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

Good morning. A very warm welcome both to those of you in the room and to those joining online. My name is Ed Houghton, I'm the Group Strategy and Investor Relations Director. Just a few housekeeping points before I hand over to Antonio. Firstly, to those in the room, please do make sure you've turned your devices to silent. In the event that the fire alarm sounds, colleagues will guide you towards the nearest exits. The normal forward-looking statement apply. Our agenda for today is summarized here. Antonio will set out our group strategy. Jeff, our financial metrics and reporting. Antonio will then cover how we are executing our strategy across our divisions before opening to Q&A. So then without further ado, let me hand over to Antonio.

Thank you, Ed, and welcome, everyone, and thank you for joining us this morning. It's a pleasure to be here today to share our vision for the future of L&G. When I spoke to you back in March at our 2023 presentation, I promised a fresh perspective. And since January, we have undertaken a rigorous review of our business, listening to feedback from investors, from our customers, from partners and from our colleagues. And this process has deepened my conviction about the strength of our starting point, but also our growth potential. Over the next hour, we will set out three things. Firstly, the next phase of growth for L&G, building on our strong foundations. Secondly, how we will deliver in a simpler and more focused way. And finally, how that will create enhanced returns for our shareholders. So what is the vision? In 12 years' time, L&G will be 200 years old. We have a clear vision for a simpler, more synergistic and capital-light L&G with three core businesses: Institutional Retirement, our pension risk transfer business, Asset Management, which will grow and account for a larger portion of the group over time and finally, Retail. Collectively, these three businesses are dedicated to serving the long-term savings and investment needs of customers and society. So what are we announcing today? You can see it here on this slide. Over the next 5 years, we will deliver sustainable growth, sharper focus and enhanced returns. We will sustainably grow each of our three divisions, seizing the opportunity in front of us in Institutional Retirement and, at the same time, investing to grow Asset Management and Retail. We will adopt a sharper focus on delivery. From today, we're bringing together our capabilities across public and private markets by combining LGIM and LGC to create a single global asset manager. We have already implemented a new capital allocation framework, so we are disciplined in the deployment of our resources. We're being explicit today about which businesses are strategic and therefore, we have created a corporate investments unit to manage the nonstrategic assets in order to maximize their value for shareholders. And finally, we are committing to delivering enhanced shareholder returns. Today, we have set out new targets for earnings growth, for return on equity and Solvency II capital generation. We've also listened to shareholder feedback. And we are changing our approach to distributions. We will now return capital to shareholders through a combination of dividends and buybacks, with the intention and this is important, to return more to shareholders over the next three years. We are starting with a GBP 200 million buyback in 2024. Over the next few slides, I will talk you through the key pillars of the strategy and importantly, the thinking process behind it. I'll then hand over to Jeff to give you more detail on the financials, and then I'll come back to cover divisional priorities and execution plans. So as I said, if you step back at the full year results, I showed you something similar to this, the strengths of L&G are clear and are what attracted me to take on this role. Our authentic purpose, the talented people we have and our performance track record and financial strength are all significant strategic assets. The strategy and plans that we are discussing here today build on these strengths. Our businesses are well positioned to benefit from long-term structural industry trends. Basically, we're in prime position to capitalize on those shifts. The shift in responsibility for pension savings away from employers towards insurers and individuals, represent a significant opportunity for all three of our businesses. Climate transition and the demand for productive finance are creating investment opportunities for our clients and also for our own balance sheet. Advances in technology and AI give us a significant opportunity to better connect and support our customers as well as make our business more efficient. And finally, we have demonstrated our resilience to increase economic and geopolitical volatility, and we can help our clients to navigate those same uncertainties. So whilst we are well positioned, as I've just said, throughout this strategic review we did in the last 5 months, we've been asking ourselves the question, what has been holding us back from reaching our full potential? There are areas where we can and we will improve. First, our Institutional Retirement business will continue to deliver for many years, but we are now being clearer about our growth beyond PRT, and we are articulating this in a simpler and more transparent way. Second, most of our businesses are strategic and they perform well, but we needed to identify those that are not, in order to become more disciplined with our allocation of capital or resources and our own management time. And finally, our businesses have strong synergies between them, but we are organizing ourselves better, breaking down silos to deliver those synergies and to work more efficiently together. So our strategy builds on our strengths and on market tailwinds whilst addressing what has been holding us back to achieve three things: sustainable growth, a sharper focus and enhanced returns for shareholders. So I'll start now with sustainable growth and our three growth engines of Institutional Retirement, Asset Management and Retail. First, Institutional Retirement. There is a significant opportunity ahead of us and Pension Risk Transfer will continue to be a powerful driver of our business for many, many years to come. Here in the U.K., you can see that on the chart, the share of insured DB assets at the moment is 16%, and that's forecast to increase to 50% over the next 10 years. Looking more globally, only about 10% of the GBP 6.6 trillion managed by Defined Benefit schemes in the U.K., the U.S., Canada and the Netherlands, are currently insured. And very few providers can replicate what we are able to do in this market, leveraging the strength of our relationship built over many years through asset management and our asset origination capabilities. The economics are highly attractive for us and deliver reliable earnings over many, many decades. So that's Institutional Retirement, where we have an incredibly strong business. I'm now really excited to talk to you about the plans that we have been developing in Asset Management. Asset Management is the driver of our future vision and will, over time, deliver a shift in group earnings towards more fee-based, capital-light business. Despite headwinds, Asset Management is an attractive global market, which will continue to grow. And it's one where we have the right to win, particularly given the increasing trend of asset managers and insurers coming together. We have solid building blocks and are well positioned through our scale, our performance track record, our asset origination capabilities and our own balance sheet, which acts as a valuable source of patient capital to [ seed ] growth. We have detailed plans to improve the profitability of our public markets business, recognizing that our financial performance like other asset managers has been under pressure. I want to grow this business and increase our focus on private markets. I will talk more about our plans later in detail, including the creation of a single asset manager through the combination of LGIM and LGC. Finally, Retail. We have 14 million customers and members across all our Retail businesses, and with strong market positions and prospects for profitable growth in all of those. Specifically, assets in workplace and personal defined contribution schemes have increased, as you can see, and will continue to grow materially over the coming decade. We are well positioned with a 26% market share of the U.K. DC market. Once acquired through this channel, we are able to support customers across their life stages. I'll also talk about this more in detail later, but this leverages our capabilities as an asset manager and as an insurer, providing accumulation at retirement and decumulation solutions. So in summary, in terms of sustainable growth, each of our three businesses have reliable earnings and the potential for significant growth upside. In Institutional Retirement, we have a steady store of future profit, which will release reliable earnings for many years to come. And as we write more PRT, we will create further patient capital to support our asset origination capabilities. In Asset Management, we have a large-scale business, GBP 1.2 trillion, and we are -- we have a well-established reputation, we have a long-standing client base and we have a valuable internal clients. Our plan here is to shift towards higher-margin strategies, both in public and private markets. And in Retail, our Protection and Annuities businesses provide reliable earnings. The growing DC asset pool that I just mentioned offers us additional opportunity to support our customers throughout their lifetimes. And taken together, this opportunity support both a steady stream of earnings and the gradual shift towards more capital-light businesses, particularly as Asset Management earnings grow and then they compound over time. So turning to our sharper focus on execution. We're bringing together LGIM the U.K.'s largest asset manager with L&G Capital, our primary asset originated to create a single asset manager, with GBP 1.15 trillion assets of Public Markets and GBP 48 billion of private markets AUM. This basically achieves three things. First, it acknowledges and responds to the growing client demand for blended public and private market solutions. Second, it enables us to use our global distribution capabilities and to better support origination. And finally, it simplifies our operations with an integrated infrastructure to deliver our growth ambitions. We are excited about this next chapter of our Asset Management business. Michelle Scrimgeour, as announced, as you saw this morning, her intention to step down and we have begun a global search for a new CEO to lead the combined business. Michelle will continue as the CEO of LGIM, until this appointment is made and will lead the transition and the establishment of our new division, together with Laura Mason who, as you know, was leading LGC and he is now appointed CEO of Private Markets. Both will continue to report to me during this transition and continue to form part of the Group Management Committee. So turning to capital allocation. This is important. We have implemented and embedded into our governance, a new framework, which is applied to all new capital investment decisions. This framework is based on 5 filters. Filter 1 assesses strategic attractiveness. Basically, that's the market potential and our own rights to win in that market. Filter 2 assesses the value which that business creates for other parts of the group, basically the synergies between them. Filter 3 assesses profitability. This is an important one. We have a series of metrics in all of our business: IRR, strain, but we felt the need to compare returns across divisions and across businesses. And importantly, to compare it against the alternative uses for that capital, including returning it to shareholders. So we've set the hurdle for return on capital and return on cash for all of our businesses that needs to be above our cost of equity. At the moment, that hurdle is 14%. Filter 4 assesses the absolute contribution to group earnings over time. Basically, this is the size and reliability of those earnings. And Filter 5 assesses the fit of that business with our risk appetite. These filters provides discipline in making new investments, but we've also applied them to our current portfolio. That analysis confirms what I've told you before, that we have a strong set of businesses, that are both strategic and performing. The top right quadrant shown here identifies businesses that we want to invest in and grow. For instance, this is the case with Institutional Retirement, as you can see there in green, and our Retail businesses in red. The bottom right quadrants identifies businesses that are equally strategic, but where we want to improve profitability, principally here our Public Markets, Asset Management business. We're taking action to improve its profitability and to grow it together with our Private Markets business. Businesses on the left-hand side of the chart are not strategic, even if some performed well financially. This will be housed in the new corporate investments unit, which will report to Jeff as the CFO, and will be managed in a way that maximizes shareholder value. We have identified GBP 1.9 billion of these assets, of which the largest, as you can see on the chart, is CALA. In that context, it's worth a moment on CALA. CALA has been a great asset for us, growing substantially on all metrics. You can see it on the slide since the beginning of our ownership back in 2013, and is now the 10th largest housebuilder in the U.K. However, CALA, to be clear, is not strategic. And why is it not strategic? It doesn't create assets for our annuity book or for third parties and therefore, is not synergistic with the rest of the business, that's Filter 2 that I mentioned earlier. Our other housing platforms, however, are strategic, for instance, Affordable Homes. There's a great management team at CALA and we will support them to maximize value. As with all the assets in our corporate investment unit, we are exploring options and are open-minded about sale or retention to maximize value. And finally, what does this all mean for returns? Over the next three years, we will target 6% to 9% annual growth in core EPS with a return on equity above 20%, and a Solvency II capital generation of GBP 5 billion to GBP 6 billion. And we will return more to shareholders through a combination of dividends and buybacks. The superior returns are driven by our synergistic model between our three business divisions. And I really wanted to bring this to life for you with a few real examples. First, between Asset Management and Institutional Retirement, 88% of our PRT deals over the last three years were with clients of Asset Management. As an example, as you can see on the slide, our largest ever PRT deal with Boots last December, grew out of a 23-year long relationship with their DB scheme on the Asset Management side. And by the way, we also manage their ongoing DC scheme. A second example demonstrates how the permanent capital provided by Institutional Retirement creates the opportunity for third-party capital to invest alongside us, capitalizing growth and returns and by the way, giving us fees within Asset Management. Last year, we invested a further GBP 500 million together with the Greater Manchester Pension Fund in our long-standing investment in Bruntwood SciTech. There are also powerful connections between our Asset Management and our Retail businesses. Our asset management expertise means that we can offer customers a wide range of options from asset accumulation to decumulation. We serve DC pension schemes in a variety of ways, including through the U.K.'s largest commercial master trust with GBP 27 billion. And we have developed an exciting proposition, allowing DC members to access illiquid assets, so including real estate, private credit and infrastructure. Following FCA approval, we will launch next month in July, a new private markets access fund as part of our default DC proposition. Institutional Retirement and Retail also have strong synergies between them. Our home finance business creates lifetime mortgages, and there is great growth potential for this product, as you can see on the slide, with GBP 2.6 trillion of housing wealth held by over 65-year olds. These assets offer long duration and reliable income that we can use to meet our long-dated annuity liabilities. Also, we run our annuity book more efficiently combining Institutional Retirement and Retail annuity portfolios. For example, we have synergies in asset liability management, investments and payments. These synergies also apply to our international operations. In the U.S., we have to make the most of our established businesses across Institutional Retirement, Asset Management and Retail protection. By strengthening the connections between our U.S. businesses, we believe we can scale more rapidly and more profitably. One example is the work that we're doing with U.S. universities, learning from our U.K. model to originate high-quality assets. More broadly, in Institutional Retirement, as I said earlier, there are significant opportunities and pools of Defined Benefit assets coming to market across the U.S., Canada and the Netherlands. We are leveraging our reinsurance capabilities in Bermuda to write business in Canada and potentially in the Netherlands with local partners. And finally, on the right-hand side, Asset Management is already a global business. 40% of our AUM is from outside the U.K. We have 12 offices in key markets in the U.K., the U.S. and across Continental Europe and Asia. We are seeing high demand for our proposition and brand, particularly where we are offering purpose-led and responsible investment expertise. At the core of our synergistic model -- actually at the core of our strategy as a whole is our shared sense of purpose. This is a powerful source of competitive advantage that unites our businesses and has been instrumental in L&G's success. Our purpose and our trusted brand are key to our long-term customer, client and partner relationships. For instance, in PRT, we know that our brand reputation and our sense of purpose are important considerations for pension trustees, when selecting a buyout partner. Our purpose also provides access to profitable asset origination opportunities. A great example here is our relationship with Oxford University, where our commitment to purpose was critical in their decision to partner with us. We are proud investors in cities across the U.K., for example, in Sheffield, Manchester, Cardiff, Leeds and Newcastle and will continue to be so. And we know that purpose is an important factor in helping to attract, retain and motivate our people. Our commitment to purpose delivers strong shareholder returns and wider benefits to society. And actually, this sense of purpose dates back to the establishment of the company. As it happens, our first Board meeting was on the 18th of June of 1836. So almost exactly 188 years ago to the day, next Tuesday, I think. So to sum up, you can expect from L&G three things: sustainable growth. We will make the most of the Institutional Retirement opportunity ahead of us while investing at the same time in our future growth engines of Asset Management and Retail. A sharper focus, we're reshaping our portfolio of businesses and sharpening our capital allocation and execution capabilities. And enhanced returns will make the most of the synergies between our businesses to increase shareholder returns. I'll now hand over to Jeff to go through our financials in more detail. Jeff?

