coming at [ IHME ]. And in fact, they were constantly coming down whilst we were doing the process, and Tim had to keep changing his paper because we are seeing a real slowdown in the States, which is great to see. And so we've done the same. We've projected that out. Clearly, no one knows what's going to happen at the end of the year when the winter comes along again, but the assumption is at the moment that, that looks like what's covered by the projections. We added a bit more prudence for the impact on insurance populations versus the global population, if you like, because that is what we saw in the Q3, Q4 data in the U.S. So we basically followed the same methodology and ended a bit. Well, yes, I mean, what does it look like? It depends what the regulation is. We clearly wouldn't retain all of it unless there was significant reform on the risk margin. At that point, we will look at what does it mean overall to the strain. I mean we will still manage the quantum of capital that we put into work, and we'll want the same sort of returns on that. And we'll see what does that mean for the volume in the market and what's available. I mean we're not going to radically change the model as a result of that. But we may decide to move either strain or volumes or paybacks, et cetera. But clearly, we'll have to give you information on that if it's going to change what's happening on the cohorts of new business. We'll do it when the rules come through.

Clearly, we've always retained all the individual annuity business, and haven't reinsured any of that. So we're going to get a positive impact from that anyway regardless of what level, whether it's 60, 70, 75, 80 -- doubt it's 80. But one only hopes with it.

Dominic O'Mahony, BNP Paribas Exane. Three for me as well, if that's okay. Just on LGIM, the Asia the at nearly 10%, I think, of the total now. Could you just give a sense of what strategies these are, what geographies? And really what the -- what you see as your edge and in terms of your strategy for growing that? Second question, LGIM. On the costs, just in absolute terms, these have clearly gone up quite a lot over the last several years. Could you just help us break down the drivers of that and to the extent to which this is essentially discretionary building out teams and capabilities, maybe the Asia teams versus sort of mandatory-type cost. The third question, maybe I should be asking the utilities companies this, but could you help us understand whether you think a significantly higher commodity price environment might start to impact bits of your credit portfolio? So I've got an idea how it flows through the economics of utility companies who are obviously quite a big portion of the investment portfolio. So I'm sure you've got -- you've been thinking about this very hard. So I'm curious to hear what you think.

Yes. I'll have a go at the third one. But Michelle, do you want to have a go on the first 2 questions on the mix in Asia by geography and the strategy by geography. And either you or Richard could answer the question on costs?

Yes. No, it's [indiscernible]. On Asia, and we say we're starting from a really good base, but a huge amount more to go for. And we've been very deliberate in the way we go into the market. So we tend to go into a market with 1 or 2 large clients, and they become really fantastic reference points for us. We also have tended to go into markets with index as the backbone. And actually that has been a really good story of then how you take your index proposition and then you move up the scale. And that's worked extremely well for us in Japan. And where you can see now as an institutional investor in Japan, we are doing extraordinarily well. Elsewhere, our clients come from the region outside of Japan, Hong Kong, Taiwan and other Southeast Asia. And I think the challenge for us is how we expand geographically in a measured way, but also by channel. So our business is predominantly institutional in region as it is actually across the whole of LGIM. And I really think there's an opportunity to expand what we do, and offer our edge to more platform business, and that is part of the strategy. That actually does link to cost, Nigel, so I'll pick that up as well. What we said at our Strategy Day back in November 2020, I think it was, was that we look to deliver operating profit around the 3% to 6% mark, absent market shocks. Richard sitting in the back, just reminding me of that. But we would also continue to invest for growth and the strategy to modernize, diversify and internationalize is extremely deliberate. So we're being very targeted in where we invest. But we are absolutely going to continue to invest. And as a result of that, we also said you would see that cost income ratio rise towards the high 50s is exactly what's happening. So it isn't a surprise. It's deliberate. But what I would also see that they're very clearly demonstrating is careful cost management. And yes, you're correct to say that costs have risen, but it's deliberate, and the costs are rising less than they were in previous years. So that's -- I hope that helps in the ramp.

