Good morning and welcome to our 2023 results presentation. It's a pleasure to be here as the Chief Executive of Legal & General. I've met many of you before, and I look forward to working and getting to know all of you over the next months and years ahead. As well as our results you will have seen in the RNS, we are announcing today that we will hold a Capital Markets Event on the 12th of June, and that's when we will share more details of our future strategy. But in a moment, I'll give you a bit of a flavor of what you can expect from us at that event later this morning. So before we get going, we have the usual notes on forward-looking statements.
In a very, very unlikely event that you hear the fire drill, there isn't. If you hear the alarm, there isn't a fire drill, so please make your way through reception and in front of the building. Go back to in front of the building. Turning to the results, I'm pleased to say that L&G's 2023 performance illustrates the strength of our market-leading businesses and our resilience in what have been reasonably challenging markets in 2023. We had record new business volumes led by institutional retirement, our PRT business. Therefore, our future store of profits is growing. Our operating profit is robust at GBP 1.7 billion, in spite of those challenging market conditions. And importantly, we are set to achieve our five-year targets by the end of this year. We set those targets, if you remember, back in 2020.
Our balance sheet remains strong with a 224% solvency ratio, and in that context, we are increasing our full-year dividend 5% to GBP 20.34p. These results are a testament to the hard work of our 11,000 employees, so thank you to all of them. I want to also give thanks to Nigel Wilson for his role over 14 years, and importantly, for the strong foundations that we have to build upon. I'll hand over to Jeff now, who's going to talk you through the numbers in more detail, but I'll come back to give you my early observations on the business and share what you can expect to hear at the capital markets event on the 12th of June. Jeff.
Thank you, António. Good morning, everyone. Great to see you here. Hope everyone's very well. In 2023, as António mentioned, Legal & General delivered a resilient set of financial results in challenging markets. This illustrates the effective diversification across our business. Operating profit was flat at GBP 1.7 billion, driven by the predictable and ongoing releases of the contractual service margin and risk adjustment from our growing insurance businesses. We have seen record volumes in 2023, as António said again. LGIM showed disciplined cost management in the face of lower AUM, and therefore revenues were also down, and this was driven by higher interest rates in volatile markets. In line with the half-year results, investment variance mostly reflects unrealized mark-to-market as a result of those higher rates and the write-down of our Modular housing business and holdings in Onto.
We've excluded the investment variance caused by longevity releases, which is a quirk of the way IFRS 17 works, and the accounting impacts of the buyout of our own pension scheme. Even after record volumes, our balance sheet remains strong, with a Solvency Coverage Ratio of 224% and capital generation of GBP 1.8 billion, well in excess of our dividend. Our future store of profit has grown by 9% over the year to GBP 14.7 billion. In 2023, the contribution to our store of future profits from new business increased by 37% to GBP 1.4 billion, a regular longevity assumption update added to the CSM and risk adjustment balance. Our growing store of profit produces a reliable stream of earnings for shareholders in the future, and we expect this balance to continue to grow as we capitalize on the market opportunities ahead of us.
As you can see, we are pleased to say we are set to achieve our five-year ambition of GBP 8 billion-GBP 9 billion of capital generation, significantly exceeding our dividends paid. We would comfortably meet our five-year ambition generating GBP 1.8 billion of capital again in 2024. Cumulative net surplus generation of GBP 0.8 billion demonstrates our efficient business model with material headroom above our ambition. Now, moving on to the divisions. Operating profit from LGRI was up 10% to GBP 886 million. This strong performance had two main drivers. First, the growing scale of CSM being released into earnings, up 19% year-over-year at GBP 591 million. Secondly, the expected investment margin, which is underpinned by the ongoing reliable performance of our well-managed and geographically diverse annuity asset portfolio, and by asset optimization, where higher return assets are sourced to further enhance the profitability of the in-force portfolio.
In 2023, LGRI wrote GBP 13.7 billion of new business. This includes both the Boots transaction in the U.K. at GBP 4.8 billion, as well as our largest-ever transaction in the U.S. at $789 million. These volumes were written at strain levels in line with our long-term expectations, demonstrating pricing discipline. Demand is accelerating in this market, and we remain uniquely positioned to capitalize on this global opportunity. Moving on to Retail. Insurance operating profit was up 22% to GBP 436 million. This strong performance was driven by predictable and ongoing profit releases from our growing CSM balance and improving mortality experience in the U.S., where we continue to move to post-pandemic norms. While insurance operating profit was significantly up, total operating profit was slightly down due to fintech valuation uplifts in 2022, which did not repeat this year.
We wrote record new business volumes, both in U.S. protection, which delivered 36% growth and which continues to benefit from our use of technology to improve our customer experience, and in individual annuities, where volumes of GBP 1.4 billion reflect increased demand given the higher annuity rates on offer. Workplace also continues to grow, reaching 5.2 million customers. Solvency II new business value increased by 17% to GBP 265 million, driven by U.S. protection and individual annuities. We continue to focus on leveraging technology and scaling efficiencies across all our retail businesses to deliver great customer outcomes and business growth. Moving on to LGC. Operating profit was level at GBP 510 million, driven by resilient performance from our alternative asset portfolio. In alternative finance, Pemberton continues to perform strongly, raising over EUR 2.5 billion in 2023, taking the total amount raised to over EUR 19 billion since 2014.
Our diversified multi-tenure housing portfolio demonstrated the quality of its franchises, particularly against a more challenged market backdrop in the second half of the year. Profit before tax of GBP 129 million reflects the unrealized mark-to-market impact of the higher interest rates on asset valuations. We remain confident in our ability to achieve our ambition of growing our alternative asset portfolio to GBP 5 billion while increasing third-party capital to over GBP 25 billion by 2025. Moving on to LGIM. Operating profit was GBP 274 million, which primarily reflects the ongoing impact of the rate environment on AUM. While closing AUM was only slightly down for the year, average AUM was down 12% over the course of the year, reflecting volatile markets. Revenue has been impacted to a lesser extent at just 7% due to LGIM's conscious shift towards higher-margin business.
