Thank you. And thank all of you for joining the call today. And thank you indeed for the speed at which several of you managed to get out supportive notes this morning. Jeff, myself and all of the team here at Ligand Dental are delighted with our results. Very strong performance in operating profit at a group level.
But we're also delighted with the performance of all of our divisions even the subdivisions within the divisions. Not only did we perform well in the pandemic and just from managing our staff, managing our customers and delivering a resilient performance last year, which we labeled a pause here. It's great to see us returning to normality in a sense that we're driving forward in earnings per share and of course in ROE. Our ROE performance of 22% was outstanding really when you consider that we're still operating under a pandemic. We very much believe as an investment led growth is solution to both the UK and the U.
S. Economic growth over the long term. And we're playing an ever increasing role in investing in real assets, creating real growth, real jobs and real wages growth here in the UK. I guess our capability to scale up businesses is coming through in LGC for the first time materially. And I know 1 or 2 of you have been talking to Jeff about that this morning.
We've been on that journey for a number of years. We've said that this year that LGC would be a breakthrough year. And indeed, that's what we delivered. And it was terrific yesterday to sign the deal with the NatWest Group pension scheme, where They've become co investors in our LaserLyfe business. Why this is strategically important is, if you look at our build to rent business, The partners that were PGGM, a very prestigious and incredibly well run Dutch pension scheme.
And we've seen this sort of activity from European pension schemes, particularly from U. S. And Canadian. We're getting increasingly confident that we'll see the same thing happening here in the UK and that we will play an incredibly big role in getting these partners to help us scale up businesses, not just here in the UK, but increasingly international. We are pleased with our performance in the U.
S, in Europe and in Asia, where we're seeing again this sort of scaling up impacts having on that's having on our results. I guess our biggest challenge, and it's Shared challenge with all of you, it's a collective challenge really is how do we get financial services rerated in the UK. We've seen it happen in the United States and we're not the only industry where there's a difference in rating between the U. S. And the UK.
We're hoping over time as we continue to deliver outstanding results that, that gap will disappear and that we'll see wider recognition for the quality and the growth of our earnings going forward. That's all I was going to say by way of introduction. We'd like now to move to questions. And the first question It's from Louise or Morgan Stanley. Louise?
So LDR and E business margin Down versus the first half of twenty twenty. How should we be thinking about the margin for the full year? Should it be similar to the first half? Or should we be Looking at more of the 2020 or 2019 margin. At LGI, you have about £30,000,000 of that Y 2020 mortality provision left.
I mean, do you have any concerns that this is going to be sufficient Given the outlook for 3 deaths in the second half, we're hearing that these might be a bit heightened versus previous years. And then finally, Having a look at your sensitivity analysis on your Solvency II stresses, on the credit migration stress, this seems to have moved a bit since FY 2020 compared to the other ones, is there any particular reason for this or is it nothing to think about? Thanks.
I think, Jeff, those are all for you.
Yes. Thanks, Ruud. Yes. LGI? New business margin, I We know we said we traded very well last year, especially in the first half around traded credit when spreads were Pretty volatile.
That helped us with the margin plus there was probably a bit less competition. Certainly, we were demanding more return on our capital for Putting it to work in much more uncertain times. The level is it's about 8.4% So obviously, 2 new business margins, so it's definitely in a normal range for us. So I'd say we'd look to continue to deliver that sort of level of return, which is we're really in line with what we've seen 'nineteen and what we've seen in the first half this year. Obviously, as you all know, it does vary little depending on the duration of what we write and the exact assets that we're applying at any point in time.
And we Continue to source very, very good assets and to manufacture those ourselves. LGI, yes, there's €30,000,000 left, And there was obviously a big impact in Q1, in particular, in the U. S. Due to COVID. We followed the same methodology In terms of projecting out the IHME and we're within that and believe there's a little bit of prudent based on that.
Clearly, There's a big range of uncertainty around that. There is some sense, but with not a huge amount of data that potentially Any penetration of adverse claims into the insurance market will be slightly less due to some of the socioeconomic impacts. So anyway, we're comfortable with that level of provision going into the second half. And as ever, of course, we don't make any allowance for any potential excess debt in the annuity portfolio, which acts There's extra prudence for us. And the credit migration, there's nothing really to worry about there.
That's just the impact of the math In terms of your starting point, in terms of rates and where spreads are and that moved the sensitivity, but nothing's changed at all in The underlying portfolio there or the stressors.
Thank you, Louise. Thanks for your questions. Next is Larissa.
Good morning, everybody. A couple of quick questions from our side, please. 2 on bulk annuities and then 1 on LGC. Actually 2 on LGC, if you don't mind. On bulks, can I help us understand what is currently driving the dynamics?
And what gives you confidence that the 2H volumes should come through? Related to that, basically, do you think there's a lag effect from a COVID shock last year? Or are there other factors? Then the 2 on LGC. How robust is the pipeline?
Which areas are you seeing particularly attractive opportunity? Is it mainly a housing pay? Or are there other areas that are coming through? And then secondly, can you give us some color please on how much of €250,000,000 in earnings related to mark to market on the revaluation of the portfolio.
