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

Good morning, and a warm welcome both to those of you in the room and to those joining online. I'm Michelle More, Group Strategy and Investor Relations Director. To start, a few housekeeping points. To those of you in the room, please make sure you've turned your devices to silence. And in the event the fire alarm sounds, colleagues will guide you to the nearest exit and the normal forward-looking statements apply. So our running order for today will be as follows: Antonio will open with a summary of our first half results and an update on the progress we are making in delivering against our strategy. Jeff will cover the financial results in more detail. And then Antonio will make closing comments before opening to Q&A, at which point he will be joined on stage by Jeff and the CEOs of our fee businesses to take your questions. Antonio, over to you.

Thank you, Michelle. Good morning. So welcome, everyone. It's great to have you here with us. We've had a great first half of the year with strong good earnings and growth and continued momentum in the execution of our strategy. So let me firstly take you through the headline numbers. Our core operating EPS is up 9% that's at the top end of our 6% to 9% range. Our core operating profit is up at 6% at GBP 859 million. Our OSG is up 3% to GBP 279 million, and we continue to have a very strong balance sheet with a Solvency II coverage ratio of 217%. We are delivering more to shareholders with a 2% increase in our interim dividend per share and our 500 million share buyback is now nearly complete. Look, these are great numbers, but the progress on our strategy is even more encouraging. Last year, we outlined a strategy to be a growing, simpler, better connected LNG, which becomes more capital light over time. We've been busy executing that strategy to deliver sustainable growth across our 3 businesses: sharper strategic focus and enhanced returns for shareholders. I'm particularly positive about the growth potential for each of our businesses. Last December, Andrew Kal presented a deep dive on our largest business, institutional retirements. A months and a half ago, Eric Adler presented his vision to grow our asset management business. And today, we are announcing that our next deep dive into retail with Laura Mason will be on the 23rd of October. So now looking at the past 6 months, here are the highlights. First, sustainable growth. In Institutional retirement, we have had good volumes at low strain, and we have a very good pipeline. In asset management, we have seen a step change with positive revenue momentum and a further increase in our average revenue margin. In retail, we've had strong workplace DC flows up more than 20% compared to last year. Then we have a sharper strategic focus with the sale of the U.S. Protection business and partnership with Meiji Yasuda, and we're getting on with the disposals in our corporate investments units. We have announced that you've seen the acquisition of Proprium Capital Partners and a new partnership with Blackstone. And earlier this year, [indiscernible] joins us at the -- as the group COO, and she's already driving operational improvements and cost discipline across the group. And finally, we are on track to deliver our 3-year targets and return more than $5 billion to shareholders through a combination of dividends and share buybacks. So now let me give you a bit more detail on each 1 of the businesses, starting with Institutional Retirement. As you can see, PRT continues to grow strongly with over GBP 5 billion written in the first half of the year. You can see there the GBP 5.2 billion. Here in the U.K., we have written new business at attractive margins with a new business strain of 1%, continuing basically the capital-light investment strategy that we deployed last year. Our international business is down on the prior year, given the slower start to the U.S. market. But in any case, this business tends to be weighted towards the second half. Actually, in fact, since the 30th of June, we have won 3 U.S. PRT deals, including a GBP 285 million transaction, which we won just last night, and which is, therefore, is not included on the GBP 5.2 billion, so well done Andrew and the U.S. team. Looking forward, I'm extremely optimistic about the prospects for our PRT business. Client demand remains high with GBP 42 billion of an active pipeline here in the U.K., and you can see there, including 9 schemes that are over GBP 1 billion. So now thinking of the markets. Look, we continue to see significant interest as you've seen in the sector, which, for me, validates its attractiveness. PRT will continue to be a key driver of our growth and deliver reliable earnings for many decades to come. You can see on the chart, but from now to 2028, we are confident we can write volumes in line with the guidance that we gave you. If you remember, that was GBP 10 billion to GBP 13 billion per year or basically GBP 50 billion to GBP 65 billion over 5 years. I said that this can be lumpy, and we will continue to be disciplined on pricing and profitability. And then beyond 2028, the market will continue to grow with more than GBP 500 billion of inflows over the following 15 years as the percentage of insured DB assets continues to increase. I showed you that chart before, where more and more of the total DB assets in the market continue to -- the percentage continues to come to insurance companies and increase. What does that mean for us? This means that our profits will continue to grow for more than 2 decades as the volume that we write outpaces annuity outflows and importantly, we have greater capacity for portfolio optimization. And this picture here is only the U.K. We anticipate even higher volumes in the U.S. and potentially further opportunities in new PRT markets like Japan. And finally, as the DC market matures and the demand for guaranteed retirement income increases, the retail annuities market will continue to grow for decades and decades. So that's a healthy market. Why do we win in this market? Here are the 5 competitive advantages that we have in this business. By the way, this is the same slide that Andrew presented last December at our institutional retirement Investor Deep Dive. There are 5 key areas: first, our scale and origination capabilities allow us to price competitively. And we do this in 2 ways through our own asset management capabilities and also through partnerships like the 1 we announced with Blackstone. Second, we have a strong brand and a track record built over 35 years of writing PRT. Third, we have the strength of our asset management relationships as the largest asset manager in the U.K. Over 80% of our PRT volumes come from our own asset management clients. Fourth, we offer bespoke solutions for the whole market, both large clients and small schemes. And lastly, we support these clients through high-quality service. There are a series of live deals right now, where the trustees are visiting our client service teams in Hove to see this in action. So over more than 3 decades, we have experienced major swings in the global economy and market changes but we have consistently written PRT business and made money in all market conditions. So I'm confident we will continue to be a leader in this space. In Asset Management, this last 6 months were a clear turning point with real revenue momentum. Our annualized net new revenue, you can see it there at GBP 15 million is really encouraging and higher than what we have generated over the past 2 years combined. This is consistent, by the way, with the run rate required for our GBP 100 million to GBP 150 million cumulative 4-year target. One particular highlight for me is the growth of U.K. DC. For the first time, our U.K. DC revenue generates more revenues than our U.K. DB business. So U.K. DC is now bigger than U.K. DB from an asset management perspective. We have continued to grow our average revenue margin, if you remember the -- what I've said to you before, now from 8 to 9 basis points, which is now close to double digits, which we announced. Our target we announced just in June. An important part of that margin improvement in the 6 months is the growth in private markets, now at GBP 65 billion and on track to exceed GBP 85 billion by 2028. This growth is on the back of good fundraising in private markets, 1 year on our private markets access fund has grown to GBP 1.6 billion. And we've also had a series of other private market launches, you can see there. I'm actually particularly excited of the last -- the 1 before last bullet point there, which is our new digital infrastructure fund. So good growth. We turned the corner. How are we doing this? This growth is the result of deliberate investments that we've made in the business. As Eric said, at the Asset Management deep dive, we are doing this in 1 of 3 ways, either we build or we buy or we partner. You can see the specific examples of that momentum on the slide. So in terms of build, we have been growing our active fixed income and climate transition strategies organically in addition to the digital infrastructure fund I had just mentioned. In terms of buy over there in the middle, our investments in tourists and Proprium Capital Partners complement our existing U.K. real estate capabilities. In the space of just 12 months, we've gone from a primarily U.K. real estate manager to having now a global real estate platform that we can grow and leverage. And finally, we are partnering with Blackstone to create public and private hybrid products. It's worth actually spending a minute more on Blackstone because this is a broader relationship. It cuts across all of LNG, not just asset management. Before I do that, I'd like to say that our thoughts are with Blackstone team following the devastating news that 1 of their partners was skilled last week, as you saw in the New York office. I spoke to both Steve Schwarzman and John Gray, and I know this was the darkest day in their history. So we've got to know the Blackstone team really well over this last year and have really enjoyed the interactions that led to the announcement. We are extremely positive about the potential for the partnership, which covers 2 main areas, which you can see on the slide. So on the left-hand side, first, in Asset Management, as I've just mentioned, we will create hybrid products for our clients, bringing together LNG's active fixed income, multi-asset and U.K. private credit capabilities with the best-in-class market capabilities of Blackstone. So we bring all of this together, and we will then distribute these hybrid products to our existing clients, but also target new geographies and new segments like wealth. Then on the right-hand side, for our annuity businesses, this partnership gives us access to Blackstone's scale. And therefore, to an attractive pipeline of matching adjustment eligible assets predominantly in U.S. private credit. These assets complement our own existing asset origination capabilities and basically, they increase our price competitiveness and profitability. If you put the 2 opportunities together, we have an ambition to generate $20 billion of business, and I'm looking forward to what we will deliver for many years to come starting in the second half of this year. And finally, retail. Jeff will cover the performance of our different retail businesses shortly. But I wanted to focus particularly on workplace, which, as you know, is 1 of the most exciting growth areas in the market and of our strategy. We now have more than GBP 100 billion of assets under administration. This was driven by GBP 4 billion, it's on the slide, GBP 4 billion of net flows in the first half which is a 21% increase compared to 2024. Overall, this means that we have close to GBP 200 billion of DC assets. This is across asset management and retail, not just the part of DC here but across both businesses. and that's circa 25% of the total DC market in the U.K. As you also know, the DC market is projected to grow. It will be GBP 1.4 trillion by 2033, and we are really well positioned to take advantage of that growth. We were 1 of the first to provide access to private markets as part of our DC default funds, and we were the first provider earlier in the year to connect to the government's pension dashboard, which is a tool that increases transparency for DC members and, therefore, improves engagement with the members. I'm very positive about this, and we will tell you more about the prospects for this business and its profitability at the investor deep dive on the 23rd of October. So stepping back, all of this means that we are on track to return more than GBP 5 billion to shareholders through a combination of dividends and share buybacks. Here are the different components on the slide. First, our dividend, which is growing at 2%, accounts for GBP 3.6 billion of the total over the next 3 years. Second, the GBP 500 million share buyback I announced back in March at our full year results is now 90% complete. And third, after the major the transaction completes, we intend to return GBP 1 billion of the GBP 1.8 billion of proceeds. If you add all of that together, you get to GBP 5.1 billion. And then on top of that, you have the ongoing buybacks, which is that last little box. So overall, we are doing exactly what we said we would do, which is to return more to shareholders. I will now hand over to Jeff, who will walk you through the financial highlights, and then I'll come back for some closing remarks and to answer your questions. Jeff,