Yes. On utilities, obviously, that's a very broad list of areas, not just energy companies, water, transport. And increasingly, it will be renewable types of assets, which are included in the -- we weren't exposed to any of the retail companies in the U.K., which is the sharp end of the business, which is where all the volatility takes place. The rest of them are pretty much regulated, and they get paid and remunerated on their [ NAV ] in effect. And having worked for them in the past, there is -- they're in -- I know that they're pretty prudently run, and the regulator has a pretty strong oversight over them. And given the emphasis on energy security and resilience going forward, I suspect they're going to continue to be a really good asset for us to invest in. But utilities, as I said earlier, is a very broad charge.

Oliver Steel, Deutsche Bank. One subject, but I think 4 questions around it. So the sourcing of new direct investments at LGR seems to have shot up last year from around about GBP 2 billion to GBP 4.6 billion, particularly in the second half. So the questions are: is that sustainable? Or why did it push up so sharply in the second half? What's the pipeline for the current year? What's the spread on those? Has it changed? And then also, how much of those have you allocated to new business? And in as much as you've allocated a lot more to new business in the last 12 months, how should we then understand the new business margins that you declare?

A good set of questions there. I'm going to let Laura answer most of those questions. I think in big picture terms, we're under-invested in direct investments within the portfolio by GBP 13 billion to GBP 15 billion relative to where we want to get to. So there's a sort of stock catch-up that we've got to get, much of that will be through back book optimization. But there's also a floor question, which is how much DI do you use in the new business? And where is the DI. The good news for me is I have to travel around the country relentlessly and weekly, but Laura has been championing that during this year, visiting a lot of the sites where there's huge opportunities, I think, for further DI. Laura, do you want to..

Yes. Focus on the pipeline a bit really in terms of -- we've now really over the last years, expanded our pipeline from the sort of flow of DI that we would get from Michelle's business through private credit, the property that we've really sort of stolen a march in the U.K. on the terms of long leases to increasing the supply from LGC. So in each of the sectors that we talked about in the Capital Markets Day, Clean Energy specialist commercial real estate and housing. Jeff mentioned the affordable housing. So we've got a significant flow expected to come through that. I think we said GBP 1.5 billion. I think that's a -- that's just from the affordable housing, so it doesn't include the suburban build-to-rent shared ownership and other things that we're working on in the short term. and increasingly looking at ways to get I suppose the newer clean energy infrastructure assets into the portfolio. So I suppose there's a sort of continuous growth spectrum working with Andrew's team in terms of how we take those assets and structure them for the current Solvency II rating, which hopefully -- there'll be a little bit more wiggle room in that over the next couple of years as well. In terms of your question on pricing, I think where we see the most value it is on the sort of homegrown assets, so the ones where we do get from LGC or some of the property assets working with Michelle's business. And those really are the ones where we use equity sort of capital as a catalyst to create the long-term assets. And those are where we see the higher the sort of 200 basis points in the range that we gave in Jeff's slides, 50 basis points to 200 basis points. It's the sort of the 200s that we get through our self-manufactured assets.

How much of that is the new business figure does that change the new business margin?

So I think we talked a little bit about the back book and new business strategy. In previous years, most of those assets have gone we sort of hypothecated them to new business. But given the, I guess, increase in volume, we expect to see, we expect to be able to have the flexibility to do those over the coming years.

Yes. We think we're going to be able to generate enough DI to do both backlog optimization, and new business and be very competitive still in the new business market, particularly as Michelle's team and Laura's team are working incredibly closely together, both in the U.K. And I'm very hopeful and optimistic that I always am about the U.S. part of that coming on stream in 2022 or 2023. And then we'll even make Andrew Crean happy if that comes around.

It's Farooq Hanif from JPMorgan. Just on Solvency II reform first. What's your view on potential increased competition from real asset, private asset companies that want to get into the U.K. market because they see a better opportunity. And if you're not really worried about that, would you ever consider partnering or JV-ing in some way with that? I mean, I guess the answer it's difficult because you've done well without them, but just what if you'd ever think about that? Second question on LGC. Could you quantify possibly the fees that you're making on third party and where you expect that to go? And is that sort of wrapped up in the 10% to 12% or not? Just want some clarification. And then last question on the allocation of real assets to the PRT book. I mean how does that come through in OSG? Is that just an operational increase in the spread that you're making? Is it a variance below the line? How should we think about modeling that, given that we would all focused on operating?