Yes, thanks for those questions. I'll take the first two and Jeff can take the third one. Just in terms of markets for PRT, we broadly expect the market to be about the same size this year as it was last year. So there isn't really in macro COVID impacts. We're strongly seeing we're seeing a stronger pipeline in H2, hence the reference in the release to the SEK 2,000,000,000 that we've either closed already or in exclusives for the second half of the year.
We will retain our financial discipline in the second half of the year as we've always done in previous years. But We're very confident that the long term size of the market opportunity in the UK and indeed internationally for the business. So The numbers that Jeff and I have used in numerous other presentations, the SEK 40,000,000,000 to SEK 50,000,000,000 over 4 to 5 years are absolutely the same as they've been over the last few years. In terms of LGC, it's across the board. I mean, we invested in a number of these businesses several years ago.
And whether that's in the various housing businesses, the urban regeneration businesses, the energy businesses, the SME Finance that's both in venture capital, but also in Pemberton. They're all doing incredibly well. They're all performing very, very strongly. And we're very confident that they'll continue to perform strongly, even more so because of the 3rd party capital that we're bringing in at scale into these businesses, which I think it's a good thing, not just for us and for our shareholders, but actually for the UK economy and elsewhere that big pension funds and big asset managers want to co invest alongside us. We've done a lot of the heavy lifting, built the management team, built the market opportunity, have scaled up these businesses and a very attractive investment opportunities for other people.
Jeff, do you want to take the 3rd question?
Yes, sure. On the mark to market for the 250, it
sort of
depends what you mean by mark to market. The direct investment, the alternative, those are underpinned by kind of the transactions we've seen or pending transactions we'll be talking about in the second But in terms of the profit there, yes, there's €55,000,000 from the traded portfolio. Clearly, that is a pure mark to market. We can't predict what repeats on that, if you like, in the second half. And we wouldn't necessarily expect to see some of the VC continuing to Move at the same rate in the second half of the first half, but we'd expect those to keep growing over time.
But I mean Nigel covered it to some extent. The others are good quality The operating businesses and underlying businesses with growth, so CALA, affordable housing, build to rent, Pemberton. We'll continue to see revenue growth there and sales growth. And those are how we put valuations on that color. It's Real profits at the point we sell our house.
That's the only time we get profits coming through. And so in terms of second half, we Wouldn't double that 250 number, what there are strong underlying businesses we continue to see growing.
Yes. If you look at Slide 28,000,000. You'll see that the traded portfolio delivered €87,000,000 profit in 2020 €55,000,000 in 2020, 2021. So that's not been the source of profit growth, but it's the really high performance of the other businesses. We'll now pass on to Andy Sinclair.
Thanks, Nigel. Good morning, everyone. And lately, the IT results, the business is and in good shape. Three questions for me, if that's okay. Firstly, it was on LGR.
You talked about this Assured payment policy as being your capital light PRT product. Just really wondered if you can tell us a little bit more about how the Capital intensity and margins different versus traditional PRT business. Secondly, on LGI, I thought there were really good protection sales growth in H1 in both the U. K. And the U.
S. Just really wondered if you can tell us a bit more about the outlook here. What sort of growth do you think is sustainable? And third on LGC, I was possibly a little bit surprised to see that the LGC investment portfolio AUM would seem to only be around flat year to date. Just wondered, is this due to investments maturing and being passed on to other parts of the business?
Of what's going on. Just could you give us a little bit more color here on how the alternatives and trade portfolios have moved year to date? Thanks.
Jeff, do you want to take the first and the third question and I'll take the second?
Yes, sure. The yes, the APP, as you say, it's sort of capital light. It's really along the way On the journey, it doesn't pass on the longevity risk. It allows schemes to really Partaking the direct investments that we put to work on our own LGR portfolio and get them to buy out sooner. So we had a good example of that Well, we've done a transaction with AIRB under APP, and we've now moved to full buyout on that.
And so they really get exposure to Our credit expertise, they transfer that risk to us, and we're able to deliver the returns to them as they lock in, and then they eventually move further down the track to that. So it looks very attractive to us and allows the schemes to move Moved earlier. Clearly, the returns meet all our hurdles. We don't price in any differential way. We put The capital to work and get the returns not broadly in line with what we get from the rest of the business.
We allow for it in that way. LGC investment portfolio, yes, that's particularly going on there. I mean, we're expanding the Folio, it grows. We have reduced the traded portfolio, as Nigel said, in terms of op profit. You could see less reliance on that.
So that has reduced. But otherwise, no, there was nothing. And now we look to continue to grow the AllSense investments. We Good views on where we think that will be. We usually put to work a good few €100,000,000 in any year, whether that's €200,000,000, €300,000,000, €300,000,000, €300,000,000, €500,000,000 And we continue to do that.
We continue to transfer from the traded portfolio. So there's nothing particularly going on there.