Excluding UK defined benefit, where PRT is a beneficiary of improved funding positions, external net flows were positive at GBP 1 billion, generating annualized net new revenue of GBP 24 million, which demonstrates this higher margin point. We maintained a disciplined approach to cost management with flat expenses in an inflationary environment. We continue to invest in modernizing our business and expanding our investment offering. In addition, international AUM now represents 40% of the total as we continue to diversify and extend our global reach. Our solvency ratio of 224% is strong and provides us with optionality. Over the year, we generated GBP 1.8 billion of capital and deployed GBP 0.4 billion to write record levels of new business. In combination, this resulted in net surplus generation of GBP 1.4 billion, fully funding our dividend in 2023.
In closing, we've delivered a resilient set of financial results, demonstrating in particular the predictable and growing earnings realized from our store of future profits within our insurance division. We've continued to add to this store of profit in 2023 and expect it to grow further. We are confident of demand and so are performance in 2024. Our balance sheet remains strong, and we continue to see the benefits of the diversification and synergies of our business model. Thank you, and I'll now hand back to António.
Thank you, Jeff. So looking beyond the 2023 performance, what are my impressions on what is Working Day 47? Everything that I've seen in these first two months confirms what attracted me to Legal & General: a strong sense of purpose, the quality of our people, and our performance track record. Starting with purpose, I'm a firm believer that business strategy and culture cannot be separated. Legal & General this year will be 188 years old, and our proud heritage and our respected brand are huge strengths. And we have this authentic sense of purpose, which is reflected in the decisions that we take and in the work that we do. This purpose is also a big motivator for our people. It's great for me to hear how people really love being part of Legal & General.
We have a strong leadership team, and our people can grow their careers and thrive with us. In terms of our performance track record, we have businesses that are market-leading, but importantly, they have good synergies between them, and we have a great track record of both capital generation and a strong balance sheet, as we've just seen in our results today. We also have strong growth opportunities, and we have strategic optionality. But we cannot be complacent. Like all businesses, we have challenges. We operate in highly competitive markets, and we are impacted by the changing macro environment. We need to continue to evolve and adapt to seize new opportunities, and we need to recognize where we can improve. I'm very ambitious for our future. Macro trends that you can see on the left are creating dynamics and customer needs that Legal & General is well placed to address.
First, as DB funding positions continue to improve, there is GBP 6 trillion PRT opportunity in the markets where we operate, obviously here in the U.K., in the U.S., in Canada, and the Netherlands. Of those GBP 6 trillion, only 10% are currently with insurance companies, and we are well placed to capitalize on this. We had a record year in U.K. PRT last year, and in the U.S., as Jeff mentioned, we have written over $10 billion since we entered that market in 2015. Our position is supported both by our asset management client relationships, 88% of what we've done over the last three years in PRT came from LGIM, as well as our asset sourcing capabilities. Second, global assets under management will continue to grow over the coming years. It's a challenging industry, but the industry will continue to grow.
LGIM is the number one asset manager in the U.K. with GBP 1.2 trillion in assets, of which, as we've just seen, 40% are now international. Yes, we can improve our performance, and we are increasingly working with clients on higher-margin strategy, we saw that last year in the slide before, as well as controlling our costs, which we did last year despite inflation. Thirdly, we're also expecting global private assets to continue to grow, roughly by GBP 9 trillion over the next four years. We have an established reputation for investing in long-term productive assets, both here in the U.K. and internationally, and we have a portfolio of GBP 4.5 billion in LGC. Fourthly, the U.K. DC pension pool is projected to reach GBP 1.3 trillion by 2032, GBP 1.3 trillion by 2022. So it's actually crossing with DB in a couple of years' time.
We are currently serving 5.2 million workplace pension members, and we manage roughly 23% of all the defined contribution assets in the U.K. Finally, and linked to this, as savings responsibility shifts more towards the individual, customers need more support. We have 12 million customers and members who trust us across retail protection and savings. Standing back, it's clear that we are well positioned to take advantage of these opportunities given the combination of three things: our investment management expertise, our leadership in asset origination and sourcing, and our trusted brand and customer relationships. What are we doing about this? Over the last two months, I've been meeting shareholders and potential investors.
I've been getting to know our teams and the business, and I've been working with the Group Management Committee, my leadership team, to conduct a thorough review of all of our businesses and set out our future strategy. This work is still ongoing. It's been two months. But at our Capital Markets Event on the 12th of June, you can expect three things. First, we will set out a clear strategy and a simpler investment case. This will continue to build on our strong purpose that I mentioned earlier and on our synergies between the different businesses. Second, an articulation of the growth drivers. Where is growth going to come from? As I said, we have significant growth potential in institutional retirement, in PRT, but we will detail our growth opportunities beyond PRT. This will include retail, asset management in public and private markets, both in the U.K. and internationally.
Finally, we will set out our capital allocation and our distribution policy and the financial metrics by which you can track our progress and hold us to account. I look forward to giving you more details on that on the 12th of June, but for now, back to the results. Reflecting on this, our performance was resilient against a challenging economic backdrop, and importantly, we will achieve our five-year targets by the end of this year. It's great to be here at Legal & General. I like what I've seen in my first two months: strong purpose, great people, and consistent performance, and there are significant growth opportunities ahead. We have started 2024 well. The year started well, and in June, we will set out how we will focus and invest to take advantage of those growth opportunities.
We now have time for questions, so I would like to invite Jeff back on stage and also Andrew, Laura, Michelle, and Bernie to join me here on stage, please. So I think the easiest way to do this is to start from the right and then make my way to the left. So maybe if you can state your name and institution, and then if you could stick to the usual three questions, it'd be great.
Or less.
I'll try. Thank you.
Okay. You can group them into three, and there can be nine at the end of the day, but yes, yeah.
Part three C, yeah.
Yes, yeah.