Thank you, Antonio, and good morning, everyone. Our businesses continue to grow and deliver increased earnings and enhanced value creation for shareholders. Core operating profit is up 6% to GBP 859 driven by the predictable release from our growing store of future profit and the benefit of increased back book optimization on our annuity portfolio. Growth in core operating EPS is 9%. And as Antonio mentioned earlier, this is at the top end of our 3-year target range. And capital generation is up 3% against the prior year with the expectation of higher growth for the full year. The solvency coverage ratio of 217% remains strong and reflects the impact of the dividends and buyback in the first half of the year. So now moving on to the performance of our businesses. Institutional Retirement operating profit is up 11% to GBP 618 million. Our growing and maturing annuity book is driving a larger release from the CSM and risk adjustment resulted in increasing and predictable profits. Back book optimization has generated over GBP 150 million of profit across our annuity portfolio, which we believe is a sustainable level for the medium term. This reflects greater capacity to rotate into direct investments as we continue to write new business using a gilt-based investment strategy as well as taking advantage of volatility in the market to switch out of those gilts. Investment variance largely reflects modeling improvements and an action to optimize our reinsurance. This has added GBP 139 million to our store of future profits, but generated day 1 adverse investment variance in the same way as longevity releases. This effect will unwind as the CSM and risk adjustment release into profit over time. As Antonio mentioned earlier, we've made a strong start to the year with GBP 3.4 billion of total new business completed and a further GBP 1.7 billion in exclusivity. In the U.K., we continue to optimize pricing with new business investment strategies that adapt to current market conditions, delivering a high return on capital deployed and a new business strain of around 1%. New business margins remain attractive at 7.1%, and the greater capacity for back book optimization increases the future upside potential as we've already demonstrated this year. In Asset Management, fee revenues were up 2% in the year despite lower average AUM as our conscious shift to higher revenue margin business takes effect. The GBP 15 million of annualized net new revenue demonstrates the significant progress we have made. Total asset management operating profit includes GBP 79 million from our balance sheet investments. This is broadly flat on the prior year. A lower valuation uplift on Pemberton is offset by higher returns from a growing portfolio as we warehouse assets to support future growth strategies and seed commitments to catalyze new funding. Over the past 5 years, on average, valuation uplifts on Pemberton have contributed less than GBP 50 million per annum to operating profit. And Pemberton currently makes up less than 30% of the GBP 1.4 billion portfolio. Around 50% of the GBP 124 million investment variance reflects unrealized mark-to-market impacts versus the expected return in operating profit. The remainder is from exceptional items related to organizational restructuring and the write-down of a small number of assets, which did not meet the criteria to continue funding. Across the group, we're taking a disciplined approach to both cost management and investment, and this can be seen in Asset Management. We continue to keep underlying growth below inflation, demonstrating cost control. In turn, we are considered about our investment spend as we focus on opportunities that we are confident can generate higher revenues and support our growth strategy. Our cost/income ratio was marginally increased from 74% as of the end of last year to 75% as we have chosen to deploy GBP 13 million of incremental investment spend despite market volatility. We remain confident that with continued cost discipline and revenue growth from the investment we are making, we can reduce our cost income ratio to below 70% by 2028. And now in retail, operating profit increased by 3% to GBP 237 million with predictable earnings from our store fee to profit and the benefit of back book optimization. Lower volumes in retail annuities follow exceptional performance in 2024, where we materially increased our market share, resulting in record volumes. However, we do expect continued growth, and we are confident in our ability to maintain a leading market share. Protection gross written premiums are up 4%, driven by a particularly strong first half for our group protection business and our retail protection margins continue to grow. Our workplace DC net flows are up 21% to GBP 4 billion. And as Antonio said, our total assets have now passed GBP 100 billion, generating revenue in both Retail and Asset Management. We will continue to invest in our DC proposition to ensure we maintain our competitive position and gain operational leverage as we scale. The compounding effect of winning DC new business today will be a sustainable source of future growth. Our Solvency II coverage ratio remains strong with surplus of GBP 8 billion, notwithstanding the payments or the largest part of the full dividend and allowing for the GBP 500 million buyback. The coverage ratio of 217% excludes 6% in respect of temporary impacts from nonretained U.S. business that will unwind when the transaction with Meiji Yasuda completes. This is predominantly new business strain on U.S. protection and U.S. dollar hedges on the proceeds of the transaction. The transaction remains on track to close in 2025. And as a reminder, when we announced the sale back in February, we said we would generate a further GBP 1.2 billion of capital and it would increase the solvency ratio by around 7 percentage points after the anticipated share buyback. This is on top of today's 217%. Now this slide looks at OSG in a bit more detail. In the first half, we generated GBP 729 million, growing by 3%. We anticipate this growth to be higher for the full year, reflecting the timing of some items in 2024 being more weighted to the first half. This includes management actions of greater than GBP 300 million, which are sustainable in the medium term, following increased confidence in back book optimization. In 2025, we expect full year OSG to broadly cover the cost of the dividend and new business strain. At the same time, the OSG per share will be growing at greater than 5% creating headroom over the 2% EPS growth. This will be further enhanced by the additional buyback we intend to complete next year. This buyback would increase OSG per share by over 9% and in absolute terms, reduced the cost of the dividend by around GBP 100 million. As our core businesses continue to grow and we execute on management actions, this gap will widen further, providing greater capacity for investment for future growth or greater returns to shareholders. Our strong balance sheet and growing surplus generation makes us well positioned to capitalize on the opportunities in each of our core markets as we move into what we expect will be a busy second half. I will now hand back to Antonio for some closing comments.