Good morning, everyone. I'm going to take you through the simple and clear metrics we're going to use to track our performance against our updated strategy. These metrics will form the basis of our new financial targets out to 2027. Then I will explain how the establishment of both our single Asset Management division and Corporate Investment Unit impacts our financial reporting. And finally, how we think about our balance sheet management, capital allocation policy and shareholder distributions. Our new 3-year group financial targets will start at the end of this year when our current ambitions end. As we said in March, we are comfortably on track to meet these. To track our earnings growth, we will use core operating EPS, targeting a compound annual growth rate of 6% to 9% to full year '27. This will exclude the operating profit generated from our Corporate Investments Unit. To measure the consistency of our performance and profitability, we will target a minimum level of operating return on equity of 20% each year. And finally, we will continue to track our cumulative operational surplus generation under Solvency II, demonstrating our confidence in the predictable nature of capital emergence. We will target GBP 5 billion to GBP 6 billion of cumulative capital generation over three years. Another important metric under IFRS 17 is the store of future profit, comprising the contractual service margin and risk adjustment. This amounted to GBP 14.7 billion at the end of 2023. This store of future profit releases into the P&L over time, generating a predictable and consistent stream of earnings. We expect to continue to grow this store of future profit as we write profitable new business. As an example, this chart shows the growth in the balance for Institutional Retirement over the next 5 years, if we were to write GBP 10 billion of U.K. PRT per annum. GBP 10 billion of PRT adds approximately GBP 800 million to our store of future profit. This runs off at 6% to 7% a year generating growing operating profits. So turning to the changes in financial reporting. This is important based on the feedback this morning. So as we simplify and focus our business and establish a single asset manager. We will allocate LGC's assets to the different parts of the business that they support. Our asset origination platforms will be transferred into our asset management business as we seek to attract third-party capital to further scale these investments. This will include strategic investments such as our affordable homes and build-to-rent platforms. Pemberton, our Life Sciences platform, SciTech and Ancora and [Kao] in digital infrastructure. We will also transfer growth equity investments, which are suitable for seeding new managed funds such as our portfolio of clean energy investments, for example, Kensa, Tokamak and Rovco. In addition to our GBP 2.3 billion of traded assets, our annuity businesses will receive our fully developed and cash yield in direct investments as they continue to generate steady long-term cash flows. This includes our existing investments in clean energy infrastructure, specialist commercial real estate and underlying Pemberton structured debt. These are co-investment assets where we have put shareholder capital to work to support the growth of these businesses. The GBP 1.7 billion of assets, which we have identified as nonstrategic will be managed in our corporate investments unit. This includes CALA, as well as some legacy real estate and land assets. As Antonio mentioned earlier, whilst we consider these assets to be nonstrategic, we are in no sense a forced seller, and we'll seek to manage these assets for maximum shareholder value as a long-term investor. To be clear, there will be no changes to the group's legal structure or Solvency II capital structure as a result of these changes. Going forward, our financial statements will reflect our new structure, with our 3 business divisions contributing to our core operating profit metric. LGC's profits will be split between the 3 divisions and corporate investments in line with the asset allocations I have set out. As I said, operating profit from corporate investments will not be included in our core operating EPS metric. In 2024, we expect to deliver mid-single-digit growth in core operating profit for the full year. However, in 2023, performance was skewed to the first half across several items, such as asset revaluations and release of provisions, such as for adverse U.S. mortality. Therefore, we do expect the half year operating profit result to be broadly flat, but with that anticipated growth by the year-end. So let's now move on to our balance sheet. Our Solvency II debt leverage is below 30%, low relative to U.K. peers and improves as we continue to grow the balance sheet. We have a strong capital position, 224% at full year '23 and currently estimated to be at the same level, providing us with optionality to execute our strategy. The strength of our balance sheet provides us with the ability to capitalize on the PRT opportunity, whilst also investing in our other divisions and returning more capital to shareholders. In addressing the PRT opportunity in front of us, it is likely there will be periods where we may draw down on surplus capital, such that the coverage ratio reduces to a still healthy and manageable level. Subsequently, we would expect the capital position to increase over time, a significant surplus emerges from the larger stock of in-force business. We will continue to manage the level of surplus capital in light of prevailing market conditions, whilst maintaining strategic optionality to allow us to invest in the near-term growth opportunities as they arise. So now moving into our investment portfolio. Our strong balance sheet position is underpinned by the detailed management of our credit portfolio and track record of close to zero defaults. The A- annuity portfolio is defensively positioned and actively managed to mitigate defaults and downgrades. We have maintained high credit quality with 99% of our bond portfolio at investment grade, and 2/3 rated A or better. The annuity portfolio's direct investments received 100% of scheduled cash flows in 2023, reflecting the quality of our counterparty exposure. The portfolio is highly diversified and well positioned to withstand market shocks and idiosyncratic credit events, with, for example, only 8% exposure to U.K. cyclicals. Our GBP 86 billion annuity portfolio is invested in over 1,500 issuers spread across 15 sectors and multiple geographies and more than 50% invested overseas. Our private credit ratings team is independent from the origination team, and ratings have been tested against external rating agencies to ensure the robustness of our internal process. Our portfolio is regularly stress-tested and it has proven to be robust in real-world scenarios, such as the financial crisis and more recently during COVID, giving us confidence in the strength of our portfolio. So moving to our capital allocation policy. This has three pillars: balance sheet strength, investment for growth and shareholder returns. As we have addressed in the past, we do not believe it is appropriate to set a coverage ratio target for the group, as it is dependent on the prevailing macroeconomic environment, notably interest rate levels. We manage our balance sheet in a manner that reflects these macroeconomic conditions to ensure we have sufficient solvency and liquidity buffers to meet our regulatory needs, and to provide optionality to capitalize on opportunities even in stressed markets. We will continue to invest for growth, clearing the cost of equity hurdle as set out earlier, and prioritizing organic growth across our three divisions. There may also be bolt-on acquisitions in Asset Management. We will continue to weigh investment for growth against the return of surplus capital to shareholders. Any capital generated from disposals will be deployed in line with this capital allocation framework. We continue to believe we have significant areas to deploy capital with attractive returns. Whilst disposals may provide a source of liquidity, their impact on our capital position may be more muted. Using CALA, as an example, any eventual sale would have a very low single-digit impact on the coverage ratio, as the associated capital charge is only around GBP 100 million after diversification benefits. And finally, over 2024 to 2027, the Board intends to return more to shareholders than the equivalent 5% per annum growth in dividends per share. This will be achieved through a combination of dividends and buybacks. As stated earlier, the Board has confirmed its intention to grow the dividend by 5% in 2024. Thereafter, the Board intends to grow dividends per share by 2% per annum. We will undertake our first share buyback of GBP 200 million in 2024, and we look to undertake further similar buybacks in subsequent years. As I've said, this will be subject to the market environment, our views on solvency buffers and opportunities for investment in the business, including Institutional Retirement. I will now pass back to Antonio, who will give more detail on our execution plans for each of the three divisions.