On LGI, thank you, Andy, for your kind words. Over the years, they've not always been so kind about LGI. And but Bernie, Hickman, Steve Griffiths and the rest of the team, both in the UK and the U. S. Have done an outstanding job, particularly in paying claims during the certainly during the pandemic.
But we did see strong growth in both the UK and the U. S. And we expect it to continue in both the UK and the U. S. We're becoming increasingly optimistic about the United States and the progress that we've been making there and We're strengthening the management team, building out its capabilities as we speak.
We think the U. S. Market will begin to follow the UK market and that there will be greater use of technology. It's always been quite a long way behind the UK in terms of use of technology and the fact that we're technology leaders here in the UK, Sandoz and Grits stead in the United States. So I'm becoming increasingly confident about our capabilities in the United States to grow the business.
Next question is from Cole.
Thanks, Nigel. So just a first one on LGC, obviously strong results today and obviously a lot of emphasis on LGC in the presentation slide. So Quite a strong expectation in terms of future growth going forward. If we think about it from a cash flow perspective and particularly Upstreaming cash to the group holding company, when we think about LGR, it's a very consistent track record of upstreaming relatively stable cash To the group. And can you just touch on LGC's remittance track record and what kind of what we should expect going forward in terms of upstreaming capacity there?
And then just secondly on the LGR Eye business. Obviously, LoRa moving across LGC, I didn't see anything announced in terms of the successor for the CEO position of LGRI. I'm just wondering if you can update on the process there, if that's okay.
Jeff, do you
want to take the first one? I'll take the
second one. Yes. Sure. I'll take the second one. Yes, LGC cash flows, Yes.
It's a combination clearly. When you revalue a VC portfolio, you don't get the realization straight away. But there's a lot of operating businesses that are real profits and real cash at that point in time. CALA, there's £70,000,000 plus PBT in the first half that that's those are real houses, real completions, money in the door. And so clearly in the past Few years, we've been investing in the business to grow those.
And so we've been helping The portfolio mature and adding our liquid resources into that. But then as those mature, they start to throw off either realizations with the passing money, a bit flattening that West pension fund and other examples or we sell them as they become mature anyway. Or alternatively, if they're maturing, yielding type equity, we're happy to move those across into the insurance company, which then moves the liquidity around the business. So there's a different profile across the board. But we do see that as that As those businesses mature, we see them throwing up a lot more cash than obviously has been historically when we've been growing them through the realization, through third party money and simply businesses like CALA becoming mature operating businesses that pay dividends.
Yes, so in big picture terms, Colm, there's it's just like any normal regular business, and stuff like that. We've invested in assets, those are operating assets. And we've helped manufacture those assets, but then they become cash flow cash flow producing on a go forward basis, similarly with Pemberton and other areas of the business. On LGRI, yes, I'm pleased to report that actually the Kerrigan has now arrived in Asia. It's taken a while to get there.
You've moved from quarantine in Thailand to quarantining in Hong Kong. So that's been a journey. It's been nontrivial interviewing international candidates to be fair during the lockdown period. And we've certainly been looking across the world for candidates for the LGRI position. And as you said, obviously, she's on holiday today, but calling in, Laura has just recently taken the reins for LGC.
But we're comfortable with where we are in terms of finding successes in LGRI. Next question is from Credit Suisse.
Hi, it's Farooq Kenny from Credit Suisse. Thanks very much. Just turning again to the ATP and ISS, the alternative LGR PRT solutions. Can you talk about the sort of pipeline? And do all of these inevitably end up in a buy in and buy out when they mature?
Second question is, you talked about the CMI 2019 transition not having an immediate explicit release, but that being kind of margin release. I mean, will this be actually equivalent in size to what happened with the CMI 2018 experience for modeling. And then lastly on LGC, can you just talk about the Profit implications of the 3rd party capital. So is it simply that you need that EUR 14,000,000,000 to get to EUR 5,000,000,000 alternative assets? Or is it that you will get realizations which improve cash?
Or is there some other margin that you can make on that? Thanks.
Jeff takes the first two and I'll take the third question.
Sure. Yes. Yes. Hi, Chris. Yes, the APP, ISS, Yes.
There's a good strong pipeline on that. Trustees have lots of responsibilities. They want to understand when they're doing different things. There's been good precedence now in the market around APP, both third party, our students with our own scheme, etcetera. And the ISS, we have a good number of conversations around those.
It's interesting some of them, You have the long conversations about these alternative structures. They suit them at the time along their journey. And then suddenly They have a windfall. The markets move and actually say, do you know what, we can afford a buyout now. So let's jump straight to that.
And that has happened to us. But they're very useful tools to have along the way. That's almost then answers the second part of your question that yes, I mean if we do our job properly and the Schemes manage themselves. They would all eventually be running to buy us. We wouldn't expect people generally to be putting these in place To sit on them forever.
There may be exceptions to that, but they would be looking to buy out. So we see this as really helpful on that Whole derisking journey, as we say many times, we're the only ones that start all the way at the beginning in LGIM and move all the way through. And so we continue to build on that. And what 50% of the cases were from LGIM this time. Yes, the CMI 'nineteen, We were prudent in the way we implemented CMI 2018.