Thank you, Jeff. So we have delivered great financial performance this first 6 months, and I'm pleased with the execution of our strategy. We have a clear vision to become a growing, simpler, better connected business. And as we deliver that strategy, we will become more capital light. We have good growth momentum, as we've just discussed in each 1 of our businesses. And on the 23rd of October, we will run the last of our 3 deep dives on retail with Lori Mason. So what will we cover in October. You can see it here on the slide first. The growth potential for each of our retail businesses, particularly given the growing market opportunity across DC and savings. Second, that we have a series of well-positioned businesses with clear propositions to address growing customer needs. And finally, make the case that we can generate good economic returns that improve as we scale and leverage the synergies with the rest of LNG. Now in terms of outlook, look, we all know, we are living through complex geopolitical and macroeconomic environment, and we all need to navigate that. I'm sure you do that in your businesses as well. But against that backdrop, I am confident in the immediate prospects for the business and their long-term growth trajectories. If you look at each 1 of our 3 businesses, you have them on the slide. In institutional retirement, we have an active pipeline that I described earlier, which we expect this to convert over the coming months. And importantly, we have increased capacity backlog optimization, as Jeff just mentioned. In Asset Management, the recent client wins, the fund launches, the revenue momentum will continue to come through in our financials. And I'm looking forward to the results of the partnership with Blackstone and the first co-investment with Meiji Yasuda. And finally, in retail, we have growing retail annuity sales and therefore expect a stronger second half, and we will continue to grow our workplace business and its profitability. So in summary, we have high confidence in achieving our overall targets, including the full year core operating EPS growth of 6% to 9%. So with that, I would like now to invite Andrew, Laura and Eric on to the stage to take your questions together with me and Jeff. Andrew Laura, Eric? So yes, I will start -- you all said at the end, it's well done. Please state your name and your company, and if you can limit your questions to 3, please.