Thank you, Jeff. I now want to turn to how we will execute on our strategy. We have a series of initiatives underway, which require rigor in execution. And to support this, I created a transformation office back in March, reporting to Emma Hardaker-Jones, our Chief Transformation and People Officer. The transformation office is already up and running. It's ensuring disciplined prioritization, driving efficiencies and determining how we best organize ourselves to deliver. Technology is an important catalyst for growth with a focus on improving digital engagement with our customers. We are simplifying our processes, modernizing our systems and reducing legacy costs. We are using AI to automate lower-value tasks to improve decision-making and the lives of our people. A good example is our GenAI chatbot in group protection. And finally, on people and culture. I'm a strong believer that you cannot separate culture from strategy. Our culture needs to continue to evolve. This change has to come from the top. And as an executive team, we've already made a number of changes so that we work more effectively together, and we break down those divisional silos that I mentioned earlier. I will now set out our divisional targets and our implementation plans. So as I said earlier, in Institutional Retirement, we are the market leader, and our model enables us to generate attractive long-term returns. We expect to write between GBP 50 billion and GBP 65 billion of U.K. PRT over the next 5 years at the strain below 4%. Collectively, we expect our Institutional Retirement business to deliver operating profit growth of 5% to 7% per annum through to 2028. So we're well positioned in a growing market, following the rise of interest rates and the improvement in pension scheme funding levels. You can see it here, over the next decade, we expect to see the U.K. market volumes of roughly EUR 45 billion per annum, similar to what we saw last year in 2023, and GBP 20 billion per annum higher than the levels that we saw between 2018 and 2022. There will inevitably be some lumpiness in this year-by-year, because particularly as large schemes come to the market. The economics of writing PRT are highly attractive for the group in both profit and capital generation terms. As Jeff mentioned, GBP 10 billion of new PRT business generates GBP 800 million of store of future profit for the Institutional Retirement business, and GBP 100 million of fee-related earnings for Asset Management spread over the lifetime of the liabilities. In Solvency II capital terms at the bottom here, it generates more than GBP 1.5 billion of capital on an upfront capital strain of GBP 200 million to GBP 400 million, that's the sort of 2% to 4% strain aligned with below 4% number I talked about earlier. This basically means in simple terms that we generate GBP 5 of capital for every GBP 1 of capital that we deploy in this business. This delivers a reliable set of cash flows over time and a payback of around 4 years with this graph, you can see how the GBP 1.5 billion of capital emerges over time. Beyond the U.K., the international opportunity in Institutional Retirement is significant, and we are well placed to address it. We have made significant progress in the U.S. We've transacted USD 10 billion -- not USD 100 billion, it will be quite a lot -- USD 10 billion in PRT business since we entered that market back in 2015 and will grow further together with our Asset Management business. We also see opportunities in Canada and the Netherlands, where we partner with domestic providers and basically reinsuring their transactions through our own reinsurance hub in Bermuda. So critical to our ambitions in Institutional Retirement as a whole is our ability to originate, to source and manage long-duration assets for our long -- for our liabilities and which brings me nicely into Asset Management. Asset Management is central to our long-term vision for the group, and I'm excited to tell you about our plans. And whilst we have a great starting point as the U.K.'s largest asset manager and our investment performance has been strong for our clients, the financial performance similar to competitors has under-delivered. So over the next few slides, I want to set out in detail why we are in a good position to grow the business and turn around that profitability. We need to be prepared to do things differently, which is why I've created a single asset management division through the combination of LGIM and LGC. And as I mentioned earlier, we have launched a global search for a new leader of the combined business. Our objective here is to increase the cumulative annual net new revenues, by more than GBP 100 million over the period of '25 to '28, and by '28 to grow our private markets AUM to more than GBP 85 billion, and to deliver overall more than GBP 500 million in operating profit. Now taking a step back for context. Despite all the headwinds that we're all aware of, the Asset Management industry will continue to grow, and we are well-placed within it. Global industry AUM on the left and then to the right of its revenues are both expected to grow at 7% per annum to 2028, basically with ongoing fee compression on the public market side more than offset by the growth of higher revenue private market strategies. When I look at our business, we are well positioned to grow, but we do not have the right to win in all segments. So we have been selective about our areas of focus. In private markets, we are focused on private credit, infrastructure and real estate, but not, for instance, private equity. In public markets, we are focused on index, multi-asset solutions, active fixed income. You can see them there, but not, and this is important, for instance, active equities where we continue to see significant revenue margin compression. So our strategy reflects the structural trends in the market. Clients are looking to reduce the number of asset managers they use, preferring those who can provide solutions across public and private markets. They're looking for global partners like us to bring them the best opportunities. They are setting investment mandates aligned to their values with a focus on responsible investing, and they're always looking for value for money, which we deliver through performance and scale. We have the right building blocks to win in this market. We have a global and trusted distribution network. We have proven and established capabilities in investment, and you can see the key products there of index, active fixed income, solutions, private markets and multi-assets, and we have a robust, at scale supporting infrastructure. And all of this is supported by the catalytic power of our own GBP 100 billion balance sheet, by our established position in responsible investing and by our rigorous approach to risk management. So let me focus on those first for a minute on our network and our distribution. Our network is broad and deep. In the U.K. and Europe, we are the top manager of European institutional assets and have built a solid fundraising track record. We see significant growth opportunities in higher-margin wholesale segment. You can see it there currently with 5% of our AUM, and in Asia Pacific and North America that currently are 30% of our AUM. On the investment side, we delivered strong performance for clients, but we can improve margins. So basically, let me take you through this. Of our GBP 1.2 trillion assets under management, 75%, basically the dark blue bit is index and solutions at an average margin of 5 basis points. These are valuable product lines, which we manufacture at low cost and which give us entry points to higher-margin strategies and provide the building blocks for our multi-asset strategy. So you can see on top of that, we have GBP 84 billion in multi-asset with a revenue margin of 18 basis points and then we have GBP 169 billion in fixed income with an average revenue margin of 14 basis points. And importantly, if you look on the right, we have delivered 95% outperformance for our clients over the last 5 years in fixed income. And then in private markets, we have GBP 36 billion of assets with an average revenue margin of 41 basis points and here, our U.K. real estate equity strategies have delivered 86% outperformance for our clients. Separately, and it's not reflected here on the slide, we have another GBP 12 billion AUM in private credit through Pemberton, of which we own 40%. So we have strong investment performance and growing momentum. You can see on the right-hand side of the slide, some recent successes. We are taking action to build on this and improve our margins. So as I mentioned earlier, effective today, we have created a single asset manager that brings together the best of our distribution and investment expertise. This single platform will accelerate growth across public and private markets, both for third-party clients and for our own balance sheet. A lot of planning has gone into the implementation of this, so that we have a smooth transition for our people and importantly, for our clients. Success will require us to invest in the business to support scalability and growth. First -- we're investing in three buckets here. First, we have been investing through our partnership with State Street to build a global consistent automated platform. The first phase of this program was successfully delivered in January. Second, to support revenue growth, we are organically investing GBP 50 million to GBP 100 million per annum over the next 5 years in a targeted and disciplined manner. And finally, we are very clear on the need to manage BAU costs carefully, and we're focused on rigorous cost discipline. These three things, taken together, mean that you can expect moderate cost increases over the next 5 years. You should therefore expect to see a moderate initial increase in our cost to income, before it then comes down as revenues increase. So that targeted investment for growth will deliver GBP 100 million to GBP 150 million of cumulative annualized net new revenue, ANNR, between 2025 and 2028. And this ANNR will have a higher margin, this is important that our current business and continue to grow and compound beyond 2028. We are expanding into higher value, higher margin products, like active fixed income, alternative indexing and ETFs. These are businesses which are really well aligned to our heritage. We're also growing multi-asset solutions, which blend these strategies together to create bespoke client solutions. We are expanding our client base into growing markets, wholesale and U.K. DC and geographies, the U.S., Asia and Continental Europe. And finally, private markets. Private markets will be a major driver of our growth. We are highly credible with a long established track record in real estate for over 50 years, and also in private credit and infrastructure, which are all well suited to the liability profile of our own balance sheet. We expect our GBP 48 billion in private markets AUM to grow to more than GBP 85 billion by 2028, GBP 60 billion directly through L&G and GBP 25 billion through Pemberton, driven by an accelerated program of fund launches. And several of these investment strategies have been successfully developed in LGC and LGIM real assets over the last decade, what we're now doing is looking to distribute them to third parties. For instance, new funds in affordable housing, in clean energy and in university spin-outs. As mentioned earlier, we are particularly excited to be launching the L&G Private Market Access Fund in July, which will allow DC schemes to access illiquid investments. And this is a perfect example of our synergies between our Asset Management business and our Retail businesses. So on that note, turning to Retail. We have 14 million customers and members across all our Retail businesses. We see particularly the growth in DC assets as a major opportunity, and will add between GBP 40 million and GBP 50 billion of net flows to our Workplace administration business by 2028. Workplace is an important acquisition channel providing this the opportunity to then establish long-term relationships with those customers, through wealth accumulation and decumulation and our protection businesses. We will deliver 6% to 8% compound annual growth in operating profit in retail over the next 5 years. We are leveraging our existing capabilities and leadership positions with limited incremental investment. So Retail, we are proud to offer products and services to support people throughout their lives. And you can see here that today, we have 5 million customers and members in accumulation products shown here on the left-hand side of this slide, people who are growing their assets and investing in their futures. As these customers grow older and retire, they will join the more than 600,000 customers who use our retirement products, comprising of individual annuities, drawdown and lifetime mortgages, those on the right-hand side. We wanted to retain more customers at the point of retirement. And through hybrid help and advice solutions, we will support them in making good retirement choices. We also provide insurance, as you can see there at the bottom, to 8.2 million customers and members through our protection products, which have existed as a core pillar of our business since our inception. So as I said earlier, a significant driver of growth will be capitalizing on the U.K. Workplace DC opportunity. This is a market forecast to grow to reach GBP 950 billion AUM by 2028, in which we have a 26% market share. Over that time, we are targeting GBP 40 billion to GBP 50 billion of net flows into Workplace administration. And this is from a base today, you can see there at the bottom, of GBP 80 billion today. We have clear synergies in this business as over 90% of our Retail Workplace DC assets are managed by our asset manager. So going forward, we will achieve greater operating leverage, as we continue to scale and grow this business. And a good example here on the slide is that we recently digitized our pension consolidation journey, which doubled our monthly volumes, while lowering our unit costs by 40%. So that was the accumulation phase. Now turning now to decumulation. We are the leader in U.K. retail annuity market with a 20% -- 24% market share and GBP 18 billion in-force book. In the middle, the GBP 240 billion drawdown market will continue to grow, driven, right, by the growth in DC, DC grows and then the drawdown market grows as well. Here, we actually -- we have a very small market share today, and we see significant opportunity to increase this. And we increased this by leveraging our multi-asset solutions in Asset Management. On the right-hand side, you can see the lifetime mortgage market. As you know, it has been subdued due to the impact of higher interest rates, but we continue to see significant growth opportunity in this market, and we expect it to double over the next 5 years. And lifetime mortgages, as you know, can be a valuable source of finance for homeowners and retirement and are well -- really well suited for our own annuity balance sheet. Finally, we have three scale protection businesses, U.K. Retail Protection, U.K. Group Protection and U.S. Retail Protection. We have leadership positions in each of them. And collectively, they have delivered more than GBP 1.1 billion of operating profit over the last 5 years. We are focused on maximizing profitability across these businesses, continuing to drive efficiency through technology, data and AI. A great example is the 80% of Retail Protection customers here in the U.K. are automatically underwritten. So the growth strategy for Retail is about supporting our 14 million customers and members through their lifetime, leveraging our existing capabilities. So in closing, I want to leave you with three key takeaways. First, we have scaled businesses in Institutional Retirement, Asset Management and Retail, each with attractive growth prospects and high-quality teams. Collectively, they will power sustainable growth for us over the next few years and the long term. Second, we have announced today some important steps to bring sharper focus to our business and to the execution of our strategy. And finally, we will deliver profitable growth and reliable capital generation in support of greater returns to shareholders. Thank you. I would like now to invite on to the stage, Jeff back on to the stage, and Andrew, Laura, Michelle, Emma and Bernie to take your questions.

Great. I think I'm going to start, as I did last time right to left. So hold on with me there. I'm going to start Farooq there first, please say your name and if you can keep to the usual three questions without 1B, 1C, 1D. I think so.

Farooq Hanif from JPMorgan. Just starting on asset management. It seems like you've been investing in that for a very long time that people have been complaining about the cost income ratio. So when will it ever end, I guess is the question, because obviously I think you're guiding towards a slightly increase in cost income ratio. Most people expect that to have been coming down by now. So when will it end? And why not just buy stuff instead to get that capability? So what's the kind of relative risk reward in that? I guess secondly, understanding CALA, let's say you did sell it. I get that the capital release might be low, but the cash amount that you'll have will be a lot. I mean even if you vested that in gilts, you'd probably get GBP 40 million to GBP 50 million earnings. So is the idea that corporate investment unit profits essentially transfer into operating profits? So we just need to be clear that they can become part of core because you'll reinvest that money somehow or give it back. And I guess my third question is on being a capital-light business. So is that just the transformation into asset management? Or do you think you can get more capital light in PRT. So I guess the question is the ambition to use funded re going forward?