We've obviously already had the 2019 table at the time. We know broadly where that fits. And so we see that being pretty neutral to implement, as neutral as you can be when you have such a big book and you're Open in some new tables. But we have built some prudence in. We think we're conservative given the Uncertain outlook on data for 2020, 2021.
And so we do anticipate some of that prudence, some of those excesses Flowing through the P and L for the next couple of years, as we've said. In terms of size, it's very hard to predict. But yes, we'd Expect it to be possibly probably in the sort of high tens of 1,000,000, which is not Dissimilar to the lower end of some of the longevity releases that we've had. We could get as high as $100,000,000 flowing through, but that will be through Through P and L, as we release these over time, combination of some of the experience coming through and the prudence released As 'twenty and 'twenty one data and what we believe about what's happening in terms of delayed hospital appointments, etcetera, and treatments come through and we understand the market and the outlook on mortality a bit better.
Okay. On LGC, we have a variety of businesses, some of which are outlined in the pack, which give you care studies. And as you've seen, we're having an Investor today in October. So we can go through everything in a lot more detail. So this is really just a stamper for ahead of that.
But the model is really that we put up equity, we hire a management team for a particular sector, we then invest in the business. Pemerson is a good example of that, NTR, built to rent, affordable housing, venture capital, data centers, met life living. And we ultimately look to get fees from alternative asset management platform fees is the expression that we use in house from these activities. So if you take something like Pemberton of the funds that they have under management, somewhere between 5% 10% are actually our funds, the rest are from there 120 plus LPs. And we think this model works incredibly well for us and we can scale it up brilliantly well.
And so we're just going to continue repeating that. And data centers is another area that we think we can scale up on a go forward basis by bringing further third party capital. As Jeff mentioned, We may realize some of that value on a go forward basis. Obviously, market mutterings around Pod Point, which is one of our many, many, I guess, 300 different investments that we have in started to scale up businesses. There's huge demand for electric vehicle charging.
We have another business called Onto, which is our electric vehicle leasing business. All of these have been scaled up and it's demonstrating value, realizing value and building revenue from third parties, which are all part of the narrative and the economics going forward. Next question is from Oliver.
Good morning. Excellent results, well done. The first question is, I'm assuming that the guidance you're giving for the full year is off last year's 2,200,000,000 figure. And if that is the case, then it looks if you have to make somewhere close to €1,400,000,000 in the second half. And I'm just trying to sort of work out where that is because if you're not if you're only talking about this sort of smooth release from longevity reserves.
So maybe €100,000,000 is quite hard. And particularly, if you're seeing LGC Think lower in the second half. Where's the delta for that €1,400,000,000 in the second half? Second question is on LGIM. I can see an excellent ETF margin on new net inflows.
But what's the or how does the margin on new flows revenue margin on new flows compared to the 7 bps or so that you're getting across the book as a whole? And then thirdly, on LGI, you talk about growth. I'm talking of the U. K. Business.
You talk about sort of growth in sales every year. And generally, you have been growing that business. But actually, almost every year, we also see a decline in the release from operations. And I know that's something to do with CAT. So I'm wondering when do we see the release from operations actually growing in line with your group targets.
Jeff, do you want to take the first and third? And I'll take the second question on Algin. Sure.
Yes. Hi, Robert. Thanks. Yes, in terms of the op profit, we certainly expect to see that across the metrics of continuing Operating profit from continuing divisions, the total op profit, we've always focused on excluding longevity releases. We would see those numbers coming through strongly overall.
And don't forget, of course, With the strong investment variance, that will flow through to EPS growth overall. And We don't focus so much on that longevity release. It'd probably be a bit too much detail as to where the number looks compared for that. But we're looking at the underlying businesses expecting to deliver profits in those double digit returns across the board there.
Can I just sort of can I quickly just but I mean just to be clear, you are looking The guidance you're giving would imply €24,000,000 €24,000,000 €40,000,000 of operating profit in 2020 and 2021 as a whole? I mean that's the right figure, isn't it?
I think we just need to be careful on where we're Putting the guidance around that. As I say, I mean, you could flow it through from the double digit growth for the full year across both Continuing and the op profit, certainly excluding longevity releases. And then we would look to show growth overall with the growth below that you get good EPS growth as well then.
I'm still confused, I'm having to say. You say in the statement that you're looking for double digit growth in operating profit as a whole. Is that from last year's 2,200,000,000? Or what does it actually mean?
Yes. We'll look to deliver the growth. We'll deliver growth from the total number from last year. And we'll deliver good double digit growth of Of profit excluding the longevity release. It's a combination of those that have both good growth on all of those metrics and then that delivers Very strong EPS growth overall.
We're not trying to give a specific absolute number here. But the direction of travel that you're going through Oliver. We would say yes to the if you're looking for a one word answer to where we want to get to. And it's double digit growth. Should I take the LGIM question?