Abid Hussain from Panmure Liberum. First question is on asset management and net flows. So look, firstly, good to see the revenue margins tick up there to 9 bps and trending in the right direction. But just wondering on the net flow is obviously still negative when do you think they might turn positive? I know you've got a number of initiatives across the private markets and elsewhere. So just net flows when do you think they might turn positive? And then the second question is on PRT. Just wondering if you're seeing any evidence of increased competition or indeed trustees looking to delay their transactions in the hope of possibly accessing any pension surplus they might have in their schemes. And then the final question is on the management actions. How would you define the management actions? Is it just back book optimization? Is anything else? And can you help us understand why they are repeatable and why is the GBP 300 million the right level? And then sort of a subpart to that is how do you increase your capacity? I think you called out that you've increased your capacity to do more. So just any color on that, please?

Great. So I think that's pretty straightforward in terms of the net flows, if I can ask Eric to do this. I think, Andrew, if you can give some color on the PRT and then Jeff management actions. So maybe just 2 quick comments. Just on management actions, we did the [indiscernible] strategy, and therefore, that's providing more capacity. Jeff will give you the the actual answer in terms of the management actions. Just on PRT for a second. I've had many discussions over the last weeks and months. As you see, we feel pretty good about the GBP 5.2 billion that we have written and the GBP 42 billion of active pipeline gives you confidence that the trustees are coming to the market, right? So I alluded to it on my slide, but we see actually new entrants coming in and that competitive dynamic, actually, I feel very good. I've talked in the past about the trillion opportunity globally over the next decade and another trillion enough after that. So I feel pretty good about that. It's always been a competitive market. But we're not seeing that dynamic of trustees themselves, so they're holding back because -- because they're in the surplus point we see much less of that. And that's less -- there's a bit of chatter 6 months ago around that. Andrew will give you more of -- but what will decide with the NAV flows first?

Yes. No, thanks for that question. It's a -- this is a really key point. ANNR is a net flow number. We have to think about that. It's weighted by revenues, and that's why we're so focused on it. So very excited. Obviously, it speaks for itself in the inversion of that tendency and you mentioned that. And I think we're in a unique position. The reason why in a market where you are seeing fee compression, that's a market phenomenon. We're actually targeting growth over time in our fee revenue. And all that is linked to the importance of us thinking about this revenue weighted because if we're just thinking about what is a very important leveler, so I will answer -- the net flow is a number. It matters. It's the way you can kind of look at the industry in a quick way. So it is an important number, but we need to focus on the ANNR because if we were just chasing net flows, we wouldn't be as focused on that change of product mix, which is a unique opportunity we have. That said, I'm actually quite pleased with where the net flows are given where it's been in the past. I think First half was 1 of our best net flow numbers. We all know we have a tailwind in what has historically been our largest market, right? From an asset management perspective, we are the absolute leader in U.K. LDI and as Antonio mentioned, that is shifting. Now D.C. is symbolically now above the LDI number. But 2 things. It shows that in our non-LDI businesses, we're in a really good space even in that more generic net flow number. But importantly, we're still winning in the LDI space. We're a leader in that space. And what we're seeing is at -- in the smaller mandates, there's still a lot of movement, and we're not vacating that market. We're actually getting wins there, which again is going to have a marginal positive impact on the ANNR number that's so positive but it does kind of keep that net flow number, which is a benchmark. Everybody looks at it. I don't want to predict when that could go positive, but the first half is extremely encouraging in terms of our overall momentum. So even the net flow number, I think is a positive development and what's really key to keep our eye on the ball on is that ANNR, which is our weighted net flow number.

And we mentioned the run rates the run rate of -- you multiply the 15%, right? And so you do the math, right? So 30, 30x [indiscernible] 120. So we're within the GBP 100 million to GBP 150 million target of cumulative ANNR, and that's really good sepsis is the first 6 months or for that specific target. Thank you, Andrew, it?