Jeff, do you want to do 3. And Laura, do you want to do 2, and I was going to do 1, if that's all right? Just on Solvency II reform in general. I think there's an intention from both the government and the regulator to increase the scats, the scope of investments that we're going to have and Laura and Jeff both mentioned, affordable housing. In terms of competition, we hope there's lots more people invest in the U.K. because the investment gaps are huge. And there's other people who have got specialist investment areas. I'm excited that BP and GE are going to invest in 2 sides, and the consequences of that, there'll be more demand for housing and for infrastructure and many of the things that we're involved in. We're very happy that other people are going to invest in venture capital. We have this huge SciTech business, which needs more sci and tech putting into it. And again, that's something we encourage I think we are happy to partner. We have a good partnership with Brookfield in America, PGM, GM, the Dutch pension fund, they're great partners for us in build-to-rent. In fact, they've opted and said they want to do even more with us because we don't find any area across the whole of the U.K. that doesn't want more build-to-rent housing. That doesn't want affordable housing. There's 1.4 million people on the housing waiting list that we've got to address. So there's a little bit, which seems to lot to you guys. It's still a small amount in the big picture terms. So we're appropriate, we're happy to partner. But we will be fueling this triple win for us, LGM fees, LGC profits and LGR profits as well, which has really been a source of our success, and that's going to become even more apparent as we self-manufacture more assets going forward.

Yes. And on the fees, I guess you can expect a bit of a range in alternatives from 70 bps to sort of 120 bps, depending on whether it's credit or more sort of complex equity or real estate. And I think we -- in terms of how we thought about the ambition for LGC, we have included at the moment that fee income in the profit forecast.

Jeff, do you want to...

Sure. Yes. OSG, in particular, was your question, clearly, when we allocate to the back book, we'll have an assumption about that. We'll factor that into OSG. So you would see -- you haven't said it explicitly, but there will be an increased yield that is then effectively coming through as extra operating surplus generation above that rather than they've been below the name. We have -- we then generated even more and put that in that would give you an upside in the variance or if we fall short, but we would be allocating that to the OSG effectively.

In your GBP 1.8 billion, have you got any of that in...

Yes. Well, we've made an assumption, what we think '22 is going to look like. We don't have a complete crystal ball where margins and volumes of new business and how much we'll allocate back, but we've made an assumption about that. And as I said, we believe we can determine our best brand value around volumes of new business or allocation to back book to hit the metrics that we put out there.

Two follow-ups, and a new question for you. On the U.K. PRT and Solvency II reforms, I wonder whether you're holding back on writing U.K. PRT somewhat? Or is it just, as you mentioned earlier, is it just pricing discipline, that means you have a slightly lower market share? And then on Solvency II reforms, again, the 50 to 200 basis points yield uplift from -- to LGR from LGC, can you say where the top of this range can go to once the Solvency II reforms come in? And then the new question. Are you still interested in life back book acquisitions, similar to what you did with Aegon several years ago?

Yes. I think the first one, we're always going to maintain our financial discipline. I mean that's -- we've got new members of the GCC now where Andrew and Laura joined the committee. We -- the last person who was on the [ chuckhold. ] Kerrigan, who's enjoying his time in Asia. -- with multiple quarantines as we speak. But we'll always be very disciplined. I think what we've added now is the flexibility to do back book and front book optimization, hopefully, both here, and in the United States. Do you want to go in the next 2, Jeff?

Yes. I mean rather than say, where does the top end go to, I would hope that the average will improve. Because, obviously, there's a certain set of assets at the moment that are very attractive to everyone who's got annuity books and the right of new business. Therefore, you get increased competition on those assets, which is why we have to go out, manufacture our own to stay ahead of everyone and find more of those. The broader the universe, the more that you're just competing with the world, and therefore, you don't get specific assets competed down by annuity players that think they have advantage through matching adjustment, et cetera. So we would hope, therefore, to have a broader universe to look at, and on average to be able to select from that at a better spread overall rather than where does the top end go. It wouldn't stop us trying to manufacture some assets that get right near the top end, of course. But that will be done when there's absolute clarity on the rules.

It's Barrie Cornes, Panmure Gordon. Just one question really. Nigel, you indicated that the valuation of Legal is low and some of the other similar sized or similar companies doing similar things. You've mentioned this before at other presentations. Just wondered what you think the reasons for that is and what sort of things you thought about in terms of reducing that gap.