Yes. The LGIM question, Michel has articulated a very comprehensive strategy for modernize, diversify and internationalize. Part of that diversifies is building out some higher yielding, higher margin products. And if you go to the detail of the results, you'll see that there were very strong international flows across the business. We're doing incredibly well in the UK, Europe and indeed in Asia for the business right now.
So we're very happy with that. But we're making fantastic progress in things like our award winning high yield debt team, our fixed income team has just done an amazing job in the last CEOs. Emerging Markets, that team exactly the same. And ECS, which we highlight for the first time, having made a bolt on acquisition a few years ago, is seeing tremendous growth in revenue. And these are all 20, 30, 40, 50 basis point types of products.
And therefore, As we build these out over the next few years, we should see an acceleration of revenue from these high yielding, high margin products. We do have to invest more. Part of that regulatory driven part of it's from the fact that we are expanding into new product areas and internationalizing the business. But we'd hope going forward that the growth in revenue would be greater than the growth in costs, which is what we haven't achieved in the last few years in LGIM. But the current there was still rather new management team that Michel has pulled together are really working incredibly diligent on these areas.
The Yes. LTI question, as you say, yes, I mean, the biggest impact there has been the tax impact. We sell mature savings effectively. Old term business has been intact on a profits basis as opposed to the old good old fashioned blade gap business. And that's been The main impact overall on that.
There is some other second order impacts and there's Some things we do between what's reported, we've optimized some of our U. S. Business, historic new business Financing, some of that appeared in U. K. And that's been moving around.
But generally, the underlying biggest impact has been the tax by a long way. The for small items. So we see across the board, in some ways, it's better to look across the LGI at the top level. That's where we see The true picture coming through because of the way we use our different entities and that shows the growth and that continues to be that we see it in The OSG of the underlying as well, which is a good sign for us. Obviously, we don't split that out for you guys, but we do see that coming through.
So that continues to grow in line with that.
Next question is from Ashik at JP Morgan.
Yes, thanks and good morning Nigel, good morning Jeff. Just a Few questions I have. I mean, just to go back on all these questions, sorry for this again on operating profit. I mean, if I understand correctly, what you're saying is operating profit We'll grow at double digit, but before last year's mortality releases, so which the base is €2,000,000,000 basically. On that, it will grow double digit.
Now what I'm trying to understand is, if it grows double digit, then you're just recovering back the COVID impact from last year, which was stated at 228,000,000. So I mean, are we talking about some underlying growth as well? Or are we just missing the numbers? Like if not €2,200,000,000 we are Talking about EUR 2,400,000,000 which is on the headline profit number of last year. So that's one thing would be great to get some color about like in terms of numbers.
Second thing is on LGC, sorry, Clearly, the first half profit was very strong, no doubt about it. But would you be able to give some color as to what sort of, Say, run rate profitability we should assume for annual like normal year, so let's say, next year onwards, etcetera, Orte, if you can give us some return hurdles for the alternative asset, like in this half, it was 10%, But like normally, it is like your expectation is you generate 5%, 6%, 7%, something like that. And third question is, I mean, FCA sorry, the PRA quiz is out On the UK solvency, I mean, on one hand, they are very optimistic on this margin to getting reduced. But on the other hand, They are putting a bit more default stress on the matching adjustments, especially for illiquid assets. So any early thoughts that you have on that would be very helpful.
Thank you.
Okay. Jeff is going to take the first and the third question, and I'll take the second.
Yes. I mean, we shouldn't We're giving too much guidance directly on the numbers. But to spell it out, we see good strong underlying operating profit growth of all of the businesses in a double digit level. And so we continue to deliver that across the divisions. We will deliver that growth, which is what we have done historically.
The longevity releases have always been considered one off and excluded from those metrics. However, if we deliver that for across the businesses, we would still see growth on the overall operating profit level. And when you combine that with what we're delivering below as well, we would consider that to that will then deliver strong EPS growth, which is what we're intending to deliver. So there's good strong underlying growth of all of the divisions, which is what we've historically delivered. There are one offs around longevity releases, which we're not taking through and not included in those numbers.
But we would expect to see overall operating profit growth despite that. And then that would translate into strong EPS growth as well.
LGC? C, we've got €3,400,000,000 at the moment in these alternative asset platforms. We've set a target return of 8% to 10% for those assets. We've said that in the presentation that €3,400,000,000 will increase to €5,000,000,000 in which case we would expect £400,000,000 to £500,000,000 of LGC profit coming out in the next 2 to 3 years. And that's broadly the direction of travel that you can use for your models.
We're going to give you a lot more detail on how this all fits together in October and try and do a lot more work for you guys to make it even more transparent as to what we're doing. Clearly, this is a really important part of our growth driver, but it's part of the 3 businesses working together, LG and LGC. And where one goes, all go really because there's so many growth opportunities for all three of those businesses. Jeff, do you want to take the quiz?
Yes, sure. On the quiz, it's It's a very large exercise. There's at least sort of 18 type scenarios. So difficult So I think as an industry and commentators draw too much from that and from discussions with PRA, they're very much looking on some specific areas where they want To have numbers, a wide, wide range so that they can find an answer somewhere in the middle In simplistic terms. And there are lots of other areas they're looking at which are more qualitative and to do with process and what assets are allowed, etcetera, or where they already have extensive data.