Yes, sure. Well, what I said. We've been in this market nearly 40 years. We are definitely used to new entrants entering the market. It's always been the way. And as Antonio says, that's a huge vote of confidence in the market. And of course, the recent transactions will change the competitive dynamic again for sure. So we're well used to that. Why do I remain very confident for 2 reasons. One, the market continues to grow. The market expands and Antonio gave some data earlier about just the size of the market that we can expect to see in the near term and then going out into many years. So the market strengthen the continued growth that's usually empowering, but also then why do we win? The reason we continue to have record results in the years as competition increases because the strength of our asset origination and our asset management relationships, the propositions that we deliver to clients and the service levels we give both the trustees and to individual members. So I remain really confident that despite the competition those capabilities and the growing market means that we're in a strong position. Specifically to your trustee question and their options, we have seen no evidence of any of our transactions or any of our pipelines, if you like, pivoting away from from moving to buyout and reverting. So there's been evidence of that. I think for sure, there'll be trustees out there thinking about their options and our strategies, particularly around surplus. I'm going to have a personal view that actually using the the calculation around the buyout value is a catalyst to look at crystallizing what that surplus might be. So we are aware of trustees who are thinking exactly along those lines as to what's really under my sort of funding level, the options I have around surplus distribution and buy out as well.

Yes, effectively doing both, right? So doing the PRT transaction as Andrew says, and doing the surplus extraction at the same time. Management actions, Jeff?

Yes. So before we come on to the latter half, yes, I mean, there's a range of actions within management actions, as you know, some more material reinsurance, both internal and external. We've talked before about, for example, warehousing some deferred lives, especially where we're not using too much capital at the moment, so we can take on a few of those. That gives us a lot of optionality around reinsurance in the future. For example, the structure in that we do assets and just generally the whole structure of the group, even some hedging can have significant impacts if you effectively optimize that under Solvency II. But then the largest with the reinsurance is the back book optimization that we've talked about, which takes a number of forms. There is the capacity that we're creating by bringing on so many liquid assets to simply put more direct investments in the back book. So that's just a straight through benefit, if you like. We then can trade around things like the shape and a longer curve, et cetera. And we're definitely more active around that. And then there is the sort of volatility or even hopefully maybe a long-term shift to slightly wider credit spreads where you simply move the gilts into credit and capitalize on that. That was something that we did post Liberation Day during April and made some of the additional profit. We still have the option then to move that credit into direct investments in due course as well. And so that sort of never ends, if you like and you keep optimizing. It is a bigger part of the business now. And Andrew's world has been put in a sort of framework around this. We've executed very easily in April, Antonio and I were both out of the office actually. I mean it was all done very easily. We had a framework, how do we optimize this? What do we do? There are processes being built around it, which makes it a much more part of business as usual and sustainable than it was previously.

And a bit the upgrade on the management actions. I really like this point that Jeff is making, which is more of it is on the back book optimization, which has also a high-quality management actions. If you think about it that way. Thank you. Mandeep?

Mandeep Jagpal, RBC Capital Markets. Three from me, please, to on Asset Management and 1 on PRT. The GBP 15 million ANNR, you've given a breakdown of that, but can you provide a simple split between internal versus external. Also confirm if the ANNR includes M&A as the warfare chart you showed -- show the deeper I didn't have a follow for M&A, but presumably this adds to revenue. . Second question on Asset Management. On the private market fundraising pipeline, you mentioned the digital infra fund. What is the target fund size? And when would you be raising? Are there any other new funds, which would be thinking about contributing to privates in the near term? And then on PRT margins. Can you help build a bridge from the 7.1% that you reported as the new margin compared to the accretion to the CSM risk adjustment, which is closer to 3.5%. And on the optimization that you include in here. Does it include items that have actually already occurred between contract initiation and the period end? Or is it some -- or I think you mentioned an element of expected optimization that you might be able to in the future?

How much of that is in the 7.1%. Is that what you asked? Yes. So I think, Jeff, you should take that as Andrew really want to jump in, but I think to do that. And then come to you first, Eric, on the 2 asset management question. So the GBP 15 million internal and external M&A and then the digital infrastructure fund another exciting new funds?

Yes. So GBP 15 million, and again, rough breakdown in terms of the the synergistic business model, it's less than half, right? So it is a big part of what we do well, whether that's moving some of our LDI business into PRT of the $15 million, less than half of that is really be internally driven. There's a big chunk of it that's part of the synergistic model because it's working in partnership with our retail business. So our DC part of that is quite significant as well. But that's true third-party money. And then the remainder, which again, I think is extremely -- it bodes very well. It's a bit in keeping with the first question. We are positive on all the rest of the business. So I think we've got some good momentum across all aspects, if you were to break down our business really simplistically, and I think the way you asked the question is a way of doing that, we have the truly internal synergistic business model, which is our competitive advantage. So that's humming. That's doing really well. I think specifically, the third-party business that's linked to the synergies, which, again, DC is a big part of it. that's going really well. And when you take all the rest, we've got positive A&R in the first half on the back of a pretty different picture we've had over the last few years as Antonio said. So it's quite broad-based, not surprisingly, in the near term, we're seeing our real strengths come to the fore. Our real synergistic model strengths. Our real third party, what makes us a leader in the U.K. and what makes us able to go after certain channels in a way that's pretty unparalleled like in D.C. So not surprisingly, that's driving most of it. But I'm extremely encouraged by -- you take that out, we're positive on the rest. So it's a really good start. Second question, and the second question is...

There's a 1B, which is M&A included. So at the moment, M&A as an patents a big difference because actually, what did we do from an M&A perspective, an investment in tourist, which provides and the acquisition of Proprium Capital Partners, that's not included in those numbers. The second question was on the digital infrastructure fund.