It's a very profound question that we constantly answered. We haven't got the right answer so far. We must try harder. I think it was on my annual report for this year, John, on that. The U.S. investors look at companies like ours in a very different way because there are different examples in the states who do stuff that's similar to us. And in fact, they're converging to us rather than us converging to them: [ Polar ], Brookfield, Blackstone. And we very much see some of them as competing in certain areas in the U.K. not on some of the big urban regeneration schemes that we do, but affordable housing, build-to-rent housing or areas where they do compete. I think we have definitely seen through a Solvency II complicated, Brexit, U.K. financial services lens in Europe, and that's still the dominant area of the -- for the marginal buyer of our shares. I think our challenge in 2022 and beyond is to increase our marketing to the U.S. investors and have them look at it in the way that they look at similar firms. Because as you'll see in the appendix, our ROE is probably best-in-class, and our DPS and EPS is as good as anybody else's. And our book value per share is better than everybody -- book value per share growth is better than others. So from a purely financial like-for-like, we compare not only the same but probably favorably compared to others. But we're definitely seeing in a different pool, and we're looked at much more by the generalist marginal buyer as a yield player. And as a yield player, we're in the pack with lots of other people. And our job, and I think it's a collective job across the whole of the executive team, indeed and the rest of my colleagues, is to execute really well on what we've articulated to you guys and perform at the upper end of the range is that Jeff has presented to you and others at the various events -- capital markets events we've had for the last few years.

James Pearse from Jefferies. So you've spoken about growing LGC internationally with a focus in the U.S. Just interested to know what sectors you're looking to grow in? And whether that U.S. growth is included in your profit targets in LGC? Also, how important is growing LGC in the U.S. with respect to your international PRT targets? Because you mentioned about that market becoming more competitive, presumably growing in LGC makes you more competitive there? And second question, is on Solvency II reform, again. So the government has discussed introducing an explicit allowance for default risk within the matching adjustment. Firstly, just interested to hear your thoughts on that because that feels like quite a recent development. And then if that is introduced, would you reconsider the quantum of your IFRS credit default reserve.

Yes. Jeff, if you want to answer the second one? I'll just make a few comments. And then Laura, you can finish off on LGC. We haven't assumed in our numbers that we gave you on the capital markets event expansion in America. That wasn't something we talked about at all. And until we've actually got a plan that's been signed off by all of our appropriate governance in the group. We'll talk about it after we've done stuff, but the world is opening up for us as a company. We're already with Pemberton in 9 or 10 different European countries with NTR in 4 or 5 European countries. And I think having had many of my colleagues work in several different divisions. People really understand how all the other divisions work really well. And therefore, when we're collaborating, they're doing it from an informed source of how we work together collectively to improve our business performance, whether that's in Europe, in the U.K. or the United States.

Yes. I think the only thing I would add to that is when we are looking to expand internationally, we're looking for 2 things. One, where we can use the expertise that we built up in the U.K. in the sectors we have. And secondly, ideally where we can use -- looking at it from my perspective, an LGC, we use LGR funding to help growth of new businesses. So just as you've said, it then sort of symbiotically helps LGR in terms of new assets for pricing, et cetera there.

Yes. I mean, Tim and many others are working closely with ABI, Treasury, PRA on this. So obviously, the sort of things that are being talked about we're generally supportive of within the bands of what we're proposing within that and what we'd like it to look like. But more importantly, we have our own view of where defaults are and what does it look like. We're not constrained by that. Nigel will tell you, the GBP 3.4 billion is obviously hugely prudent. We're very much governed by what's the rules in IFRS 4, which goes all the way back to Solvency I. That will be will be reviewed as part of a move to IFRS 17, and look much more like a best estimate and more in line with what's in our own Solvency II thinking and underlying it. And so that's how these will evolve as opposed to what does the regulator say is what your allowance up. What that will drive is us optimizing the assets that we source, and that's why we're working closely with them for them to understand what does it mean for our portfolio? What does it mean for the assets that you would look to put on the books so that we can do all the things we talked about earlier in terms of yield uplift, et cetera.

[indiscernible] from UBS. So Jeff, you kind of answered that one of my questions there. On IFRS 17, it seems like the GBP 3.4 billion credit reserve isn't going to be there. But could you give any other color on IFRS 17 operating metrics that you're looking at Second question on OSG, and I can come back to add on this. There was -- in the analyst pack, there was a projection. And on that, the 2021 number was GBP 0.9 billion, but in the presentation, GBP 1.1 billion. So what's the difference? And secondly, it runs up until 2040 in the analyst pack. Do you have any more OCG coming after that?