So these are specific areas where they're looking for Extra information in terms of, okay, in a range of scenarios, what could that mean so that they can feed that in. It's very hard to draw any more from that, but we get the same Positive noises from them around risk margin and sort of assets being allowed into matching adjustment portfolio. They're just lot of things they don't need to test at this stage, but there's a range of things where they do want to get some numbers back. So there isn't more conclusion than that at this stage. Yes.
I mean, Articulate the PR airport has been balanced and measured. I don't think they want to have any sort of shock to the industry. And that certainly has been supportive of the initiatives that we've been having and discussions we've been having about investing in real assets in the real economy. I have a degree of empathy with or sympathy from my colleagues because it looks a huge amount of work. And by Tim Stedman and others, it's going to be an enormous amount of work now and October.
And it's just the PR really want to do a very thorough exercise, but we expect the outcome to be balanced and measured and not to have a material impact on our business going forward. I'll now hand over to Andrew Crean from Autonomous.
Good morning all. Three questions or three areas. Firstly, would you give us the updated Solvency II coverage figure Post the fall in yields in July. And can you talk to us about what the ceiling is in terms of when you'd look either at inorganic or capital returns, 180% as is for our peers. Secondly, on LGC, I think the alternative assets have grown at a CAGR of 29% over the last 4.5 years.
And you've got to hit your €5,000,000,000 target is a CAGR of only 9% going forward. Do you think that that's a bit too conservative? And then thirdly, it's clear from your final slide of the presentation, you're somewhat It's about Legal and General's valuation, and I can understand why. Are you still happy To leave it to public markets to find the right level for legals? Or do you think you're moving to a situation where you may need to Look at slightly more dramatic actions, whether it's selling off minorities or bringing in private capital.
If Jeff takes the first one, I'll take the second 2.
Yes. Hi, Andrew. Yes, in terms of the ratio, it's basically broadly unchanged. As you say, rates fell a bit. Obviously, we have had surplus generation since then.
So within the usual sort of Plus or minus a couple of percent, it's broadly unchanged. There hasn't really been much that's moved otherwise apart from rates and surface generation. In terms of scaling, yes, we don't, as you know, like to give the ranges around that. There's a whole host of reasons why A number may not be appropriate at a point in time. The big picture, we obviously continue to make ROEs of 20% -plus.
So I believe Investing back in the business makes sense for us. And as you comment on the DI, maybe 9% we can do, we can go faster, Nigel said, but there's always ways to deploy the capital to make good returns. But equally, it does depend why you've got to that level. It could be 190% for a just simply because rates have increased. Does that is that right?
What's our view on down sides from there, etcetera. So it very much depends why you've got to a level and how sustainable, what your plans are around that in terms of what we would think to do with the CapEx.
Could I ask a question on that?
Could I ask Can I ask on that, would you be able to give us in terms of the operating surplus generation or the surplus generation A split between what's going on in the XEN funds and the SCR separately? It's quite helpful, that.
Looking with the view to IFRS 17 and everything else and generally looking at S2 disclosures, We are sitting down post holidays to consider what we might do around that.
Brilliant. Thanks. On the second point about alternative assets, Andrew, you sound like me. You should take that as a compliment around that. Yes, indeed, the math said that we could grow faster going forward.
This is really This is our plan from last year and we've just repeated it here. But there's certainly the businesses have performed better than our expectations to be honest about it right across the board. I think there's a lot of third party equity that can be brought in at that private level, which is really in part the answer to 3. In a sense, it's much easier to get equity into later life living and get a fair valuation for that or into many of our other businesses built to rent or whatever and fees from it than necessarily getting the recognition from the public markets. And the point that we're making earlier on is that there's now a big delta between alternative assets or people with a broad approach to assets and the valuation of them.
And there's a whole bunch of American firms that are beginning to look more like us, ironically, that have a much higher multiple than we do right now. And We're on this journey from moving bit from being a traditional insurance company. And we've sold off huge amounts of our assets in the last 10 years and repositioned ourselves to be a modern investment management company of which insurance forms an incredibly important part. We have a whole series of liabilities, pension liabilities, insurance liabilities, climate liabilities, of which to create assets to manage against those liabilities. And they offer us enormous growth opportunities, not just here in the UK, but increasingly internationally.
And we're busy recruiting people and investing in activities that should continue to deliver the great returns that we've seen over the last 10 years. We think at some point, the public markets will catch up with that. We're a little bit frustrated, but not massively frustrated about it because We recognize that we have to deliver more. We have to give greater transparency, which is what we're going to do with LGC in October and what Jeff and the team sitting down to do post the summer on Solvency II. Next question is from Greg at KBW.
Good morning, everybody. Three quick questions. Sorry, my normal question is, I wonder if you could just talk about In the first half, what the sort of downgrade experience have been on in the BBB asset range backing LGR and because things have improved what the outlook in the second half for downgrades are as it pertains to solvency ratio. 2nd point is in the U. S.