So again, that's pretty hot off the press. So I think this is -- we feel we're to the point where we can talk about it. I think it's not unfair to say that an ideal target is somewhere well above the GBP 0.5 billion mark. And I feel really good that if that were a low target, we're going to be largely there in the short term. I really can't say more, but the fact that I'm saying that should give you some confidence. And these fund raises, as you know, these fund raises they happen in multiple series and they can last in today's world because it is a challenging equity private markets environment these can drag out over 18 months to 2 years. So I'm feeling really good, a, that we were able to get this off in this environment. I think that is quite rare. There's the big names that are still hitting headlines with equity private funds, but everyone else has been struggling. So I think this really shows a competitive advantage. And I feel pretty good that in the near term, we're going to be announcing initial numbers that are very much in keeping with what I just said. So that's really strong. continued momentum on some of our existing products. Antonio mentioned PMAF in the private space. Frankly, every time we talk about it, the number is a little higher because flows are just coming in continuously. So that is a very strong best-in-class product we have. We're taking full advantage of it. I think the living sectors that we've been talking about for a while, they continue to show momentum. U.K. living sectors, we are a leader in that space. And we are soon going to launch the latest in our clean power energy fund in partnership with MTR. So we're in the process of marketing that. On the back of a final close, it was above expectations. We hit almost EUR 600 million to close the last fund. We had a good pipeline. So we should be back in the market by the end of the year because a lot of that money is already earmarked. So those are the near-term ones. And that's before we talk about some of the M&A that you can imagine, we're going to be very focused on Proprium, we're very focused right now on Taris. So the whole theme of irons in the fire we talked about at the CME, I think we're starting to show the beginnings of that. We have multiple routes we can go through. And that's before talking about our private credit business which I'm very pleased with momentum on separate accounts in the Insurance going after insurance. We're -- we've had the Admiral win, but we have a very good pipeline of continuing to grow that third-party business and investment-grade private credit.

The series of client wins is very impressive. I'd say Eric has just arrived, but it's amazing what the momentum is in the business. We've included some of those here. in the pack, and you can expect more of that to come. On the first question, we talked last time about [indiscernible], and that's how I think about it exactly as Eric said, right? There's an underpin, which is the strength of the 2 business sitting to his left. So the underpin of the PRT business and the underpin of the amazing DC business we have. But actually, the excitement that comes then with the third-party money. So I think you can see that in the -- that's why I'm saying it's a turning point. In these 6 months, you see that working properly for the first time. Jeff, the 7.1% and what's included in the...

Yes, that's right. And we recognize -- I know the teams can help you guys on this. We recognize you can't calculate that number from it. We gave some of the information. So the biggest element that's not happened is the reinsurance that is not yet signed at the half year. And so we're using funded Re for some of that new business. We say that we have allowed for GBP 511 million of funded in that 7.1%. That is because we can't allow for it in the IFRS because we haven't signed it accounting doesn't let you do that, but this is realistic view of the profitability of this business. We do the same on the subs to strong because this is what we will execute, how we price the deals, et cetera. And then the other part on the back book optimization is as I talked about earlier, the fact we're using the Gilt strategy means we can deploy direct investments, private assets immediately to the back book. And I'll use some made-up numbers just to illustrate, let's say we're targeting 40% of private assets, the fact that maybe on a deal we might put 20% private assets and make it up completely 80% for the rest is Gilts, et cetera, and liquid assets. What we do is we say, well, that means we brought on so much liquidity that we can deploy 20% left over 20% of direct investments immediately in the back book. And we are doing that on an ongoing basis. So we've effectively done it straight away. And so this is extra capacity that we've got that we immediately do as Eric's business simply flow through. We tell them how much we need for the year and it simply flows through. So -- and again, we have rules around that about -- are we up to speed? Have we got the assets or the amount that we're using, et cetera. So -- and the split is -- it's not quite 50-50, but it's roughly that. I mean we can take you through the calculation of the funded rate and then you can see how it comes through.

Reassuring points on these numbers, which is a 7.1%. There's been a lot of chatter of business being less profitable. It continues to be as profitable as it was last time we showed you the numbers. And second, exactly to Jeff's point, as all of the back book optimization. We're not including that in the margin upfront. We are including [indiscernible] , which you described, but that from a pricing discipline perspective, talking with my team, we tend to price it between the 3 of us, there is an element of we don't want to give that pricing away. Like the back book optimization that we do later on, that's not in the upfront margin, which is really important. Tom.

Thomas Bateman from Mediobanca. Could you just update us on the outlook for U.S. PRT given the litigation in that market? And in particular, I'm interested in does the sale of your U.S. entity and having to write out the muting entity impact your ability to do business or could impact your ability to do business there? Second question is just on the DC transition. So towards your 15% target in private markets. How much of your GBP 100 billion has transferred already? I remember you talk about trustees having to sign up on the new allocation. And then finally, it was just on Slide 24 and how you were talking about OSG and the dividend and how the OSG would broadly cover the dividend. But I guess I'm thinking there's new business strain. And I assume that the Capital Markets Day you committed to some level of recurring buybacks when you change the dividend policy. So how should I think about it as versus total capital return? Or should I think about it as OSG versus the dividend? .