O'Mahony, BNP Paribas Exane. António, really excited to hear your more detailed thoughts in June. In the meantime, just firstly, a question on, I guess, the impact of bond yields on expected returns. So both in the PRT and, I guess, the individual annuities business and in LGC, are you seeing the market adjust for sort of the 300 basis points improvement or increase in bond yields when they're thinking about what IRR the market sells for market annuities? And similarly, in LGC, the target set in 2021 was 300 basis points ago. I'm wondering whether we should expect the 10%-12% yield on the alternative assets to be higher, I guess the same for the non-alternatives. Second question just on LGC.
Laura, when you think about the binding constraints on your growth and allocations to the alternatives, is it the availability of investment opportunities, or is it the availability of cash? Is it essentially demand or supply? Third question, just on the annuity in-force, going at gangbusters, brilliant volumes, CSM growth. What I observe is if you look at the OSG release from the in-force, you show us the outlook for the OSG release from the in-force, it actually seems to have gone ever so slightly backwards. In fact, actually, I think it's 0.8 delivered in 2023. The disclosure is showing 0.7 for next year or sorry, for 2024. Can you just walk me through what's going on there? Am I just missing a feature there? Where is the growth actually landing in that OSG? Thank you.
Great. Thank you, Dominic. Maybe, Jeff, I'll come to you on the third question, and maybe you can also mention the impact of bond yields on expected returns. And then, Laura, I'll come to you on that, but also the second question on LGC. Yep, Jeff.
Sure. Yeah. We'll do them in reverse order if you like. Yeah, the OSG, yeah, and we've had lots of debate over this. It's trying to compare like with like is what's difficult. So what's really happened is we're seeing more returns on free assets, if you like, but the SCR, the capital requirement, has fallen. And so more of the capital requirement is being covered by assets in the annuity business and less is being covered by assets from LGC, if you like, where we get the higher returns. So there's more cash and slightly lower return assets, which are sitting in Andrew's business, being allocated to that business. So again, slightly lower returns, as well as a slightly lower SCR running off.
So on a like-for-like basis, you'd only have seen a smaller amount of capital running off, but actually, there's two things happening: the total capital requirements going to a backing it with slightly lower return. We've still got the assets elsewhere, which is why the total OSG stays the same. But if you just look at the annuity business, it's almost more self-financing, if you like, and it's using less of the extra assets sitting around in the insurance business. So it's really just how you compare those. Interesting on yields, yes. The PRT market, to some extent, is obviously it's always driven by spreads, I mean, rather than actual yields and what you're looking for there. I mean, at big picture level, we compare to our cost of capital, cost of equity, cost of capital when we're looking at these returns.
To the extent risk-free feeds into that, that's clearly reflected in what we're looking for. And so we're very happy with the returns we're making on the annuity business, PRT business. I think we actually said at the halfway we had slowed some of the investment in LGC, and Laura can pick this up, because we weren't seeing the returns commensurate with what we would expect. The market hadn't reprice quickly enough, and to some extent, even some of the LDI back in the annuity book as well, Laura.
That's true for the market overall, right? That has happened to us and to everybody else. Laura, on LGC?
No, just in terms of your two points then, Dominic, in terms of the 300 basis points higher, Jeff's alluded to it. We did slow down investing because we were waiting for the market to reprice, and you're right, we should expect higher returns for the risk going forward. I think in terms of your question on availability of cash versus investments, I mean, we've very deliberately positioned our strategy around sectors where we knew there was a huge demand for investment. So it plays very nicely, really, to our strategy where we're now starting moving from just investing our own balance sheet to bringing third-party capital in conjunction with LGIM. So the opportunities for our sectors, I'd say, if anything, are continuing to grow from where we set out our strategy a number of years ago.
Thank you.
Morning. It's Abid Hussain from Panmure Gordon. Three questions, if I can. First one on LGIM. It's actually a two-part question, apologies. The cost-income ratio has been elevated for quite a while. Do you see a path for that coming down materially, and so what is that path? And the second part is, does it make sense for you to continue to push into active mandates given the general pressure and margins in that space? So that's the first question. And then the second one is on GP investments. I saw that there's a write-down on the Onto investment. Is there any other investments in the amber or red bucket in terms of outlook or valuations? Any color on that would be helpful. And then just finally, on longevity, I thought the general trend here was that life expectancies more recently have started to shorten.
Just slightly confused with the negative variance in the U.S. If they are shortening, should we not also have seen a longevity release on the annuity book?
Yep. Thank you. Thank you, Abid. So I'll take the first and a comment on the second. I'll ask you, Michelle, if you could add to LGIM, and then Jeff, I'll come to you on longevity. So on LGIM, so you know this because you know the industry. It was a challenging year for the industry. Actually, interestingly, we finished the year with a rally that we had towards December. We finished the year with AUM more stable, but overall, we had AUM on average down 12% compared to 2022. So I know you asked the cost-to-income question, but there's a ratio. So starting with the revenues, that was the challenge. But you can actually see and maybe this links to the second part, your 1B of your question.
You can see that taking out the outflows of DB, which we benefited on Andrew's business on the other side because a lot of what left from LGIM became PRT, you can see that excluding that, we had GBP 0.9 billion, so almost a billion, of positive net flows that generated GBP 24 million of positive ANNR. So our strategy to go towards more higher-margin products, it's working. There's more to do there. And then second, the cost control, and Michelle can talk to this, in 2023, despite inflation, we held costs broadly flat. So yes, our revenues came down, and therefore, our cost-to-income came up, if you see what I've just mentioned. Going forward, today is about the full-year results.
On the 12th of June, I will talk about strategy, but it is a business that is a strong contributor to Legal & General, and we want to build on it. I'll come to Michelle, but just onto. Onto was a first half. So in the second half, we didn't have any other similar write-downs. I said, which is, I'll repeat exactly the same words, we are doing a full review of all of our businesses. As you'd expect, there's a lot of strong businesses to build upon. But what we'll come back to you on the 12th of June is where are we growing? What are the growth opportunities? But also, you'd expect me, as a new CEO standing in front of you, to do a full review of all of our businesses.