On your Term Life business, You are rolling out your U. K, call it, fintechdigital expertise, which seems to be making a difference. My question is, as you really have a very large market share, is there a is that a Constraints on what you can grow? Or are you going to go to or do you have the capacity to go into, say, other mortality type products, Different distribution channels, whatever, and sort of the sky's a little bit there. And the third question is just in terms of your own company's debt And leverage, are you planning to issue any further debt in the next 12 months?
Thank you very much. Jeff?
Jeff can take the 2nd and third. On downgrades, we haven't really had downgrades, as you rightly pointed out, Greg. We're on an upgrade trend right now. And so we can't be totally confident that that trend is going to consider given what's happening in the pandemic. But the sectors where there have been problems have not as we've articulated before have not been problems.
And our cash coming into our assets has remained at the very high 99.89 percent and we're confident we'll continue to deliver at that sort of level. Do you want to take the other two questions, Jack?
Yes, sure. U. S. Term, that's right. Yes, we've Been effective in rolling that out.
That obviously was very good timing with pandemic and people looking to move away from paper transactions, etcetera. We're seeing delivery on that. And it was interesting one of the points you made here. I mean that in itself is Changing the way distribution is done. There's a number of very strong tech based well, they're not they're past being start ups.
Now they have significant sales volumes. And we're quite often either sold high or the main partner with a number of these that are growing the market. And they're In themselves, a different distribution to the traditional brokers. They're advertising to completely different segments of the market. And they want the sort of straight through process and that we're offering much faster turnaround times of putting business on the books.
And that is definitely paying dividends for us. We're seeing increased volumes and continuing to grow. You're right. I mean, being number 1 in the broker market has a would have a limit, but the broker market is completely changing and there are new entrants that are pushing this and expanding the market. We believe we can push that further.
So there's a long way to go on that before we would need to look at different products, etcetera.
Did Greg use the expression, the sky is the limit there?
You know I don't believe that.
Yes. That you'll have The slides which show the debt reducing over time, the constant growth of the balance sheet gives us lots of optionality around that. Obviously, at 180 plus solvency, very, very strong liquidity. We wouldn't need to do that. You never say never, but That wouldn't be our plans at the moment.
I think it's safe to say given the position that we're in.
The question is more about to look The Fitch ratio and the various rating agencies ratios, and it didn't look like there's a lot of headroom until You sort of grow the denominator. I was just trying to understand within the current situation whether there is hedgerow.
As in my presentation, and I think I'd say it's actually the leverage is lower than it's been in the last sort of 3.5 years, Down now, I think, post the €300,000,000 we're about €200,000,000 26,000,000 on the Moody's, €30,000,000 on the Fitch. And those reduce constantly as the balance sheet grows. So there would be we don't feel like we need to issue at this stage, We definitely have headroom should we want to do that, but we see it reducing over time and then choosing opportune moments to optimize shareholder returns rather than anything else driving what we would do around that.
That's a great slide in the past, which I would encourage you all to read on Page 31, which shows how much the leverage has fallen over time and will continue to fall out to 2024, which is very helpful guidance, I think. Next question is from Ming at Paimyo.
Hi, good morning and thank you for taking my question. Just two questions, Please. First is on the LGCs. You've got a target of the JPY 14,000,000,000 third party capital. Now that is double of where you are now.
And how much of that? Could you just give color in terms of how do you expect to achieve that? And how much of that would depend on for you to achieve your 8% to 10% and blended portfolio return. And my second question on the solvency ratio. Your solvency ratio has been very strong on all the reported dates.
But it's really, for example, last year, it's really the volatility And in between. I mean, what is really sort of the minimum solvency ratio that will keep you comfortable and while keeping the regulator I'm happy so that you can still pay out the dividend. Thank you.
I'm certainly going to let Jeff answer the second question. On the first one, the 8% to 10% return is related to the money that we put in into these investments. And that's, as Andrew was saying, that's and that's as Andrew was saying that's risen quickly over the last few years. So it's at €3,400,000,000 we want to make that €5,000,000,000 That's us as a principal investor. As an agency, we've identified that we'll rapidly increase the fees and the assets from external.
So that will bring us up to €20,000,000,000 or above. And Andrew, I guess, has the same view that I am about the opportunities we have for doing that right now. So we've got 2 sources of profit, the revenue that we get from third parties, but also the return on the assets that we invest as a principal ourselves. Jeff, do you want to take the second one?
Yes, sure. I mean, like not having a maximum. We don't have a minimum either. I mean, it was a pretty strong message last year. We were in 170s and In the low 170s at times, we paid the dividend.
We maintained that whilst modeling some very, very adverse credit scenarios and handing those to The regulator, the board putting a lot of scrutiny on that. We know what our adverse scenarios look like. We've talked about that many times. We build up from that sort of minimum level to then give us the flexibility we require and that moves around depending on The sort of subjective view of how big stress it can be, where are you at any point in time. And so it moves to some extent, which is why we don't Set the absolute ranges.