Yes. Perfect. So Andrew, on the outlook for U.S. PRT. I'll say a word on DC transition, maybe actually is an opportunity for for Laura for you to talk about a bit more about DC from a workplace perspective. And then, Jeff, can you come back on Slide 24, which is -- I feel very good about that side. We worked a lot on it. So just on DC transition. So -- some the overall -- so we are a signature to dimension house the [indiscernible]. This is putting the default fund into a 15% investment in the private markets access fund. But this is a simplistic way of putting it, each 1 of the funds, so you have the Master Trust, you have the different scheme arrangements. They are progressively. That's why Eric was saying that each time we talk about the number, it's kind of exponentially going up because each 1 of the schemes is moving to that default. But the simple answer is the fund is GBP 1.6 billion. So the bids that we have that is in the fund is GBP 1.6 billion. But you can expect more and more of that -- of the overall DC. So we think about it, we have GBP 200 billion of DC at the moment, and we are 25% of the market. You just do simple math. The DC market is going to be GBP 1.4 trillion by 2033. And we hope, and in October, we'll talk to you about the ambition that we have in DC. We hope to be a 1/4 of that market. So there's much more to come. Not all of the schemes will allocate to the private market [indiscernible] one because in some cases, we have some employers that immediately have decided that they want to move because they feel this is the right thing for their employees and their members. Some other schemes they themselves don't want to move into private markets. And so we are doing what the clients want. I think the good thing about from a private -- from a [indiscernible] court perspective, a momentum in the market, whereas the employers themselves, you probably saw this, there was an employee's pledge, where the employers themselves are committing to allocating more to private markets. So you wouldn't expect the full GBP 200 billion to -- for 15% of that to go into private markets. But you can see just do a simple math, there's a lot of upside. That's why the private market taxes fund and the fact that we were one of the first in the market to have that we feel really good about that. So Andrew, U.S. PRT, then maybe Laura, you can say a bit more about the DC market and how excited we are about that. And then Jeff.

A few comments on the U.S. PRT market, generally weighted to the signal anyway. So that's a structure where that market has been for many years. We definitely, though, sensed a slowing down in the first half from a pipeline perspective at an overall market level, I think for 2 reasons. One, just the general U.S. economic environment means that I don't forget in the U.S., you don't have the trustee interface. It's corporate sponsors doing it directly. And therefore, I suspect boards were -- had other things on their minds, and I have done a pension transaction. So there were less jumbo deals in the first half than you might have seen typically. That said, that's not our typical market. We would write at a smaller end of that, so sub the GBP 1 billion deals. Litigation comes up in certain conversations, but again, it's typically at the big jumbo end of the market not at the sub GBP 1 billion where we play in that market. And as Antonio said, we've had good pickup literally overnight on the U.S. market with transactions coming through in the last few days. So I think we're feeling feeling very good about that. To your point about Bermuda, not really a huge change for it. I don't think the sale of [indiscernible] means that we become a reinsurer not a direct insurer, so banner will be under major control. We've actually even our own structure to use the Bermuda reinsurer as part of that structure. So which is, in many ways, just replicating the structure we have already and so major. So I think structurally, the way that team are being set up is in a partnership where major will write the direct business, and we will reinsure 80% of that, but the team are effectively working as one, and we'll use a very similar Bermuda structure to what we've had in place already.

Thank you. Laura, DC.

Yes. I mean, a couple of things to say really. You'll have seen that we -- our net flows into our workplace business significantly picked up over the first half of the year. A number of reasons for that. We have very deliberately put a new leadership structure in place, which reaches across both asset management and retail. And we think this is a real differentiator in the market compared to our competitors sort of even just thinking about the investment side of things, we're seeing the people that we sell to, effective the employees of these schemes increasingly interested in the sort of investment solutions that we're able to offer to their end members. . We've also made significant investments in sort of the front end, the digital side of things, which we will talk a little bit more about in October, but really I think from having launched some of our digital applications, we've seen incredible uptake from members. And I think was just finishing. And again, we'll talk a little bit more about this in October. The pensions reviews have really played, I think, to the strengths of LNG in terms of really encouraging scale members. And again, linking back to your private markets question, all providers of default scheme arrangements, we'll need to have some GBP 25 billion of assets under management at 2030. We are already there with our defaults and our defaults are now having a quite a significant part of the private markets access fund as part of those defaults. So as Eric says, as well as a sort of new money coming into those the sort of contributions from the current defaults just each month the amount is ticking up.

Correct. Thank you. And Slide 24, maybe we can put it up actually if they can put it up. So Jeff?

Yes. So I can tell you how we think about it. We very much look at the OSG that's been thrown off what's been generated over the plan period. And we look at that OSG against the dividend first and foremost. So clearly, there's coverage over that. What is left is for us to deploy across the business, put into our capital allocation framework, make sure the businesses are meeting the hurdles, et cetera. And so we then use what is left for new business strain, but don't feel constrained by that. So in any year, in particular, PRT could be quite lumpy. We are happy to eat into our surplus capital position for that new business strain because we're starting from a very strong position. And we've always said part of that is to allow us to write significant volumes should they arise in any particular period. As we get more clarity over that, we'd be comfortable running down solvency level. So we have always said that. And it's not dissimilar on the buybacks. Again, we've never said that is covered from the flow necessarily, it's a capital allocation decision with the added benefit of reducing the cost of the dividend. And so we will always look at that and assess again. So we clearly have modeled out that we believe it's sustainable given the starting capital level, given expectations for, in particular, PRT volumes and strain that those are sustainable, and that's why we made the statement, but not from flow necessarily in any given period. I'm comfortable that we can again eat into a very strong surplus position. We have the same happening with the major transaction, which significantly reduces the cost of the dividend gives us more flexibility around that and increases that solvency position by another and so it gives us more capital allocation decisions to make in the future. So that's the waterfall we go through in the way we think about it. It just so happens that because of the very low strain, it will be there or thereabouts covering NSG will cover the dividend in this period and improve from there. but we wouldn't guarantee it to the point where if there are larger volumes or we decide to deploy a bit more on strain. But I don't think we'll ever returning either to the 4% strain days. We've never actually been there. We say less than 4%. We haven't been there for many, many years, even when credit spreads were wide, we weren't using build strategies.