Not anything else to say today in terms of 2023 results, but you can expect to hear more on the 12th of June. Michelle, do you want to add a bit more on asset management, and then I'll come to Jeff for longevity?
Thanks, Antonio. I mean, and we should recognize it's a challenging industry. And actually, when I look at cost-income ratios across the board, we're in the pack. So elevated, but in the pack. And as Antonio has said, that is not about cost. It's about revenue. And actually, the long-term strategy to diversify our business, to internationalize our business, is beginning to pay back. We're confident that is the right strategy. And so active has an important part to play in that. What you'll continue to see from us, though, is discipline and focus and execution. And that will just be part and parcel of how we run the business day to day.
Jeff?
Yep.
Longevity?
So you're right, as in we are seeing a slowdown in longevity. We are seeing adverse mortality. It was mostly the front end of 2023. If you're really geeky, by the end of 2023, we were back at sort of 2019 levels of mortality, especially in the annuity portfolio. But we absolutely think that we will see that continue to trend down to old levels with flu, COVID, backlogs in general in the health services of U.S. and U.K. What you see in our numbers is you see we had a provision, but we still had slightly more adverse experience in the U.S. We said it didn't improve quite as quickly, but it's significantly better than the previous year. Towards the end of the year, actually, and the start of this, we're starting to see more positive results in the U.S. Long may that continue for many reasons.
That pesky IFRS 17 means the release on the longevity that we did put through gets put into the CSM and deferred over time. So you don't see so much coming through in the P&L, whereas you recognise the adverse mortality experience in the U.S. straightaway. So yeah, we put through you saw it in my slide, the CSM increase as a result of the longevity increase. And so that is already coming through. And we took, again, a prudent move to the next table. We believe that there will be adverse experience and poor mortality for a period of time before we return to normal levels.
Yeah. Thank you. Go to your right, and then to the end then.
Hey, good morning. Mandeep Jagpal, RBC Capital Markets. Three questions from me, please. First one on the S2 margin for U.K. PRT. It looked like it came down from 8.9% last year to 7.4% this year. What were the drivers there, and what is the outlook for this margin going forward as it looked like the IFRS margins were flatter? Second one is on Funded Reinsurance, an increasing level of Funded Re last year. How do you evaluate which deals to use Funded Re on, and what level should we expect to be utilised going forward, especially with some large deals in the pipeline? And finally, on LGIM, outflows from UK DB were the key driver of overall net outflows. Aside from offering these clients PRT, are you looking at whether there are other asset management products that you could develop to keep these flows within the group?
Yeah. Actually, that's all very good questions. So why don't I just do the key points first, and then I think, Andrew, I'll ask you to comment on the first and the second. Maybe, Jeff, you want to cover particularly the difference between the IFRS and solvency to sort of different evolution of the two margins. And then I know that we have some exciting plans. We've announced the market in terms of Bridge. I think it's called, Michelle. So I'll come to you on that. So in terms of Funded Re, I want to make a point on that. So as you know, we use funded reinsurance as a way to diversify risk. And overall, it's still a small proportion of our overall annuity book. And we want to continue to do this in a controlled manner, but it is a logical tool for us to continue to use.
As you saw, we did that in the Boots deal and more in 2023. Do you want to cover maybe in order, maybe, Jeff, first, just the difference between the margins? I'll come to Andrew, and then I'll come to Michelle.
That's fine. Yeah, we'll do it that way.
Yeah, so you're right. It's funny, isn't it, because it went down for solvency too, but went up for IFRS. Obviously, broadly flat, you said, but it definitely went up. And to be honest, it's just the different bases around them, different use of Funded Re and the different asset mix. One has more prudence in one basis, one doesn't in another basis. The way we look at it is these are broadly in line with where we'd expect them to be long-term average. They vary depending on the mix of business, the duration that you've got in there, the sort of assets you put to work. So we are absolutely in line with what we'd expect our returns to be. And you say what's the outlook for them, Andrew will talk at some point, I'm sure, about the big demand in the market.
But we will only do the business if it's hitting the returns that we want it to. And so you expect a certain level of returns from us in line with these metrics. We continue to do that. We continue to focus on low strain levels, good VNB metrics, good IFRS CSM being added each time. And so we're very comfortable with where these are. I mean, any half period or even a year, it's very difficult, the movements between them, because there's so much that goes on behind them.
And Mandeep, thank you for the question, because we did debate that a lot, actually, the two numbers. But I think the point that Jeff's making is very important. And this is important for me as a new CEO to say, our discipline in pricing is the same that it was six months ago and 12 months ago. So Andrew should talk to what is a very healthy pipeline of PRT, but we're being disciplined from a pricing perspective. And what you see in the second half is good pricing in those two metrics, good profitability. Andrew?
Yeah. So you're right. You've seen this year, a high level of funded reinsurance in the book than we've used before. We think about that very carefully. It's part of the strategy compared to our own sort of assets, our own returns, making sure, as Jeff said, we get the right return on our capital. And funded reinsurance has been important for us to deliver the results we've delivered this year. We look at it at a portfolio level, at an individual deal level too. So depending on the size of the deal, and as you say, the larger the transaction, then maybe the more likely we'll be to use funded reinsurance. But it's something we think about very carefully. And certainly, the controls, the processes, and how we think about that is something we evaluate, I'd say, across the business.
Yeah. And the final question was on DB. Just to mention this statistic again, over the last three years, 88% of everything we did on the PRT side came from LGIM. So not all of those schemes were just dealing with LGIM. Of course, they had other clients. I'd love for us to be the single asset manager working with them. But there is a huge overlap. Actually, last year, that overlap was even higher. It was close to 100%. And Michelle, maybe you want to talk about Bridge, which we launched.