Great. Thank you, Farooq. So I'll start with Asset Management. I'll mention something on CALA and maybe Jeff, you can add a bit on that, and I'll also address capital light. So thank you for sticking to the three questions. So Asset Management, I think if we step back, what I've said during the presentation, and hopefully, you got that from my tone and enthusiasm. We are very excited with the plans that we're putting forward to -- in Asset Management. And it's a growth strategy. We believe that we have the right to win in the selected areas of Asset Management that we have focused on. So the overall strategy we're announcing today is a growth strategy. In order to grow, we are investing. And to be clear, you saw that slide earlier where I had these three buckets, and maybe let me explain that a bit better. In terms of having a scalable platform, this is something that Michelle and the team have been working on for a while. I mentioned that the partnership with State Street, we delivered successfully in January, the first phase of that project. So a lot of that investment has been done already, Farooq, is already done. But there is an investment that is about the scalability of the platform. And I'm thankful that the team has done a great job fixing those things and putting us in a good position, because probably there was underinvestment before that, and we've been catching up. The second bucket, which is where I gave the guidance on the GBP 50 million to GBP 100 million per annum, and that will change. I just wanted to give you a sense that it's a manageable amount in investment for the size of L&G. That investment is exclusively on growth. That's about capabilities, that's about distribution. I talked about the 40% of AUM that's already international. And so that return and that growth has the same capital discipline of all the other investments we're doing, so the investments in Institutional Retirement and Retail. So it needs to meet our hurdles, and you will see those revenues come through. As you know well, in Asset Management, it will take some time to come through. And that's why I'm saying that you should, and this is an important word, you should expect modest, modest cost increases. And therefore, an initial modest increase in the cost to income, as it then comes down because revenues start to come up and compound. And your final point on that, is it better to acquire things? So when Jeff talked about the capital allocation framework in that slide, we've said because we wanted to cover everything conceptually, our strategy is an organic growth strategy, but we would be open to look at bolt-on acquisitions, and the stress there is bolt-on acquisitions that will be, by definition, small acquisitions. And I think you're right, Farooq, that it's almost like an alternative to hiring people. Instead of hiring a team, we would do an acquisition. And the advantage there, by the way, is that we then -- the track record of that team comes with them as well. So we are looking at that, but again, they are bolt-ons and they're limited. So that's the Asset Management point. In terms of CALA, I suspect I may get a couple of comments on this and questions. So let me be again explicit about this. We have been very transparent about the fact that CALA is not strategic, but that does not mean that we are in any rush to sell or -- to maximize value is the important objective here. And therefore I said I'm very open-minded about retention or sale as the best way to maximize value for shareholders. The impact of that, Jeff, you may want to add, Jeff mentioned that there's a capital implication, which is very small, low single digits from a coverage ratio. You talked about GBP 100 million. And what we would do at that time, and this is not true for all of our disposals at that time, when we do any of the disposals, we take the proceeds of that through our capital allocation framework. So what I can guarantee you today is we have a very disciplined capital allocation framework. Any disposal, to use your word, would be recycled that way into the capital allocation framework and if we have growth opportunities that are well ahead of our hurdle, we would pursue those. If not, we would return that to shareholders. And that's how we think about any of our disposals.

Yes. There's nothing to add to that.

Thank you. I sort of went on kind of thing. So in terms of capital light, I think that's probably a simple answer, which is we will grow, and this is important also because of the numbers that we're talking about in Asset Management. Asset Management has an advantage and a disadvantage as a business. The advantage is that it compounds over time. Right? So we have the GBP 1.2 trillion, it keeps on growing, and then we keep on having the fees as long as we do a good job for our clients and keep those mandates and keeps on compounding. So it takes longer. But by the time we get to 2028, and of course, we have estimated our numbers beyond 2028, right? So we're showing you the 5-year numbers, but we've looked at how this compounds over time, that business becomes a bigger and bigger and bigger portion of the overall business. PRT has many years to come, and as you know, the store of future profit then delivers reliable earnings stream even after we stopped writing big amounts of PRT. So it will -- that's the reason why it will take time. That's not -- that's the only thing why that ratio. You may want to talk about funded re, which is the final point.

Yes. And I think you were talking about really the strain number. Where do we think we can go on that? We've kept it the same. That number varies. We can't predict the level of competition in the market. We can't predict where spreads will be, our asset sourcing, where we'll be on reinsurance pricing more broadly in funded re, but we will optimize to the strain for the reward that we're getting at any point in time. And actually, interestingly, we won't look at it as a volume target. We'll look to optimize that amount of profit that we're making from writing the transactions. So we'll be very disciplined on that, and that's the only reason we will deploy that capital. So we can't say today, we'll definitely be driving that strain lower, but we'll absolutely be working to do that with a combination of all of those assets sourcing, pricing and obviously, use of funded re appropriately.

So yes, that we'll manage strain. The overall message of a capital-light business is not about funded re, is about the mix between Asset Management and the PRT business fundamentally. Yes. Andrew start from right to left.

It's Andrew Crean from Autonomous. Three questions also from me. I want to explore the buyback a bit more. You're not saying it's regular. What are you really saying on this? Should we expect if there isn't bolt-ons that one should get GBP 200 million a year? Or is it just at the discretion of the Board? The second question is when you look at your Retail strategy, the glaring omission is a U.K. retail asset gathering strategy. Could you comment a little bit about that? And then thirdly, a numbers question. Within the Asset Management business, what is the profit of those assets being run for U.K. DB schemes, which is obviously declining. And secondly, what is the actual profits of U.K. Workplace? You make a big thing of U.K. Workplace, but I haven't got a clue how much it makes.

Yes. Thank you, Andrew. So I may ask Bernie a moment on the U.K. asset gathering. I'll give some first thoughts. So -- and then the Asset Management question, which is the third one, we may want to go back to that slide on, not the slide, but the logic of the LGC assets. So first on the buyback, to be clear, we've said that we're starting with a GBP 200 million buyback this year in 2024, and we have an intention to do similar sized buybacks. That's what we've said. So we're not being more certain than that, but we're giving that intention to do similar sized buybacks. On Retail, so we thought a lot about this. So the last five months have been a very thorough, detailed review of all of our businesses. And when we look at what we're really good at and what are our strengths, in Retail, the Workplace Pension Business is a great way to acquire customers and to acquire customers that then we serve over the lifetime of those customers. We are not different from other competitors, to your point, investing in big asset gathering, because we're gathering our customers through that channel, through the Workplace channel. And just to answer the point, and I'll pass on to Bernie, we have two ways in which we make money out of Workplace, three effectively. So there's the administration part of it, which is why we don't make a lot of money. More than 90% of all the funds are then managed by Asset Management. So that's where the revenue profitability. And third, we're leveraging those customers over their lifetime to then offer them accumulation and decumulation solutions. Bernie, do you want to add to that?

Absolutely, Antonio. And yes, we very much see the Workplace DC business model has been our Retail asset accumulation vehicle. We -- obviously that's focused on pensions, but as I've outlined, we will be offering those Retail customers, [assets] and other ranges of products during accumulation, and obviously at accumulation, we'd seek to ideally consolidate all of their assets on to our great value platform, and then help those Retail customers to make the hard choices at retirement, and therefore, see annuity flows and drawdown flows. So that's where we see the -- our opportunities given where we're starting from, it doesn't look at all attractive to us to be going after the sort of admin IFA wealth space, because we're already targeting that from an Asset Management point of view with LGIM very successfully distributing their products into the IFA wealth market already. So we're already targeting that as a group. So there's not a lot to go for us from a shareholder perspective to also offer an IFA admin platform. And yes, we'll offer D2C, but the focus is on the workplace as the asset gathering opportunity.

On your numbers question, and I also want Jeff to comment also on the buyback to give you a bit more reassurance on that. So we showed the slide with Slide 31, where we said GBP 410 million of operating profit in LGC last year, get split effectively in three ways. Jeff said four, because there was both Retail and Institutional Retirement. So Andrew, the Institutional Retirement part in that slide was GBP 142 million of that profit that's allocated to Institutional Retirement. But...

Yes. I think you had a question. It was more -- it's similar to the Workplace. I think it was how much do we make from DB clients, if you like, within the asset manager, I think, was the question. And we don't separate it out because that probably isn't the way we look at it. And of course, the biggest thing to remember there, as we've said before, is that does run off, but it runs off because they're doing PRT, and we absolutely are a winner there. And if you look at it, yes, there's buy and maintain will be around for a long time, but there's also index and solutions in that. And you saw on the slide, the 4 basis points, it's 4%, 5% basis point level. Clearly when those assets move across to a buyout, then we are paying a lot more to manage fixed income, and we're charging the client, that on Day 1 of the buyout to cover the cost of managing the credit and the private assets that's back in the annuity portfolio. So we're a net winner from that, which is how we think about it on DB.

And Jeff, and we showed at the full year results, you probably remember, we showed of the outflows we have from Asset Management, what part of it are the DB schemes? And in many cases, like the case of, I mentioned the example of [Boots]. So we clearly lost that mandate on the [Boots] side because of the buyout, but then we get that money back as an internal client for Asset Management?

Yes. And on the buyback, we obviously chose the wording very carefully. The Board are very clear on what they've signed up to. We've said we will pay out -- we intend to pay out more than the equivalent of 5% per annum dividend growth to 2027. But we are changing the way that we do that. So we've already started. We will start with the GBP 200 million buyback this year on top of the 5%, then the dividend growth changes to 2%. But in order to facilitate that distribution of more capital to shareholders, we would say we will undertake similar buybacks in future years to be able to do that. So that's where the capital returns will come from. There's clearly a decision to be made on, will there be one more, two more, three more. You can do the math, and I think it's -- we can do the math that's two lots of 200 get you to exactly the same as 5%. So that implies that you need some beyond that. And so -- and we will look at those at each point in time of what the quantum should be, based on the opportunities that we have to invest, et cetera, where the markets are. But clearly, we've also looked at this in making that statement that we believe that is sustainable in conjunction with the PRT market, in conjunction with investment in Asset Management in most of the scenarios that we would see as feasible that we're modeling out there. So that's obviously how we've looked at that.

It's important that we say that -- stress that we are distributing more and that by distributing more, we're doing more than the initial share buyback. And this point that Jeff is saying about both sustainability and flexibility to pursue growth opportunities. Go back to what I said first thing in the morning. This is a growth strategy, and we believe we have substantial growth opportunities ahead of us. I can't quite see there, but yes, there first. You, but I don't know where the microphones are? Yes, there. We can just start systematically going from right to left, yes.

Nasib Ahmed from UBS. So first question on Retail, especially the decumulation phase. Face-to-face advice, that wasn't mentioned, is that something that you're looking at, how many face-to-face qualified advisors you have at the moment? And would you look to grow them using a partnership model or a salary-based model, if there is an intention of growing that advisor base? Secondly, on Asset Management, I noticed you included 100% of Pemberton. Maybe a leading question, why not increase the stake from 40% to 100%? And are there any other stakes within that AUM that included at 100% in your partnerships that aren't actually 100%? And then finally, on distributable capital. Jeff, I understand that you don't want to give a solvency range, but given current market and your leverage ratio. You don't really mention HoldCo cash, but what is the distributable cash or capital at the moment, given current markets? If you can give us a figure, that would be very helpful.

Do you want to start there, Jeff, and then I'll come back to the face-to-face and the Pemberton question.

Yes. I mean, it isn't really a question on the way we look at the business. I mean, we look at maintaining that flexibility over a planning period and been able to do things in different markets with different lumpiness of PRT in particular, whilst maintaining this intention to distribute more. So that's the way that we look at it. We wrestled with what could be a cash metric. It just doesn't really make sense. We have lots of cash sitting in the insurance business that we can distribute out and that is how we run the business, but we balance that against our liquidity needs and efficiency of not sitting in cash for too long. And of course, the Asset Management business, in particular, is completely converted into cash and comes up. Those are the two main sources that we have, which are then other dividends that come out of businesses. So we don't look at it and say how much could we just pass this cash at a point in time, because that isn't a constraint on our business at any point in time. We'd really just look at what is the potential trajectory for markets, rates, PRT volumes, how do we think about that? And that's -- can we then make sustainable comments about growth, investment in the business, writing volumes and being able to distribute more. That's just the way that we've looked at it.

Great. And then on advice and how we think about it. I talked about hybrid advice and solutions and actually here the -- working with FCA and thinking about what are the models of advice that make sense for us. We're not building a big face-to-face advisor workforce. That's not our objective. But we're looking at these solutions where we can leverage technology and sort of voice effectively to give, what I said earlier, the best solutions for customers at retirement. Because at the moment, we are accumulating a lot of our workplace pensions and the ", the accumulation that I talked about earlier. What's important is that at retirement, we don't lose those customers. And it's really at that point that we want to provide that advice with more engagement through the accumulation phase. In terms of the numbers, yes, we've been very explicit. There's a chart, as you saw, on the GBP 85 billion, of which GBP 60 billion is what we're doing as L&G. And then GBP 25 billion is the ambition of Pemberton. So if you look at the chart, it goes from GBP 12 billion of Pemberton currently to GBP 25 billion, so that's more than doubling on the Pemberton side. And we've done this before. We've just represented it as 100% of it but we own 40% of it. We have a great relationship with Pemberton, maybe Laura wants to add on that. And to be super clear, there's no other assets that have been sort of where the same thing happens. So your second part of the question, which is absolutely what we have in the GBP 60 billion part is all 100% owned by L&G. A word on Pemberton?