But we've never been anywhere near the levels where we would be having concern in conversations with regulator or the board around solvency.
Yes, thanks. In general, the LGAS solvency ratio is about 20% lower than the group ratio. And so the regulators obviously see the different number from the number that you're seeing when they look at the regulated businesses. We have one last question, last but not least, from Dominic at Exane BNP. Dominic, of this more.
And then followed by Steve at HSBC.
Hi there. Thanks, Nigel. Three questions for me, if that's Firstly, I'm really pleased to hear how you're thinking about Solvency II disclosures. I think they would be really useful, Especially as we go into IFRS 17. In the meantime, could you just give us some sense of what portion of the operating surplus generation is management actions.
I realize that's a bit of a loose category, but anything you could say on what proportion It'd be very helpful. Secondly, I think there was a comment about some of the reinsurance you might normally have done in H1 being deferred into H2. I imagine that, that meant that the new business strain would have been higher in H1 than you would expect it in a normal course of events. What would be the IFRS impact? Would there be like another positive or negative in H2 if you then update the reinsurance?
And then thirdly, just on lifetime mortgages, I think it's lifetime mortgages and retirement mortgages now. Volumes, I think, are up on last year. But I think that's still sort of down versus pre pandemic times. Curious to hear your view on the outlook for that business line. Do you think that's going to recover in H2 and into 2022 and beyond?
Thank you.
Jeff, take the first two questions. I'll take the 3rd.
Yes. In terms of management actions in OSG, it's relatively minimal amount. We always in fact, some things we know we're doing in terms of I don't know, we may warehouse the liability. We choose to do some reinsurance. We know we're going to do that.
As you say, it's a very broad category. But it's relative.
Thank you for your patience, everyone. We have reconnected the speakers. Please resume.
So this is Steve now from HSBC. Steve?
Thank you. Thank you for squeezing me in. Three questions here. First one was on your 3rd party capital, €6,800,000,000 now, Obviously, growing strongly in the first half from €5,200,000,000 beginning for the year. Really want to know what sort of Revenue margin you're receiving in terms of the fees from this 3rd party capital stream, so we can sort of look at What it might be when it reaches the $14,000,000,000 mark in a few years' time as well?
Secondly, You've previously given some information about the pipeline of UK PRT. I wonder if you can talk about LNG pipeline. I know you've mentioned the €2,000,000,000 pretty much done in July. But if you can give some more guidance on the rest of the year, that would be very You saw. And then finally for me, on the operating profit guidance, it is obviously based off of the €2,000,000,000 base level.
But I'm wondering if you can be a bit clearer on the percentage range you're looking at. Are you Sort of looking at 10% to 20%, 20% to 30%, we're not obviously talking about the 90% double digit growth rate, but Maybe I'm being a bit facetious on the last question. Thank you.
I'll take the first one. You can take the second one, Jeff. On the first one, the fee range is between about 50 basis points to 150 basis points across the different asset classes. Clearly, the mix, we can't be certain as to what the mix is going to be going forward, but There's a healthy pricing range for those assets.
Pipeline is yes, it's very strong. It's not dissimilar to the numbers we've given in the past. It's of that order of up to $20,000,000,000 that we see. But obviously, a number of those deals, which we're now seeing, which It's stronger than we probably thought at the start of the year. Some of those will naturally flow into next year as well.
Given the $2,000,000,000 in Lucid, we're in a strong place coming into the second half or post holiday second half, if you like. They obviously executed very well in July. And so we are comfortable that we don't necessarily need to be hitting $8,000,000,000 to $10,000,000,000 with the good quality assets We've got to get to the metrics we anticipate for this year and hit the metrics we need. And so we can Look at what's the best business out there, what's the most advantageous to us to build on top of that fire. So there's There's plenty out there coming from a strong position.
If the market is 20% to 25%, we keep our market share. We get a good level of new business volume on the back of that. The yield profit, I don't think I'd be giving too much away to say we don't particularly anticipate doing 20 30% profit growth. Overall, you never know. And I'd say, we're clearly talking what we've done historically has always Being 10% plus, 14% in the first half, those are the sorts of numbers we talk about when we say double digit.
Okay. Thank you to everyone for participating in the call this morning. I think there's a great variety of questions, which is from Jeff and my point of view, it's really kept us on our toes during the presentation. We look forward to seeing everyone hopefully in person at the LGC Capital Markets stay in October. We remain very confident about our capabilities continue to deliver great returns for shareholders on a go forward basis.
And we're very happy with our portfolio of business. I think as we've alluded to, I think you should expect some further announcements on us bringing third party capital into various parts of LGC, continuing to make very good progress in terms of executing LGIM's strategy around diversify and internationalize. But also, Jeff just talked about a very solid performance that we're going to see and continue to see from our PRT business. And Retirement Solutions business has been going from sense to strength as indeed has LGI, particularly in the United States. So It's taken us a long time to get the portfolio into the shape it is today.
And you can see the outstanding results for that portfolio is driven by tremendous people efforts right across our organization. So look forward to seeing you in October.