Yeah, and maybe just to develop that a little bit. So I mean, important to say that it's not a surprise what clients are doing, an entirely rational response to what's going on with rates. And the way that LGIM works with clients over many, many years is to get them into a position that at some point, they could go to transfer, pension risk transfer. And so that works very well. So what you're seeing from clients is an entirely rational response to reshaping. And it's important to know that some of these outflows are actually reshaping our portfolios. So it's how do they take what they have today and get themselves in a better position given where rates are. And that is something we pay a lot of attention to. What Antonio is referring to here is that works better for some of our larger clients.
There are a bulk of medium-sized and smaller clients who can't necessarily access that. We are looking at ways in which we can work with them to bring them to a similar outcome. Actually, I think it's really exciting. But part of what we also do so the LDI and Solutions book is a big part of what we do. There is also how do we think about alternatives for many of those clients, depending on where they are and how well-funded they are. But that's when the whole organization comes together. Actually, I'd say it's an entirely rational response. It's something we think about very, very carefully and work closely with our clients on.
Thank you. Thank you, Michelle. Thank you, Mandeep. Andrew, behind you, yeah.
Good morning. It's Andrew Crean for Autonomous. Could you tell us on the Treasury HoldCo assets, how much do you want to hold at HoldCo? Secondly, could you talk a bit more about development of private assets? You've got an awful lot of P competitors who are looking for liabilities. You have the liabilities, but do you need to build your capability in private assets? And then thirdly, you talked, Antonio, about a simpler business model or a simpler way of communicating. And I just wonder, there's an awful lot of noise now in IFRS 17 as to whether you switch the emphasis and communicate to us through solvency to metrics.
Well, thank you for the suggestion on the last one. But Andrew, to your point, I think maybe a reflection, and I'll ask Jeff to answer HoldCo and maybe both Michelle and Laura to say a word about private assets. But just on your point, I have been meeting shareholders, but also potential investors. And in this side of the Atlantic, it was mostly shareholders. On the other side, it was mostly potential investors. And I think there's something about that common for me is about simplifying the investment narrative, the investment case. I think we need to talk about our strategy first. And I was very deliberate about saying a clear strategy and then a simpler investment case. And your point about metrics, I'm sure we'll take that on board. So without commenting on that, Jeff. So Treasury, HoldCo, and can you answer that?
I'll come to Michelle and to Laura.
Sure. Yeah. I mean, the simple answer is as much as we need. But I don't mean that in that the way we absolutely run the business is we remit from, especially the insurance business, from L&G's what is required to the business. I mean, Treasury only has a mandate to sit on cash. So we don't want to be sitting on cash, whereas we can plan the liquidity requirements for the insurance business and invest in higher-yielding assets as required rather than move them out and just sit on them a group. So what we do over our plan period, over each year, is we remit. We see how much LGIM makes, how much it's passing up, a couple of other avenues. And then we basically move the rest out of the insurance business so we have what we need at HoldCo cash.
Should we change our view of how much we need over a 12, 18-month period, we will remit more up and therefore sit on that for a while before we spend it. So it's not that there's any issue in liquidity or access to cash. It's a case of it makes sense for us to hold a sensible amount there that we need over a period of time, subject to the next dividend that we're going to then bring out of the insurance business. So you've seen the levels. It usually is about the same level, GBP 1.2 billion, 1.5 billion, 1.7 billion, depending on the timing of dividends that we've passed up will be what you'll see if you look back over the years in what we've been holding there. And then the rest of the cash and liquidity sits in the insurance business.
Michelle, do you want to start with real assets within LGIM? And then if we could, Laura, talk about LGC, please.
Yeah. And Laura and I work very closely together. I think it just is important that as we're going out to clients, that is how the market sees what we do. On the investment management side, we have a strong position in real estate equity. We have a very strong position in private credit. Of course, we are managing assets on behalf of the firm's own balance sheet and on behalf of the annuity book. We are externalizing that. And part of that is by adding in capability. We bought in a team in the U.S. to put out U.S. real estate equity. It's also about how we take what we've originated already out to clients. Some of the partnerships that we have already a really good example of that is with a fund that we have launched with NTR. It's an investee company of LGC.
We've raised EUR 400 million so far in a clean power fund. We expect that to continue to grow. That's one example of what we're doing to bring LGC's capabilities to LGIM third-party clients.
The only thing I would add is just in terms of, I suppose, one of our secret sources in winning PRT business has been having the understanding of liabilities that we do and the ability to originate assets that work extremely well for PRT. So in terms of the duration, the spreads, the inflation linkages, which I do think we have quite, I suppose, an advantage over some of the newer players. But the short answer to your question is, yes, we need to keep evolving that to keep ahead.
Yeah. Andrew, in my $9 trillion number I gave earlier, giving quite a lot of big numbers, we see in the global asset management industry, private assets to continue to be a big growth. And implied in your question was, do we need to do it ourselves, or do we do it through others? We believe we should be doing it ourselves. And we'll come back also on the 12th of June in terms of what role does that play from a strategy going forward. Thank you. Have we finished that section? I'm going to move and then I'll do some online. Farooq, here. Oh, sorry. Yeah, starting in the front. I'll come back to start.
Hi. Thank you very much.
Very orderly.
I think in the presentation, António, that you gave on flavors around the CMD, you're talking about your kind of existing franchises. I think you're being quite careful about that. It's normal for the markets to worry when somebody new comes in that you might look to build inorganically. What can you say about that transformationally or bolt-on? Do you think, for example, you mentioned private assets? Would that be something to look at? Secondly, maybe a slightly stupid question, do you think you have lots of surplus capital? I mean, there are lots of ways of looking at that. You've reduced your interest rate sensitivity. I would say, yes, you do. What about rating agencies? What about leverage, cash? I mean, how would you answer that question, basically, I guess?
Maybe a very last question, given all the PRA noise on funded re, are you very happy that you're doing all of the stress tests and doing all of the modeling around that already that the PRA is going to ask for anyway? Thank you.