Yes. Certainly, Antonio. I mean we've been with them from the start. So we sponsored them, if you like, investing in them when they were a team of 4 about a decade ago. We are on the Board. We support them operationally and have, I think, seeded every single one of their fund launches and more [laterally] actually been able to find ways for them to source assets for our PRT business through MA structures. So really good relationship.

Larissa Van Deventer from Barclays. My three across three different divisions, please. First, on bulks, you mentioned GBP 45 billion a year expectation, but for a decade. Do you expect the bulk market to be elevated for a longer period of time? Or do you still expect the flows to be front loaded for us to think about how we allocate that in our models? Then on Asset Management, what are the biggest near-term changes? And what is the related costs that we should consider? And the last one, on the U.S., you have mentioned a couple of times that you see the U.S. as a very attractive long-term potential growth market. When does the U.S. start becoming meaningful in the numbers? Or is the near-term focus very much in the U.K. for the next 5 years?

Yes. Okay. I'll take that one. So bulks and the GBP 45 billion, I'll ask Andrew to add to that. Your second one was about Asset Management and the immediate changes from the combination of LGC and LGIM. Was that it? Did I get that? And the related cost?

And the related cost...

Okay, got it. Okay. So I might ask also Michelle and Laura to address this. So on -- and then I'll answer the U.S. In terms of the GBP 45 billion number, it is -- of course, we have an ambition for the next 5 years, because this is a capital markets event, and so it's about the next 5 years. But we've looked at the next 10 years, that's why we gave you that chart with what is going to happen in PRT over the next decade or so. Those are publicly available estimates. It will be lumpy, as I said earlier, but we see, Andrew, a lot of appetite. I think our pipeline at the moment is as strong as it has ever been, particularly for schemes above GBP 1 billion. So can you talk about that?

Yes. Two points there. Short term, the pipeline we're seeing right now, I'd probably say, is unprecedented. So the number of schemes, particularly in the over GBP 1 billion of assets, we're quoting currently across 16 of those. But I think your question, which is more about the tail and where do we expect to see it to go. The numbers we included on the slide were LCP estimates. We could have taken other advisors' estimates or some of our own data to say that the amount of the GBP 1.3 trillion and Antonio showed how we expect that to derisk out over time is what supports that number. So yes we are expecting elevated market volumes going out for quite a long period of time into the future.

In terms of the Asset Management one, maybe Michelle, I'll ask you, the businesses are very complementary. So if you ask from a cost perspective, the integration is actually very complementary set of skills that we're bringing together. But Michelle, do you want to talk a little about the planning that we've been doing. It's been a long time in the makings.

It has been a long time, and Laura and I have been working together on this. So actually it's -- we're announcing it today, but we've been working on this for some time. So now it's about how we actually make this work. We've said all along, this is not a cost play. This is absolutely about how we bring the best of what we do at L&G to more of our clients. And that is -- it's what our clients are asking for. So we have public and private, and we are now going to be able to blend those in a better way, over time, to a client base that we've been building. I mean, Antonio, we've spoken about this also sort of how do we ensure that we have real diversification in our underlying product mix and also our client mix, and also geographically. And that is what we've been building on. This enables us to bring more of that to our clients. So I would say the teams back at base are extraordinarily excited about this. So the planning now it's really [indiscernible] to execute.

Good. And thank you to both of you for all the hard work that's still to come to deliver this. On your U.S. question. So when I think about L&G internationally, and that's why I wanted to have that particular slide on it. So Asset Management is already international. When we talked about PRT, we talked about opportunities across different markets, the U.S., Canada and the Netherlands. But then I wanted to focus specifically on the U.S. overall, because we're talking about making the most of the very strong position we have already in the U.S. and particularly, and I've been traveling around the world seeing our different offices. It struck me that there is much more that we can do to connect our businesses within the U.S. So I went to see our protection business in Frederick. It's a great business, really well run. I was really impressed by the technology there. I then went to Chicago, where we have our Asset Management business, which is the core growth engine that we're describing, and then in Stanford, Connecticut, our PRT business. And we're already working much more closely together. We can't quite replicate the synergies that we have here in the same way, given our scale in the U.K., but we want the businesses to be more connected so that the growth is between the connectivity of those three businesses. And don't forget that Asset Management is also connected to our PRT business here, because we have a big annuity book and that's origination. So it's more -- the strategy is more about the connectivity of the different businesses. But to manage your expectations over time, it's not as if the U.S. is going to double in size. We're going to continue to grow that business. So your question, Larissa, I think was on the percentage itself. What I'm saying is we're making the most of the presence that we have in the U.S. and then globally for Asset Management and the two other PRT markets. Thank you. I'll do -- I'll start there, but actually, I'm just going to -- given that we have so many people on line, I'm just going to read one question online. You mentioned bolt-on acquisition -- because I was forgetting the screen I have in front of me. So my team will start waving at me in a second. You mentioned bolt -- this is from Saleem at Citywire. You mentioned bolt-on acquisitions to drive growth. Will you be looking to make an acquisition in private markets arena as well to bolster your capabilities? I think it's very similar to the question I got earlier. I think it's a trade-off really in terms of, if we can get the right teams and we have been growing, for instance, in real estate equity and real estate debt in the U.S., we've been growing. So the areas where we want to grow in private markets are the ones that we mentioned. Real estate, private credit and infrastructure. So you can expect us to only play in that space. Clearly, I just said the U.S. is an important market for us. So yes, we would potentially look at bolt-on acquisitions. But for me, it's a trade-off between that or hiring people. So I'll now come to the left side of the room.

It's Andy Sinclair from Bank of America. Three from me, as usual. First was just on the balance of dividend versus buyback. A bit of choice to slow the cost growth for the dividend, I guess, offset by higher buybacks. But just how can we think about the dividend cover in cash terms and what we can understand from that choice to slow the dividend cost growth, both over the '24 to '28 period, I guess, and then also longer term? That's my first question. Second question was to do with the protection franchise. I'd say it's probably the one part of what remains core that doesn't obviously fit to me in terms of the flywheel of Legal & General. It didn't really seem to be on any of your synergy slides. Not many of the slides talked about U.K. protection, to be honest. Why has that remained kind of in the strategic fit? I think it was only just to the good side of the line in the middle of your strategic fit slide, on Slide 18. So just why does that remain core? Third question was just -- it feels to me like there's no, shall we say, new area of growth or focus today. Should we think that Legal & General's core growth businesses, the three lines that you talked about at the start will still be the three lines in 5 years time or beyond?

Yes. Thank you. So I'll answer the three, but maybe on the dividend cover. I'll look here to my CFO to say something. So look, first, Andy, thank you. I would actually rephrase some of what you said, I would say, more than offset there. So we are growing the dividend at 2%, and we're saying that we intend to distribute more than what we would have otherwise with 5%. So there is -- we're more than offsetting one to the other, just to the point that you made. Our intention is to distribute more and it's really important that what I've been doing, what we've been doing as a team is listening to shareholders, listening to investors. And this is one of those areas that the certainty is that I'll upset a lot of people, but listening to investors, the combination of dividends and share buybacks is something that I got loud and clear. And with the combination of the two, we intend to distribute more over the next three years. Dividend cover?

Yes. I mean I think it was the cash as opposed to sort of dividend as such. I mean, following on from Antonio's point, we are saying we are going to pass more pound notes out of the door than we would have been doing. So by definition, we're very confident in how much cash and capital we've got emerging out to 2027. As I say, we -- and there's a track record of this, you can see it every year, we'll simply remit what we need from the insurance company in cash. By definition, we are dominated by the annuity business, both Retail and PRT sitting in that insurance business. Therefore, the OSG is a good guide on what is being thrown off, and we convert that into cash as we need it and pass it up as we need it. And so we're very confident in that and very comfortable on it. And that's why we can make the statements we can about passing it out.

Thank you. And in terms of your protection question, linked nicely to the dividend. The first advantage of protection for us is it delivers reliable earnings and helps pay for the dividend in that sense. But there are diversification benefits, there are synergies. So when you think about there's capital diversification, clearly, as we have annuity and protection. And in some cases, where we aren't totally reinsured, we also have an actual diversification of the longevity and the mortality risk. So I wouldn't read more into it than that. In terms of areas of growth, it's a really -- it's a great question, Andy, because that's what I'm saying today. I'm saying there are no other areas. So I am limiting our strategic flexibility. I'm saying this is the vision and the strategy for L&G going forward. These are the three growth engines, Institutional Retirement, Asset Management and Retail. And within those, I'm telling you what we're going to do and what we're not going to do. I believe it's an exciting story with a lot of growth, but it's a very targeted and a very disciplined growth strategy. Thank you, Andy. Can you pass the microphone?

It's William Hawkins from KBW. Just like to clarify, I'm still not quite clear. The GBP 50 billion to GBP 65 billion PRT target, is that a gross or a net volume? So I'm not sure if that's a gross figure and the amount that you guys will retain is lower if you're using third-party capital, or if that's the net figure, so your actual volumes could end up being higher. And then related to that, I guess, strategically, I know volume is a very simple figure to communicate, but the other way you could have communicated it internally or externally is the capital that you're willing to allocate to PRT business, and that could have been a good discipline internally and externally. So don't focus on the volume, just find the best business for the capital. So I'm wondering philosophically why you didn't decide to describe your business model in terms of capital allocation rather than volume. And then lastly, sorry, I may just need to reflect more on the slide, but I'm still trying to get clear about how the margins in LGIM are going to work as a result of the restructuring that you've done. I've got an exit view the existing LGIM is doing about 7 basis points of revenue margin and 2 basis points of profit on the old numbers. And my instinct would be that if you're throwing LGC into that, both of those numbers, first of all go up, because you're taking some profit for much lower funds. And yes, that may be dampened by costs, but that will be a second-order issue. So that's a long-winded way of asking what's that 7 and 2 going to be short term once you've made those changes?

Yes. Thank you. So on PRT, this is the gross number. And then if you ask me what's the percentage that we've assumed for funded re? The answer is it depends.

Exactly, yes. That's right. So yes, it is a gross number because it will depend. I mean, we will have base assumptions where we'll have looked at a range of scenarios, and we will only be using the funded re if it's additive to our metrics. And that could be a 10%, could be 20%, there could be scenarios where we use 30%. But over that period, it's difficult to tell. It would depend on our asset origination, spreads, et cetera. So it's safer if you like to use that. And in terms of the capital point, what we sort of have put a bound on it, if you like, 4% strain is net, if you see what I mean, going back to your number. So max of 4% strain [times] GBP 65 billion tells you how much capital we think that we would be deploying on that business because that is how it works.

But philosophically ...

Sorry, not [to stress more] but it's a slightly vague calculation, less than 4%. You could have said this is the capital that we have...

Yes, because we haven't wanted to constrain ourselves on capital. We know we can afford up to that 4%. It's still market-leading. We've beaten it many years, but it will depend in any given period on how we choose to use funded re. We may say, "Actually there's better value in us retaining this and sourcing some assets down the line. " Or, for example, it may be just that the business has a very different duration in a period of time. And so that number will move around. So that sort of gives an upper limit, if you like. And we're happy we can operate within that if that's how it plays out over the period.