They're all for you, Jeff.

Yes. IFRS 17 -- well, we still have an operating profit, we'll still have those whether we've got a whole suite that we could use at the risk of confusing people. So we'll look at that as it develops. And obviously, there's discussions at CFO forum in terms of what do they think will be useful disclosure. And you'll probably all come up with some as well. So we'll need to pick the best of those and see what makes sense, what will people want to understand about CSMs and everything else. So that will be down the track, and it will be the joys of all the education sessions in the second half of this year. OSG, it's just management action. So the GBP 14 billion that we show is without management actions, we say GBP 100 million to GBP 200 million. And from that, you can deduce it's close to GBP 200 million subject to rounding in the first year of the projections that we're showing. I suspect that that's the runoff within the model, and we go all the way to 2040. I suspect it's trivial beyond that. We don't really have many more liabilities beyond the we will have some deferred annuitants who are very young, but otherwise, there won't be much beyond that.

[ Indiscernible ] from Barclays. Two -- one of which I think is quick, but both high level. In Asia Pac and U.S. expansion, what are the biggest opportunities and the biggest hurdles? And possibly related to that, on LGC earnings, it's currently dominated by housing, but there is a lot of activity on the infrastructure and scientific development front. How should we think about the evolution of the earnings profile? And over what time frame?

That wasn't the quick one, right? The second one. Do you want to answer second one? Jeff, do you want answer the first one?

So I could can't catch whether it was LGM or LGC?

LGC.

LGC U.S. expansion. Well, I mean, we talk about this a lot and we talk about [indiscernible], and John will be very strong on this. The biggest barrier and opportunity is making sure you have people who know what they're doing. It goes without saying. But we are -- lots of people that sit in the U.K. when we've done things well, it's doing what we've done in the U.K. and export in that to another country, but making sure that it's a combination of our people and local knowledge that really understands what's happening in the market. And we're very, very focused on that. And at all levels, we will challenge who really knows what's happening, plus have you got the people who've executed well. So whether that is infrastructure and urban regeneration or whether it's Site, who's done it really well here and who are they going to work with locally that really understands it and who's worrying about it every day. So that's the way that we manage both the risks and the opportunities of doing that. And that takes time to source the right people.

And in terms of the sort of change of where we get our profits over time, I think you're right. I think over time, we will see or LGC being less dominated by housing and a much more distributed towards climate transition earnings and as well as the sort of infrastructure like earnings that you referred to in terms of -- is a combination of real estate infrastructure and things of -- like we're doing with SciTech, et cetera, which I think we see a real opportunity for us given we were very much a first mover advantage in sectors, sort of specialist sectors like that.

I was thinking Greg hasn't asked us a question because he wasn't here, but he's just come through and so Greg Peterson what happened in annuity margins was what was the impact of Phoenix and Aviva run competition there. In the annuity margins higher than it was in 2019, and a bit lower than it was in 2020. So it's in the middle of the last 3 years, and that's kind of an average where we would expect to be. And there's all sorts of variables in that. But the -- it wasn't the Phoenix-Aviva competition. It's a very big market as we're saying, whether it's GBP 35 billion or GBP 60 billion or whatever it is this year, we will get a respectable market share. We brought off to a good start, and we're very happy with the margins that we've got so far. And as Jeff said, we had a round about GBP 1 billion under exclusive or completed, I think the exclusive bit was about GBP 50 million, and the completed was about GBP 950 million of it. So we've got a lot -- we've already completed. We're very happy with the progress for the rest of the year. I'd just like to say a big thank you again to all of my executive colleagues who are here with me today, but the rest of the organization at L&G for delivering a great set of results in 2020, and also great set of results in 2021. However, 2022 is already in progress, and we're setting a very, very high bar for ourselves in 2022. We're very confident that we're going to deliver that. And thank you for your support. It's great to see you all here. Hope to see you at, at least 1 Capital Markets Event in 2022. And obviously, our interim results in 2022. And let's hope the COVID doesn't strike again, and that there are worse things happening in the world and that somehow we kind of have a really good 2022 on many different levels. So thank you. Take care. Bye now.