Thank you, Farooq. Very good questions. Maybe on that, the easier answer starting from the last one is, as I said, we use it in a considered and controlled manner. And it is a small part of our overall book. So we will continue to work with the PRA. And so we're reasonably comfortable there. Just on the other two, so in terms of M&A, I think there's a sequence to this, right, which is we set out our refreshed strategy to you on the 12th of June, which I don't believe in M&A for the sake of M&A. We need to be very clear about how do we build on a very strong set of businesses. And so would bolt-on acquisitions be part of that, potentially? But I have a healthy skepticism about M&A in general.
So I think we really need we have a great business to build on. A lot of the opportunities in front of us are organic opportunities, as I mentioned in my other slide earlier. None of that necessarily implied M&A. But we may need at some point to literally bolt on capabilities that we don't have. So I would be open-minded about that. In terms of solvency too, I think we need to overall capital position. So we need to step back, which is, well, first, we've just paid a 5% dividend. The board is committed to paying a 5% dividend for 2024. What we will do in June, again, is to outline what is our strategy and what is our capital allocation and capital distribution policy, which actually is in line with what we set at a half-year.
We compare the returns of growth opportunities with the alternative, which is to return capital to shareholders either through dividends or share buybacks. So that is our position. You're right that within that, we then look at both capital and liquidity and other aspects. But I don't think there's much more I would like to say on that unless you feel strongly that there's something you want to add.
No, except I would just slight word of caution. I know it's very exciting that we're down, Tony. We've lowered the sensitivities. We do think they've got a tiny bit. We were a bit longer at the year-end. And so where it's 10% or 11%, it might be 13% in our sort of medium term is where we'd possibly look at. Maybe not. I mean, it's a great position to be in, as you say. We've removed a lot of sensitivity from the balance sheet.
Agreed. I think the number today is good news in that sense from a sensitivity perspective. It gives the strategic optionality. We need to come back clearly on the 12th of June what is that capital return framework, which, by the way, was also one of the comments we have from Fahad. So I can just take that one off. Can we expect a capital return framework on the 12th of June? I'm reading this from the online questions. So Andy, and I'll come back to you.
Thank you. Three from me, as usual. Andrew Sinclair from Bank of America. My first question I always ask is, LGC's cash generation. Can you give us that figure and how that compares to operating profits and the sources of that cash? Second question was just on the solvency UK reforms coming through. From what we've seen so far, what's actually changed in practice for Legal & General? Has anything really changed other than getting a few extra percentage points to the solvency ratio? And the third question was just on property revaluations. Real estate, what have you seen over the past year? How have you revalued the portfolio over the past year? Thank you.
Jeff, can you?
Sure. Yeah.
I can do all of those. Yeah, the LGC cash, I knew it would come. So yeah, it's a good, healthy number in excess of the operating profit. We're looking at 600+. And so as we've said, it will vary period on period. And we choose to reinvest a lot of that back into the business. So that's a good, healthy number, which, again, gives us optionality over time. What do we decide to do with that? When do we choose to invest it? When do we choose to slow investment around that? Yeah, Solvency II reforms. Well, of course, the only part that's really been enacted so far is the risk margin. So that's really all that we've seen. We're still working very, very closely. Mr. Stedman's still here working with Brian in his new role, working with the PRA and with the industry around what it means.
We've got people in Andrew's team really challenging what that can mean for what are the right asset classes to go in. I think there are a couple of asset classes we're potentially looking at that could benefit from the sort of highly predictable. But as yet, there's no real economics we're putting through. But clearly, we like the removal of what was called the BBB cliff. The risk of downgrade to sub-investment grade is good around risk management. It's a good thing for the industry. It removes some of those cliff-edge risks that would be there around selling in extreme events, etc. So that's very positive in the way that we look at things. But we'll continue to work with the PRA. And when the next version comes out, we'll be able to put numbers on it ourselves and think about what does that really mean.
And we'll start to see that coming through in assets. Property revaluations, as ever, there's no one single number. But you saw our investment variance. Quite a bit in the annuity portfolio is the residual value notes, as we call them, the residual bits of property that we have on the very long leases. So for example, 80% of our offices are to the government, HMRC. They have 22-year leases. But some of that is a vacant possession value of the bit of property that we don't put to back the annuities. Those have come down about 10% or so. Just because you just reflect higher rates and higher return assumptions, that gives you GBP 200 million in there. It's just mark-to-market. That then cash flows for 20-something years. So this is about what is that property worth in 20 years?
Do we really expect to have it on our balance sheet at that point, etc.? So that's really what happened. A lot of the assets in Laura's world, some have been more because of the specialized commercial real estate. We've definitely seen that. Some of it has been catch-up because private assets takes a bit longer to come through.
Thank you. Go to the second row. Yeah. Yeah. I'll come back to you then. Yeah. I'll come to you. Yeah. Perfect.
Thank you. I'm Larissa van Deventer from Barclays. Three questions. One on bulk, one on LGR, and then one on LGC, please. In the past, we have seen bulk annuity volumes heavily weighted towards the second half of the year. With the current momentum in volumes, do we expect that to be the same? And can we reasonably assume that L&G will continue to chase those aggressively until we have the new capital plan? On LGR, if we consider the CSM run-off, if you look at the accreted interest and the new business and you take off what was recognised in earnings, it was broadly flat. And then the positive growth came from assumption changes. How should we think about the drivers of growth for the LGR CSM going forward? And lastly, on LGC, tough half-year for housing, shall we expect it to remain housing dominant?
How do you see the real estate component parts of that portfolio evolving over time?
Great. Thank you, Larissa. Thank you for being patient earlier. I know you had the microphone. I took it away from you. So first was the first half, second half from a PRT perspective. Then retail will come to Bernie. Then Laura, in terms of LGC. Just on, and maybe Andrew and/or Jeff may want to comment. But we do see this profile skewed towards the second half. It's true this year as well. But as Andrew, you mentioned earlier, we have a healthy pipeline of PRT into 2024. As you know, it's a record market as well, not just for us at Legal & General. We expect the projections are the same for 2024. Do you want to add anything on that, Andrew?