But I think it's a really important philosophical question what you're saying, which is, as Jeff says, we want that flexibility, because we don't know what the size of the market will be and indeed, what the profitability of that business will be. We're quite bullish about it. We're telling about the numbers, but we will only write it at the right profitability levels and that's super important. We have no volume targets. We're giving -- and that -- if you look at the slides, maybe I'm being kind of pedantic in terms of semantics, that is not one of the targets we're announcing today. We're giving you an indication of what we believe the GBP 50 million to GBP 65 billion is, which over 5 years, we don't want to do it per year because it's lumpy, but it's [10 to 13] versus what we said [8 to 10]. So we're staying with the same risk appetite, we expect to write more because the market is more buoyant, but that depends on the market. And so I think it wouldn't be right if I stood here today and said, "I want to dedicate x of capital to this business." Actually, if the opportunity is there, we'll do more. If we have mega schemes and all the schemes that Andrew was talking about, we want to do this for our shareholders when the returns are there, we'll be very disciplined. So I think philosophically, the way we've done it is right, which is we want that flexibility of potentially deploying more capital if the returns are there. On your third question, so it's a great question. So -- and I think we've sort of asked the question in sort of different ways. So we have LGIM and LGC. Of LGC, GBP 176 million of that operating profit goes to Asset Management. If you think about it that way. The other bits either go to the corporate investments unit, the case of CALA, or they are against our Institutional Retirement and Retail businesses. So of the GBP 176 million, yes, the margins, if you think about the revenue margins are higher there. And so you would expect for two reasons, hopefully, the margins to go up. One, because I said that the higher return strategies that we're pursuing, active fixed income, what we're doing from in wholesale channels where the margins are higher, what we're doing in Asia and Europe. And so I gave in one of the slides, as you saw, all the new areas of growth and all of them, they have a range because different clients would be paying different fees, et cetera. But all those ranges are higher than the current 7 basis points. So what you should expect is on a weighted average logic as we expand into those higher-margin areas that the overall 7 basis point goes up and then the 2 basis points is then a consequence of our cost to income. So I'm not going to give you the exact number, but you can expect both of them to go up. That's our strategy. That's why we deliver higher operating profit. Maybe now the next row and then, yes.

Steven Haywood from HSBC. Three questions. On your DPS growth, sorry to ask again, but do you feel that U.K. equities -- U.K. companies are not being rewarded for providing a substantial level of DPS growth. Do you feel that other companies should take your approach as well?

By that, you mean the combination a lot of them have, no? Okay, but I'll answer that in a second.

Exactly. And on operational surplus that you're generating, you've got the cumulative target. Can you give an indication of the growth that you see on a yearly basis, excluding the noncore strategic -- the nonstrategic assets as well. So whether it's a mid-single-digit kind of yearly growth progression or something else on that basis, and then finally, your 14% cost of equity, just where did it come from and the underlying calculation would be very interesting.

Thank you, Steve. So on DPS, so let's step back for a second. We pay more than GBP 1 billion of dividends, and we'll continue to grow that this year at 5% and then 2%. So we're not saying in any way that dividends are not important. Having listened to shareholders, I believe that the combination of dividend growth, which is still growth and share buybacks is the right solution. I can't comment on other people. Many other companies have done similar things. Jeff, on OSG, so if we're at the top end of the [GBP 6 billion], we will be growing OSG.

Broadly in line with the IFRS metrics. That is where you get to -- it isn't smooth progression. It does depend. There may be more or less management actions in the period, but the vast majority from the insurance business is pretty smooth. Obviously, contribution from Asset Management goes up and down within that. And some of that OSG is naturally dampened, because the SCR went down by about GBP 2 billion recently, because rates went up. So you get less back and people need to remember that. You've already got it in the solvency ratio as a result of that.

And Steve, your third was cost...

The cost of equity yes. Well, we're not saying that's a magic number. I bet if we did a poll, you would get many different answers and many different calculations. And lots of people who did economic degrees will give you all sorts of different ways of doing it. So we have some very clever people much smarter than me, that did it many different ways. We were comfortable that, that was a sensible range. We asked -- even asked externals and they came back in a similar range. And so we'll continue to monitor that to make sure that we know we can be disciplined in our deployment of capital.

And it's important for two reasons. We've had a lot of debates as a team. And the -- so actually, we came at it several ways, as Jeff said, including what is the alternative? So what does the return needs to be, in order to be higher than the alternative, which is to return capital to shareholders. And that number came back to 14%. I've also been very clear in my slide that says at the moment that is 14%. So -- and it's important because it's embedded in our governance and our investment decisions. But again, it can fluctuate over time. And so that's why we don't want to believe it's a sort of number that, you know, chiseled in stone and it'll never change. But at the moment, that is important. And every single new investment decision will need to meet that hurdle and all the other metrics that we talked about, like strain, IRR for the different types of businesses. Thank you, Steve. Good question.

Mandeep Jagpal, RBC Capital Markets. Three from me as well, please. First one on LGRI, with the ongoing DWP consultation running on DB schemes for surplus appears to be getting traction, especially amongst larger schemes. It's still very early days in terms of this new DB end game. So how would your PRT strategy change if a higher proportion of schemes decide to run on and sort of buyout? Second, on Retail, there's been consolidation in the Mastertrust space including most recently yesterday by Mercer, which gained another Mastertrust in its acquisition of Cardano. Given the focus on capital-light growth and the acquisition of customers, would you consider a noncore organic -- nonorganic growth opportunity here? And then finally, on Solvency II. Last week, the PRA published the outcome of its consultation to the matching adjustment for Solvency U.K. Now the outcome is known. Are you able to provide any color on how this new regime will impact the way you manage your annuity portfolio, and the potential for change to the investment return?

So first on DWP, I'll pass that on to Andrew, but my strap line is the market is so big, and there's so much potential. And there's so many trustees. I'm still to meet the CFO that likes to have an actual, having been on the other side of that. But we feel very positive. And of course, it is impacting the market. Andrew?

Yes, I totally agree. We -- in a sense, you answered your own question saying it's very early days. Of course, we're watching the variety of consultations, and we'll track that through up to including change of government, et cetera, if that's what happened. To Antonio point, I spend a lot of time talking to trustees, buyout is still the gold standard. It's still what they're aspiring to do. So will there be a proportion of schemes that voluntarily choose to run on. We have that today before any government consultation. It's well within trustees, remit to run on if they think that's the best answer. The reason they're moving to an insurer solution now is because they think it's the right answer for the scheme and for the members. Of course, if rules change, they'll reevaluate that. But from all the conversations we're having, the buyout remains the gold standard, and we're expecting, given the size of the market, the volumes we're seeing to hold up for the foreseeable future.

So a lot of what I've done in my first 5 months is meet a lot of clients, and a lot of them are PRT clients or prospective clients, and I completely agree with Andrew. We've done those meetings together. They are -- there is still a strong incentive, particularly with the funding levels that we have right now for that to continue. In terms of Retail Mastertrust or more generally, so I have said that bolt-on acquisitions are bolt-on because this is our strategy and the growth is organic. I have signaled Asset Management as an area where we want to build capabilities. I haven't fully ruled out other things. But really, we have the biggest Mastertrust -- commercial Mastertrust in the U.K. with GBP 27 billion. So we have the capabilities to grow organically. So I don't see necessarily that. I'm not ruling it out, because if there's something that absolutely makes sense for us, we would defend it but the bolt-on acquisitions are bolt-on, so small in size and particularly to add capabilities that we don't have, which is not -- we don't need that necessarily on the Mastertrust space. Solvency...

[Throw it back to me]. Well, actually, we've got the PRA over there. So I would thank them because actually, it did come out slightly more positive than the initial consultation. There was some really good interaction between us and the regulator, the industry and the regulator, so there were some more positives on that. So if anything, yes, from the publication of that, we think there is a little bit -- we'd be able -- more we'll be able to do. We already have positive conversation around the sandbox, for example, which helps. And we have assets in motion that we'll be putting into the sort of highly predictable category. So not a material change from where we thought we were, but yes, slightly more positive. And so we'll be looking to get a little bit more uplift in our returns as a result of that.

Before I come to -- I think I covered all of them, right? So if I come to one of the ones here online, so I don't forget them. So you talked about -- this is Andrew Morrison. You talked about not fully maximizing your synergy potential when you refer to what has been holding us back. Can you talk about the role the technology will play in achieving this, and the role of the new transformation office. Emma, do you -- as the new Chief Transformation and People Officer, can you talk about the role of the transformation office? And I'll answer then the question on technology.

So transformation is really all about driving change across the organization. We've touched on it several times through the presentation. The transformation office will really do three things: so one is to relentlessly prioritize where we are going to invest resources on the change that will most closely deliver and underpin our strategy. The second thing is how we do things once and well across the group. So we've talked about synergies, breaking down barriers across divisions. And there's a huge opportunity to leverage that once and well mentality, which will help us be cost disciplined as well. And then the third area is how we remove barriers to execution in terms of getting things done around the group. Technology clearly underpins all of that. So we've had several examples today, the partnership with State Street in Asset Management and at the other end, the innovation around Retail, but technology will both be a catalyst for change and a huge enabler of everything we do.

Thank you, Emma. And maybe giving you an example, I've talked about deduplicating things and efficiencies. So when we did this review, we've had 9 different cloud solutions, 9. And we have 4 divisions. So you can see there's quite a lot of them. And so we've deduplicated that into 2 cloud solutions. One with Amazon and the other with Microsoft. And so those types of -- technology provides those types of efficiencies, which, obviously, it's better to have the same standard, but at the same time, we'll save some money on those two providers. In terms of AI, I mentioned the Retail protection AI and what we're doing there. That's basically for our own people as they read through policies to make it easier. It's a bot of bots, [Bob AI]. So it's a solution where our people sort of basically are able to access our policies in an easier way. In the U.S., we're also doing augmented AI for underwriting. So to make -- and we saw this when I was there in Frederick, Maryland, where we're doing the majority of our underwriting in an automated way using AI. And we were one of the early adopters of Microsoft copilots, and now we're looking through what are the productivity gains of bringing AI into the normal solutions of Office 365 and other things. So there's quite a lot of work I could go on in terms of technology. But as Emma said, it's both a driver of growth, a catalyst for growth, particularly in Retail, but also is a driver of efficiency and we'll be using technology that way. Come back to the room.

Abid Hussain from Panmure Gordon. I think I've got two or two and a half questions. The first one is on the capital generation target. I think the target implies around GBP 1.8 billion per annum of OSG or surplus generation. That feels like it's not much of a stretch. It's similar to what you were running, the run rate that you achieved last year and I think the year before that. So just wondering why did you not set a higher target? Is it to do with the higher interest rate and the higher SCR? Or is there something else? Any more color on that, please. And then the second one is on private markets. I think some of your peers are also pivoting into private markets. Why do you think LGIM is going to win here? You said you got a right to win. Can you just sort of give us a little bit more color? And then do you have the right pay structure, the remuneration structure to attract the relevant talent in private markets? And then the sort of half question was still on private markets. But on the yield pickup on generating the returns, is it getting harder? Is it getting tougher as you grow as you double your assets as everyone else tries to grow in this space to generate that yield pickup?

Yes. I'll ask Laura in a moment on private markets. But Jeff, on the -- is it a strategy, right? You answered your own question is the higher interest rates, but it's higher than the average of the previous period.

Yes, exactly. That's right. So it does have growth within it. I say it's not linear across that. I mean there will be differences year-to-year. And so -- but the biggest driver is that we've already released a lot of the SCR. And so you get less growth if there's less coming out from that business. And so it's -- the growth is very much in line with the IFRS metrics and what we've said. And so that's -- we're confident on the delivery of that capital generation at those levels, which is, as you say, very much a growth based on the -- from the previous 5 years that we had.

So private markets, and I'll ask Laura to add. So when I talked about the ANNR and the ambitions that we have overall, private markets plays a big part in that. So of that GBP 100 million to GBP 150 million number that I gave. Why did I say that we have a right to win? I was very explicit for instance, that we want to private equity. We don't believe we have the right skills to do private equity. But we think of real estate, we think of private credit and infrastructure, those are asset classes that we need to originate for ourselves, and we have been originating. So in the case of LGIM real assets, we've been doing that for more than 50 years in real estate. So we believe we have a strong right to win kind of my point. It's not -- obviously, as you know, many people are doing that. So it's a competitive market, as you say. But we focus on the things that we're really good at. And so affordable homes, another good market. I've talked about our intention to launch a fund there. That's something that we have done for ourselves. And up to now, that's been a really profitable business, which, by the way, is a great benefit to society. It is really good for our PRT business, but now we want to bring investors alongside us. So that's the overall logic. Let me just answer maybe the remuneration question, and then you can add to that. We already have very different remuneration approaches across the different businesses of L&G. I'm looking at that in detail to see what different structures we should apply to different parts of the business, but we own 40% of Pemberton and obviously, their own remuneration structure is different from other parts of my business or we have private real assets within LGIM, we already have different structures for those teams. So to answer your question, yes, I believe we can attract and retain the right people, and we will continue to grow in that space. Laura, as the CEO of Private Markets.