Yes. And we are very comfortable actually you have the -- as Jeff says, we do this ourselves. We do this with our board. We do this with the PRA. They improve our share buybacks. So pretty comfortable with that. Larissa, and then I'm going to do a question online because we have Farooq online. So after Larisa.

Larissa Van Deventer from Barclays. Three questions, 1 on bulks and then 2 on shareholders equity. On U.K. bulk annuities, what needs to be in place to maintain your current margins? They were maybe similar now to FY '24. What needs the same place for that to continue. And then on shareholders' equity, a decline from just GBP 3 billion to about GBP 1.9 billion from FY '24 into 1H. Can you help us understand the main reasons for the component parts for the decline? And how much of that you expect to unwind dear to market over time? .

Andrew, on the margins and PRT and bulk annuities and then Jeff clearly on equity.

So thanks I think on margins, as you said, we've maintained them in a competitive market. That's partly because, as Antonio said before, we stay very focused on pricing discipline. It's not about chasing volumes and where we don't see the margins we want in deals and then obviously, we wouldn't compete. It really comes down to asset origination, including a funded as well to make sure that we can competitively price. The price in the market is often set by the competition, and we need to make sure that we're originating assets that can generate is the margin at the capital return we do. So it tends to be a decision that we take transaction by transaction, looking at the available asset sourcing, the nature like duration, et cetera, of the transaction and because that could influence our decision of our fund of reinsurance and coming up with a strategy on a transaction basis that gives us the margin that we're looking to preserve and not chasing the market down and margins that aren't attractive to us.

Thank you. Jeff.

Yes. Thanks. Yes, I mean, to some extent, looking at it is the same -- a bit like the Solvency II waterfall that I showed looking in the half is a bit skewed. We paid out the largest part of the dividend. We paid out GBP 500 million buyback all in a single period. So clearly, that in itself has an impact. There is, of course, the items I mentioned where we're effectively transferring some of the equity to CSM and risk adjustment, which comes back as profit, like happens with the longevity and that was GBP 150 million or so of the investment variance that we had. . And so that's 1 of those things from accounting. And then broadly, I mentioned the exceptional items in Eric's business, we've been coming on board, but also the half of it then of the investment in is really just flat markets as much as anything. We have an assumption for returns equities 6%, 7% as it would. And the private markets, which a lot of our investments were broadly flat. There weren't many transactions. There wasn't much mark-to-market. And so the assumption in your op profit is a negative. Over time, you obviously assume that, that that should trend to 0 over time. You should have offsetting items. And so we're very confident and happy with the position. We were confident with the modeling we've done around my answers to the previous question. And so we're happy with that. We're happy with the portfolio. We've done some trimming we did set up the corporate investments. Eric himself has looked at some of the assets that we hold on the balance sheet and whether the for the future, and we'll actually ever go into funds. So we're being honest about those where we take the write-downs. The rest is just a mark-to-market, which has broadly been flat, to be honest, over the period but because you're assuming returns above the line, you get a negative that goes with it.

Yes. [indiscernible] few ones so we can give you some more details, as you -- I've said to some of you when we were meeting outside. We've tried to get as much feedback from you and try to improve disclosure, hopefully, as you've seen, we're trying to be more transparent and each time we ask us a question next time we try to give you information on that. Let me answer the question from Faruk, and then I'll come here to to the middle section. So what concerns, if any, do you have around increased competition from private market players and others in the U.K. PRT market, and this is from Farooq, as you know, from JPMorgan. So look, any concerns -- look, I'm not concerned. I mean, if we think about it from an overall perspective, it's good to have a healthy market. So that's the first thing to say. Second, it does validate the fact that this is an attractive market that continues to grow with good returns. And it is a validation of that, that very sophisticated investors want to come into the market. In some cases, and it's different the 2 transactions we've seen. One, we have 1 new entrant, if you think about it that way, that bought PIK. And therefore, from that perspective, Picks already a great competitor of ours already writes a lot of business. And so 1 situation. In the other case, we already had Brookfield has as an organic new entrants, and they've just got just as you've seen or about to buy it, and therefore, we have 1 less competitive. I think about it that way. So when we think about what are we here to do to execute our strategy. We are the leader in the market, as I said earlier, we feel that we have the right competitive advantages. We are the largest asset manager in the U.K., which is different from any other player in this market where 80% of our volume comes from our asset management clients and then goes back to asset management, where Eric is originating the assets for the PRT business. And then on top of that, the partnership we did with Blackstone complements that, particularly in matching adjustment-eligible U.S. private credit. So we believe that we already had all the -- it's a competitive market. It's always been, as Andrew said earlier, but we believe we have all the levers and now we have 1 additional lever, which is the partnership with Blackstone. Good. Andrew in the second row rather than ones in the first row. Yes.

Andrew Baker, Goldman Sachs. So yes, the first 1 just on the Blackstone partnership. The asset management benefit is pretty clear. On the annuity side, you made a comment that improves your pricing power. I guess, I'm just struggling to see how you get -- because it feels like you're giving away some margin there. So any comments around that would be really helpful. The second one, again, sorry to come back to these investment variances. So I appreciate the market dynamic that you mentioned additional amounts on modeling improvements. Do you have any line of sight into that for the second half? Is there anything you can flag ahead of time on that -- that would be helpful. And then thirdly, just a clarification question. So the 7.1% I don't think you're saying that we just stick 7- well, if market conditions stay as they are today, we don't just get 7.1% as a normalized margin into the CSM roll forward because essentially, that's split between back book and front book. So we just need to take a view of how much of that goes in the CSM versus how much is in the back book. Is that a correct way of looking at it?