Yeah. Maybe just a few comments on the general pipeline, Larissa. I mean, I think in the industry, there's always a sort of deep intake of breath. And people relax for Christmas. And you start again in the new year. I mean, if you just look at generally, and everyone in the room will see the estimates like I do of the size of the pipeline, the most interesting stat I heard in the last few weeks is one of the employee benefit consultancies saying there's some GBP 250 billion of schemes now in the U.K. that are buyout funding. So if you think about the level of potential demand, that would be five years of transactions if you go on 23 volumes and a much higher multiple of previous years.
So I think it's fair to say, at current levels of funding, the ability for the trustees to look with their advisors for buyouts is very high. And I suspect we would expect that the 2024 volumes will be at or around the 2023 level. So GBP 50 billion or so of transactions, potentially even higher. I mean, a few things to remember. One is it is definitely seasonal. And that we are seeing now, at the current time, probably 15 transactions that are being shown to us over GBP 1 billion. Those big transactions are likely to not many of those will complete in the first half, which is even if they're live now, they'll take some time to complete. It's why you get the waiting. And then when it comes to the very large schemes, how they transact and when they transact makes a big difference to the market.
If the very large schemes don't quite get over the line by the 31st of December, they'll go into next year. Or they split the transaction into multiple parts. And therefore, the very big scheme becomes a smaller number of smaller schemes. I think it's still second-half weighted, but still very high levels of demand out there from trusting their advisors to ask us to quote on transactions, which obviously, we are.
Just to manage expectations, and this is an important point, it is very lumpy, right? Maybe that's an obvious thing to say. But had we not done Boots right at the end of the year and let's say that Boots that end up being in January, we would be showing you a very different well, we would probably be talking about that number. But so for 2024, expect the same thing because some of the schemes are quite lumpy. So in a way, it may well be that I'm here in August talking to you about a great first half. Or some of those deals might end up being in the second half. So it's lumpier than, let's say, Bernie's business, right, where we know what's happening in individual annuities or in protection because it's more of a retail business. So just to state the obvious.
Maybe on the second question, maybe do you want to give a broader view on CSM? We haven't talked about retail. Maybe you should answer first, Jeff, and then Bernie.
Yeah. I think, Larissa, your question was more the bigger picture that we had added how much CSM, how much did we run off, and then where's the growth come in? It was interesting because Andrew did a different number. He said it was growing at 4%. So yeah, exactly. When you say LGR?
LGR, as in terms of?
Retail.
In the retail business.
Just the retail business.
okay.
With the individual annuities in. Yeah, that's right. Well, actually, there's a general point on CSM run-off. And Bernie can comment because actually, the biggest influence was retail protection probably last year, I would say. There's a general point that, yeah, we are showing good growth without the longevity. And I think it's important to see that even without the profits of the businesses grow at a faster rate than the actual CSM because you get growth in the expected returns. You get some of the backbook optimisation, the risk adjustment growth. And so we're in line with sort of where we'd said before that we'd expect our profits, say, on the annuity book to grow at 6%-7% if you're writing GBP 10 billion per annum from what you're adding.
Actually, we're seeing more of that come through in the higher rates as well because you get slightly faster run-off, etc., and higher investment accretion around that. So I think it's useful to look at that rather than just the pure CSM growth. There's some other stuff.
That's a good point. And on retail, Bernie?
Yeah. And there is, I think, a new disclosure, Jeff, on the CSM kind of run-off. So that's in there for you. But I mean, at the end of the day, it is going to follow the performance of the business. And last year, yeah, we've got three great protection businesses. Obviously, U.S. is doing really well. And that's adding healthy amounts of CSM from a new business perspective. Group protection is also well, but it's quite a short-term business. And retail protection was one that was impacted by higher interest rates. And the mortgage market was also very subdued last year. And so volumes were down. As we say frequently, we take a very disciplined approach to pricing as well. And so there was some poor-quality business that we deliberately pulled back from last year. We're happy for our competitors to take that on.
That will be coming through to their book coming forward. We are expecting an improvement in margins. That will flow through to the CSM going forward.
Thank you. Thank you, Bernie. And housing, LGC?
Yes. So you're right. Housing, it has been a tough year for housing, particularly private for sale. Having said that, I do think CALA has performed relatively well. I mean, there's been a lot of analysis of the listed house builders. But to put that into perspective, sales rates for CALA are at a level that they were sort of pre-COVID, so a very good sort of sales rate per site. Average sales prices sort of above or just a tiny bit above where it was in 2022. So relatively really good performance. I think in terms of the second part of your question, in terms of this sort of overall portfolio and the sort of weightings, probably the best way to think about that is sort of three buckets. Yes, housing. CALA's part of that. We also have our affordable housing business, our rental businesses.
The second bucket being around clean energy, climate transition, and specialist commercial real estate, so digital infrastructure, what we're doing in life sciences and with universities. And the third, alternative finance, which includes both Pemberton and venture capital. So some really good tailwinds in those other buckets, particularly private credit in Pemberton and climate transition and commercial real estate where it's going in terms of the need for digital infrastructure, the need for universities to have different types of accommodation, which we're working very closely in some of our partnerships in both Oxford and Manchester. So definitely, the portfolio is becoming more diverse in terms of the different opportunities we have going forward.
Thank you. Thank you, Laura. Thank you, Larissa. I think Rhea had a hand up there. Yeah. Yeah. Yeah. Thank you.
Thanks. Rhea Shah, Deutsche Bank, three questions. So the first, just going back to LGC. During your capital markets day a couple of years ago, you mentioned the ambition for GBP 500 million-GBP 600 million of operating profit for 2025. Are you still on track for that, even with housing maybe being a bit slower? And then secondly, around LGIM, I mean, 40% of the AUM is now international. Do you intend to grow that a bit more? And if you do, would that be more towards higher margin assets to grow the revenues? And then thirdly, just around Consumer Duty, the backbook implementation will be happening in July. How does that affect you? And just more broadly, António, you mentioned that you have 12 million customers. How are you thinking about that from a wider Consumer Duty and support standpoint?