Antonio. I mean I would firstly reiterate some of the points that Michelle has made about the access to distribution that we already have in the Asset Management division. So we've already got a huge distribution channels through our public markets, which we will obviously -- and as Michelle said, our clients there are looking for private market products. Antonio has already noted, we already have a real asset business in LGIM that we will continue to grow. And by bringing LGC together even more closely working with real assets, what we are bringing, and Antonio mentioned this in his presentation, I would say three things: platforms, partnerships and investments that can originate assets, seed funds critical for the launch of private markets, private markets [funds]. So we really are bringing all of the component parts together to win, I would say, in quite a different way to some of how our competitors are trying to do it.

Yes. Thank you, Abid. And as Laura says, we have our own internal client also requires private credit and other private assets. So I think that's another reason to believe that number.

And the yield pickup, is it still sort of easy to come by?

Yes. So I think that's one of the things that has differentiated actually both our real estate business in real assets and what we've done in LGC, because we are originator of assets developer, we are able to -- we don't have to take from the secondary market. We are able to form partnerships, long-term partnerships that mean we can originate assets and get the best of any market.

Yes, Bruntwood SciTech is a good example that I put in one of my slides. And then we had Greater Manchester Pension Fund coming alongside us because we are together with them originating those assets.

Dominic O'Mahony, BNP Paribas Exane. Really encouraging to see the focus on the fee businesses and the private assets and DC. That's really encouraging. I've got one sort of clarification question and then two real questions. Just to clarify, so the OSG, the 5% to 6%, does that include the corporate investments like CALA or not? And secondly, does that include management actions? And if so, is it around the GBP 200 million you've indicated per annum in the past? And secondly, maybe slightly against the tide here. Why are you returning capital to shareholders or increasing your return? Why are you doing more capital returns when you get such attractive returns in your real asset business. I mean if you look at Slide 31, the assets going into the new private assets business you got, I think, 17.6% return on those assets. That's well above the 14% cost of equity you mentioned, and it will be even more ahead of the WACC for the group. If you've got excess solvency, why not just reinsure less, generate more earnings. Then sort of the last question was really just, Jeff, you mentioned you're very happy to dip into the solvency ratio to write the new business because you're getting good returns, and that's great. You also said you expect that to sort of tail off and then see the solvency ratio growing eventually. Thinking about the 5% to 6%, let's say you're doing GBP 2 billion of OSG as an exit rate out of the plan. You're spending at least GBP 1.5 billion on capital returns. Your strain is going to be GBP 400-ish million. You're not going to be retaining very much in pound notes and because your SCR is growing, presumably you're still going to be using up that surplus in a percentage point -- on a percentage point basis, how far out is that turn to flattening and then the growing ratio?

So I'll give Jeff a moment to think about that last question, and he may want to comment, as well as on management actions. But just the OSG target does include corporate investments. So it's basically the totality of the company. It's actually quite limited that part of it, but Jeff can mention on that. Just on your second question, the -- it's -- so we are exactly striking that balance between the strategy that we're announcing this morning is a growth strategy. We believe we have very profitable growth opportunities to deliver and to deploy our capital in this very disciplined manner. But also, if you think about all of our businesses, it gets to a point where we need to be disciplined and the hurdles, of course, our business is incredibly profitable. We're talking about more than 20% return on equity. Those numbers are even higher than that. But the marginal opportunities, if they present themselves and if they are above our hurdle, we'll go after that. But there is also a limitation of the size of the market and how much we can grow. So we believe that what we're presenting today is the right balance between those two things, how much we want to grow and take advantage of opportunities, seizing the Institutional Retirement PRT opportunity ahead of us and invest for growth. And with that, with the position that we have today, we believe that we can distribute more to shareholders. So there's many ways to answer your question. But philosophically, that's how we've thought about it. And we have that flexibility going forward. And let's say that we have a lot of mega PRT deals coming into the market, and they are profitable and they meet our hurdle. At that point, I'll be talking to shareholders and say, look, we are deploying more capital than what I said back on the 12th of June of 2024, because those will be returns that justify it. And so we're not pursuing that growth, if you see what I mean, but there's a limit to that. And we believe that this distribution policy is the right one. Do you want to talk about the management actions on OSG and then the final question on...

Yes, broadly, over that period, that's the right sort of figure to be looking at for the management actions. I mean, they vary. Sometimes we warehouse PRT business, for example, and then we'll do an in-force reinsurance effectively a year later or two years later, we get better terms by holding on to that for a while. That would come through. So a bit like the PRT is lumpy, some of the management actions can be a bit more lumpy as well as a result, but broadly a reasonable average over the period. Yes, I mean, I said partly due to, we don't know when the volumes will come, what the business will look like, how much we decide to use funded re, all the answers I gave earlier. There are scenarios where given where our capital levels are, we're willing for that to reduce as we write PRT business. Quite rightly, that then throws off Antonio showed the GBP 1.5 billion that comes back for investing GBP 200 million to GBP 400 million. We see that, that going down over time, it will very much depend over volumes. If that's the scenario we're in, and then that recovers reasonably quickly because you get so much being thrown off. And don't forget, the OSG also has the acceleration of the Asset Management and Retail profits also flowing through into that. And so it isn't just looking at the component of the PRT in those scenarios that we'll be looking at. So you can't really give a time scale because it's one of those things. What are the scenarios? What does it look like? What have we chosen to do with capital strain and managing it but we're comfortable. And therefore, I just wanted to say, there could be scenarios where net surplus generation doesn't cover the dividend, and we're deciding to use the solvency. And you will see the solvency ratio fall in those scenarios. We just don't want that to be a surprise because there's big opportunities out there, but we think this is all sustainable over a 3-, 5-year period in everything that we've set out and think it makes sense to us in many different scenarios.

Thank you, Jeff. As we go into the next slide, let me just read one of here online, so I don't forget them. Can you elaborate how valuation factors into your buyback decisions? Is that a level where they become less attractive? Yes, but not currently. So I hope the share price goes up so much that we don't want to do share buybacks. I'm in your hands. Okay. Actually, I'm going to Ambrose over there because he's on the left side, and we skipped him earlier.

Ambrose Faulks from Artemis Investment Management. Given the increased sort of hedging there in your Solvency II and your starting point of 224 percentage points, which really looks quite generous for the opportunities you have ahead of you. If you were to sell CALA or any of the corporate investments, what would be the -- I mean you talked about going through a waterfall of where you could invest it, but you already have the opportunities. So why should we not be expecting that to come back as a significantly bigger share buyback?

Thank you. And just one. Great. Ambrose, thank you. So I -- look, it's important to actually rehearse this. So we've said using CALA, as an example, that the impact on our coverage ratio is low single-digit percentages with Jeff mentioned GBP 100 million in terms of capital. So in the big scheme of L&G is a small impact. I think the important point, Ambrose, is at that time. So let's say that when we make any of these disposals, at that time, we'll take it through that waterfall. It's not as if the GBP 1.9 billion of corporate investments of the unit are being disposed off now. I said I'm going -- I'm open-minded about retention or disposal to maximize money to value for shareholders. It may be that in some cases, we need to invest in some of these businesses because in 12 months' time, it will be a better moment for us to dispose off them. So at that point, when we make each of those disposal, I'm being very clear, they're not strategic. So they shouldn't be here in the long term. I'm being super clear about that, but the timing of it will vary. And therefore, at that point, we'll then say, faced with the growth opportunities that we have in the different businesses, is it better to invest to grow or to return more to shareholders. So that's -- do you want to add something to that?

No.

Going to back here, I think row 3 now. Yes, here you go.

Thomas Bateman from Berenberg. I just thank you for what's included, not included in the OSG targets. I'm just trying to balance L&G's dividend growth that was like 7% not that long ago and then 5% and now 2%, with all of your growth ambitions. You've got a huge runway in PRT, you're wanting to grow in Asset Management. But that GBP 5 billion to GBP 6 billion does seem a little bit lighter than your EPS growth. And obviously, the dividend growth is much lower than that. Could you just help balance maybe the 6% to 9% operating EPS growth versus the 2% dividend growth? The second question is on PRT volumes. I guess your GBP 50 billion to GBP 65 billion implies similar levels that you wrote in 2023, whereas LCP's forecast, and I guess your own forecasts imply that there's a lot of growth there. I guess even GBP 65 billion implies that your market share might fall in PRT. Am I reading that the right way? And finally, it's good to hear that there's still a big opportunity in lifetime mortgages. I think you have -- you talked about the internal rating process and a lot of them rated AA. Would you consider giving us the LTVs of those, the lifetime mortgages?

So let me start with PRT, and I'll come to you, Jeff, on OSG and the lifetime mortgages. The PRT. So you're right that what we wrote last year was particularly because of our largest ever transaction, which to remind you, we did in December. So we could be sitting here having done the Boots deal in January. And 2023 would have looked like sort of average type of year. But because we did the Boots transaction in December, we had a very large year. What I showed in that slide, and I know I went through 60 pages, but in that slide, I'm showing -- and I'm actually showing LCP projections. What we said there is actually we're using their data, maybe we've been a bit more realistic. But the GBP 45 billion across the next few years is the same actually slightly -- even slightly lower than last year. So last year was a very good year for the industry. What I'm saying is compared to the previous 5 years, where the average was GBP 25 billion, we're now seeing almost a new paradigm. So we used to have around GBP 25 billion in the market. And now we're seeing over the next 10 years with bumpiness, as I said, sort of lumpiness, we will have GBP 45 billion. It's important to say that we have no volume targets, and we have no market share targets. And this is important to reassure you as shareholders that we are being very disciplined in the pricing and the profitability of that business. I'm very optimistic. I couldn't be more excited about the opportunity ahead of us. But if, for some reason, the profitability starts going down, and there's too much capital coming into that market, and we're not seeing that, by the way. But if that were the case, we just wouldn't write 20%, 25% of the market, which is what we tend to normally write here in the U.K. And so back to the previous discussion we had about how much capital we're going to deploy in this business. It's about the returns of that capital. So I'm very comfortable. If you think about the GBP 50 billion to GBP 65 billion, we're signaling GBP 10 billion to GBP 13 billion in -- over this period. Again, like we've done before, we signaled GBP 8 billion to GBP 10 billion and then there were several years where we went above GBP 10 billion. If the opportunity presents itself, this is not a target, it's a guidance in terms of what we believe will be there, and how we've modeled our financials for the next few years. If the opportunity is there, we would absolutely not shy away from it. I don't want to take from today that we have any less appetite from PRT that we've had before. OSG.

Yes. I think it was sort of OSG in relation to the dividend.

Yes, and the 2% and the growth.

I think the 2% is a bit of a red herring, because if we'd said we were growing at 5% or 6%, then it's completely consistent with what's in the EPS metrics and what you're seeing there. And we have said we will intend to distribute more than the equivalent of 5% dividend. And so the 2% is not relevant. I think you've got to look at it as pounds out of the door that are equivalent to 5% plus dividend growth. And so that is completely consistent with the EPS. I can only repeat the same thing on OSG. You've already had GBP 2 billion in the solvency ratio. That's why Ambrose was saying, the solvency ratio is so strong because GBP 2 billion of SCR was released because interest rates went up. And so that naturally means there's less to be released from the insurance business as it runs off, because it's holding less SCR, which is why the solvency ratio has gone up. So they're completely consistent in terms of the amount of growth that's flowing into them, they're the same numbers coming at for the same growth in the business [indiscernible] on the LTM one ...

Sorry, just if I may, the improvement in the solvency ratio isn't reflected in the capital returns to shareholders, particularly because you're not putting a solvency range in place. So we've got a higher solvency ratio, but that's not coming back.

No, that's right. No. Because we've said from that starting point, we've set out what we believe we could distribute in a sustainable way in many scenarios, plus write the PRT business that we think is ahead of us, as well as investing in the Asset Management business for growth. And so we believe we can do all of those and make that statement today looking out to 2027 in a range of scenarios, and be comfortable making that at the level we are today. That will change over time as the PRT market evolves, as rates change and where the solvency level is, and we will make different statements in 2027, for example. The LTM one, I mean, it's still roughly 30%. We've actually been writing business with lower LTVs because there's higher interest rates naturally in the market. And so the total book, the in-force is still around the 30% level. And yes, as you say, they're very easily AA rated plus under the rating models. We work very closely with the rating agencies on that. They have very standard stress tests that we go through with them.

Next question.

Rhea Shah, Deutsche Bank. Three questions. Firstly, with the Asset Management business. I mean, you've given the target for private markets AUM getting to the GBP 85 billion. For the public markets, you showed that the industry is expected to grow at 5% per annum over the next few years. Are you targeting growth higher than that or in line with that? And then second, going back -- the next two questions around capital. So the second one, in terms of the OSG target, are you able to split how you're thinking about this between the three business lines today? And in the next few years, are you trying to become more capital light in terms of the capital that is being generated? And then the third one around your capital allocation framework, your fifth filter was around assessing decisions against your risk appetite. So does that imply you do have a management solvency target range, but you're not disclosing that publicly? Or is there anything else you are assessing in terms of risks, for example, credit exposure or anything else?

Maybe I can start there actually. So the -- and I'll come back to you on OSG, Jeff. So I think from an overall risk perspective, we're looking at all -- so the reason why the filter is there is that you should be reassured that all elements of risk, all the prudential risk, the conduct risk, so we wouldn't want to go into businesses that do not meet L&G's risk appetite, that's what I'm saying. So it's a very broad statement. So it's not specific as this metric. But of course, that includes all of the financial and nonfinancial risks that we normally monitor. So if I now think about this in practice, it's not a filter that -- in those five filters, it wasn't a filter that ended up filtering things that didn't make sense. A lot of the things that became nonstrategic was because of filter #2, because they were not synergistic with the rest of L&G. But I think it's a disciplined filter that we wouldn't want to go into areas for instance, that carried a lot of conduct risk, for instance, as an example. So it covers all of the risks. I'm looking at my CRO here in the first row, and he's saying, yes, that's correct. In terms of Asset Management, so Asset Management, we've talked about the GBP 500 million to GBP 600 million of operating profit in Asset Management. It's about growing that business. When we're growing the business, it's one of the -- it's their business where the market impact is more relevant. So we've been reasonably cautious in terms of setting the targets because of two things. We are investing to grow that business. So there's an initial investment in growth, modest cost growth, as I said earlier, that will impact the results. And then as we continue to grow, there is the impact of market. So if the markets performed more strongly than what we have assumed in a conservative way, you would expect us to beat the target. And when I look at my teams, I want them to beat that target. But externally, we wanted to do this in a conservative way. So that we're not missing the target because the markets were not at a very high growth rate that we assumed. So it's a growth strategy, and we will continue to grow that operating profit. Jeff?

Yes. I think the question was sort of, is there a trend to be more capital light over that sort of 3-year period in the OSG. I mean, simplistically, no, the fundamental dynamics of the business are not changing over that 3-year period. If you think that we're saying we're something going to write GBP 50 billion to GBP 65 billion over 5 years, then that will still dominate in the same way as it has in the last few years. We will obviously look to be as efficient as possible on that. There's a secondary and a smaller element that we were very efficient on strain in the last 2 years, last year in particular, but then we wrote record volumes. And so the two offset. But fundamentally, while we're still writing both individual annuities and PRT at good volumes for the next two or three years, then nothing fundamentally changes in the dynamics of the business. It's further out as we invest in Asset Management, and that grows. And eventually, the PRT market tails off, as we've said, but that could be 10 years away.

Yes. And Rhea, I think your question about would we split it between the different businesses. And in a way, we're giving you all the component parts, right? We said, how much PRT, we're giving you the strain, we've got so -- and we've given you the operating profit for the different divisions. So I think we -- it's all internally consistent. So we can -- you can triangulate that to know exactly where it comes from. Thank you. Second question for Andy.

No one else has. I will. Another three from me. PRT, you've given numbers for the U.K. Just wonder if you can give us an idea of what you're expecting internationally. I mean you said a lower proportion have been done internationally than done in the U.K. expectations there. In Asset Management, can you tell us where that GBP 50 million to GBP 100 million is actually being spent on? I know it's small in L&G, but it's a decent clip. So what's actually being spent on. And third, on M&A, I get you're being very clear bolt-ons. But why doesn't something bigger interest you? I know the legal has it a bit of skepticism in general, but you're new, you're a refreshing view to Legal & General. Why are you not interested in anything larger on the M&A front?

This is when I take a rabbit out of a hat, right at the end of Q&A. My Chairman has a bit of a reaction there. So I -- so thank you, Andy. And in a moment, I'll finish the question, so maybe a couple more after Andy, if you think about that. So in terms of international PRT, Andrew?

Yes. So we've not set a formal target as you've seen for international PRT. Antonio referenced earlier that we moved through the [$10 billion] in the U.S. since we started writing there. Last year, we wrote about $2 billion in the U.S., and I'd probably guide you to that's roughly where we'd expect that business to grow, but grow organically, we have a sort of a partnership-based model in the U.S. as well. So we work extensively with third parties, but it's broadly along those lines for the next few years, and we'd look for that business to grow organically. Bermuda, where we write both in Canada and then looking at the Netherlands market would be smaller than that and more opportunistic. But again, it depends on as a reinsurer how successful our partners are in the direct market and how we support them, but it would likely be smaller than the U.S.

So in terms of Asset Management, so back to something I said at the beginning. So we have all the investment, Andy, that we're doing from sustainability and scalability of the platform. That's mostly the partnership with State Street. A lot of that investment has already been done. And we've delivered successfully the first phase of that. In general, there was a lot of hard work from the team to do that safely for our clients. The GBP 50 million to GBP 100 million is specifically that second bucket, which is the investment for growth. And a lot of it is under capabilities, a lot of that is people. If we're distributing in other parts of the world, if we're distributing to wholesale channel as distinct from institutional, if we're distributing in Asia and Europe. Last year, we opened the office in Singapore. We opened an office in Zurich. So some of the investment is going towards that. But Michelle do you want to...

Yes, and actually it's really important to say that we're being disciplined and deliberate. So this is where we have really well thought through plans where we're taking a long-term view on the capabilities that we need, particularly in investment capability and also then from a distribution standpoint, what do we -- where do we need to invest in order to sustain the growth that we see in the future. We're only doing this because we're confident in the long-term strategy for the Asset Management -- asset manager. And actually, we feel that's an entirely appropriate amount to be investing.

If that GBP 50 million to GBP 100 million is a significant element of that is people and those long-term capabilities, is that not just really recurring spend then and just increasing the expense base as opposed to a one-off. What's actually one-off within that then?

Yes. So some part of it is one-off. Some part of it is, you will have seen in -- so last year, for instance, we kept our cost base flat, because we had quite a lot of efficiencies within the business. And then we reinvested to grow the business, and against an inflationary environment, which we still had last year, I think that was a great achievement by the LGIM team, you can expect some of that cost to then be recurrent cost because that's people, but the rest that we're doing on technology, et cetera, that's a one-off cost and that's why I said the first bucket is...

And that's right. So Antonio what you're talking about in that first comment is how do we ensure the platform really delivers the scale that we need, to be able to put everything that we're doing on it. And that's really where the partnership here with colleagues in Legal & General Capital coming together as an asset manager, it's putting all of that onto a platform and driving scale. So there's more to come in terms of scalability, but you have to make the investments.

And there's another important point here with, let's call it, cost avoidance. So let's say that I have not merged the two divisions, right? So what we wanted to do in private markets was to distribute those private market assets to third parties. Actually, we would need to effectively replicate what we already have within LGIM and LGC. And so it's not an element of -- we're investing less. If you think about it, we're spending less because we're leveraging our existing capabilities. And by the way, I was also clear that in Retail, we have limited incremental investment because we're leveraging the capabilities we have, which leads me nicely to your final question on M&A. So I believe we're outlining a very credible, exciting growth strategy, but it's a very focused strategy. And most of what we're doing today is building on the strengths that we already have. So I can't anticipate, Andy, anything that's bigger than bolt-on, you can start defining what bolt-on looks like. But I think there's also a credibility from this management team that we want to deliver and execute against this strategy. And who knows in 2, 3 years' time, I'm here again talking about another Investor Day, and we've delivered successfully on these areas, and it makes sense, the slightly bigger bolt-on makes sense. At the moment, my focus is organic growth, delivering on this strategy and delivering the targets that I promised to you, over deliver if I can, to put my -- to put some pressure on my team. Any final questions here in the room? Farooq?

Farooq for JPMorgan. So there's a question earlier about management actions being in the OSG or not. I think they're not. If you could just clarify that. And secondly, going back again to what you're saying about capital distribution. I know -- I mean in terms of payout to shareholders, I know you're trying to obviously keep this flexible, because you don't know what the landscape is going to be. So you've being very careful in your language. But in an ideal world, do you think beating 5% is something that could go beyond three years if, let's say, the world didn't blow up and if you've got to the kind of capital-light position that you wanted to. Can you -- is there anything you can say on the ifs and buts beyond three years without breaking any rules?

Right at the end, it's when we're kind of looser and then they're going to catch us. Jeff, on management actions, we said.

Yes. I mean the management, as we said that they are in there. You were saying that, on average, they're sort of at that sort of a couple of hundred level, but they're a bit lumpier depending on how we stored them up or not stored them up.

But they're not -- sorry, they're not in the OSG target, are they? Because I don't think they have been previously.

Yes. No, they always have. Yes, they are in there.

They've always been on our previous OSG target.

Yes, we don't split them out and they've always been in there, yes.

In terms of our intentions. You say something and then I'll finish.

Yes. I mean we will clearly set new targets in 2027, and the Board will consider everything. I mean you're right in all the things we'll look at and who knows where solvency levels, how much PRT we've written, where the share price is, what the outlook is for the economy at the time and how much we want to invest. And so we'll make that decision at that point. I mean maybe no one is returning any money to shareholders at that point. But we will look to reward shareholders. I mean Antonio said earlier, we paid out GBP 1.1 billion already in dividends. We know that's very important for lots of our investors. So that will be a core part of what we do. And we will look at the relative value of what we can do for buybacks versus investment in the business and where the share price is. So that won't change. I mean the importance of recognizing why we're doing this is to build up lots of store of future profits, lots of capital being thrown off so that it will eventually be returned to shareholders or we'll make a case for why we're investing in the business.

Thank you. I was reminded of the AGM, we had last month, where all of the retail shareholders came up to me and said, for us, little guys, the dividend is very important. Our intention, to be crystal clear, for the next three years is to return more than what we would have otherwise with a 5% dividend growth. As Jeff says, we then need to look at our strategy going forward, and we will keep on updating the market. So we will update the market when we give the new set of targets after we've delivered all of this. Now my focus is to deliver this target for the next three years. So thank you very much for coming today. Thank you for your questions. In summary, we have -- I believe we have an exciting, we have a clear vision for a simpler and more synergistic and capital-light L&G. We have an ambitious, it's been -- [this balance] of having an ambitious and credible strategy for sustainable growth with a sharper focus on execution and delivery and with the enhanced returns that we've just talked about with the balance between dividend and share buybacks. Our focus now is on delivering that strategy, and I look forward to updating you on progress. Please stay and join me and the team over there for some lunch. Thank you.