Thank you, Rhea. So Laura, if you can answer on LGC, just, and then I'll ask briefly. Let's make the answers briefly shorter. From an LGIM perspective, we did say that not only it's 40%, but it's been growing 80% since 2018. So the international part of LGIM has been growing faster. And you'd expect that to continue. From a strategic perspective, we'll come back more on the 12th of June. So maybe there's no need, Michelle, to repeat that. And on Consumer Duty, we have implemented we are implementing. We have implemented Consumer Duty. Maybe Bernie can give us sort of just a quick word on that because it impacts all of our businesses, but particularly retail. Laura, GBP 500 million-GBP 600 million?
Yeah. I think we actually said that by the end of 2025, we'd have GBP 600-700 million of operating profit in total and aggregate across LGC, as well as having GBP 25 billion of third-party assets under management. We are on track for hitting both those targets, despite, as you say, some of the sort of headwinds we've seen, particularly in the housing market over the recent year.
Thank you. And Bernie, on Consumer Duty?
Yeah. So look, there's been a huge amount of activity, as you'd expect. You'll have seen from other companies as well. It has raised the bar. And the board's been given a lot of focus and attention, as is quite appropriate. What we'd say on the backbook, we have done a number of transactions over the years, which meant we've sold, yeah, three backbooks, yeah, personal investing in LGIM, mature savings as well, so GI business as well. So we don't have a lot of backbooks customers and policies to look at, yeah, which is a good thing. I think they're going to be even more challenging than the frontbook given, yeah, they go back over a long period of time. So we're feeling quite happy about the transactions that have been done a few years ago from a Consumer Duty point of view.
But generally, raising the bar across the board, yeah, new MI packs, new board reportings going on, so a huge amount of activity from the team to make sure we're really focusing on delivering great customer outcomes over the long term, which will have a lot of positive commercial benefits as well. So we're focusing on that, getting really, yeah, understanding where our customers do and don't understand our policies. And our policy literature is an ongoing task that is really going to help our communication to our customers. So it's delivering a lot of good things as well as being, obviously, a lot of new activities to generate.
And just to add, it is a big focus of mine as the Group CEO and of the board. So just to reassure you on that.
Hi, Andrew Baker, Citi. I'll stick with a trend of three questions if that's okay. First is on the BPA market. So I appreciate your comments on the high demand. What about on the supply side? There's been some headlines around three potential new entrants in the U.K. this year. Do you expect that to have any impact on the competitive environment there? And then the second one, I guess, just a clarification of your thinking around the dividend and specifically around the nuance around the longevity assumption changes and the negative drag from investment variances if you continue to have longevity assumption changes. I understand that IFRS profits isn't really the driver of your dividends. But that will reduce your dividend cover on that metric. Does the IFRS dividend cover come into your thinking, if at all, when you're thinking about that dividend going forward?
And then the third one, just a quick one on the LGRI investment margin, which is down second half versus first half. Can you just talk through some of the moving pieces there and how we should think about this one going forward? Thank you.
Thank you, Andrew. Just on, maybe I'll take the first one, actually, and now the other two, Jeff. I'll ask you to cover so the dividend cover point and the LGRI investment margin. On the supply and demand from a BPA perspective, first, I wouldn't comment on rumours of other players coming into the market. But there is quite a lot of interest in the market, which I take from a positive perspective. Both public and private capital wanting to come into this space validates what is a key part of our own business model. And we've been doing this longer than anybody else. So I see it from a strategic perspective as a good thing. What we've seen so far is that sort of supply demand is not changing the economics that we've seen in 2023. The market continues to be very; it was already very competitive.
There are deals that we want to from a pricing discipline perspective. Yes, we will need to keep on watching the space. There's nothing that now, standing here on the 6th of March, changes the dynamic of what we had in 2023. But it may well change. And we need to keep close to that. Jeff, dividend cover?
Yeah. That's fine. Yeah. I mean, broadly, you answered it yourself. Yes, we don't pay that much attention to it. We have plenty of distributable reserves, etc. And we talked about that on the transition to IFRS 17. We would look at, well, what's the underlying growth and profitability of the business? And clearly, we would take those sorts of impacts from the longevity releases out. That number will change, of course, as rates environment. So if rates come down a bit and we've locked in more business, then we'll have it could switch that way. It could be positive. But if rates were ever 0.5% again, let's hope not. And so we, therefore, would sort of take that out in our thinking because it's not a constraint on there and then look at some sort of underlying on the margin. I mean, there's always second-order impacts.
But I think there was certainly more backbook optimization probably in the first half than the second half. So you certainly couldn't double that up, if you like. Some of that was, as someone has said before, a lot of volume done in the second half. I mean, so the assets we're sourcing, we've put those to new business versus putting them against backbook optimization. So that's broadly what's happened there.
Perfect. Thank you. Next question.
Thanks. Nasib Ahmed from UBS. So first question on basically, the government's focusing a lot on DB solutions via public sector consolidators or super funds. How do you see L&G competing with that? Michelle, to your point, you're helping some of the smaller schemes. What solutions do you have? I think you've got APP and ISS. I hope I've got those acronyms right. Are those helping in that space? And then secondly, Jeff, you mentioned the sensitivity on interest rates is going up on a Solvency II basis. But I think in the IFRS disclosure, in the footnote, you say January 2024, you put in more inflation and interest rate hedging. So does that come down again in 2024 on a Solvency II basis as well? And then on the investment variance, I notice in LGIM, there's a cost provision for some of the partnerships.
I think it's State Street and Charles River. Are there more to come or any more details on that provision itself? Thanks.
Thank you. Thank you, Nasib. So Jeff, why don't we start in reverse order? You answered those two, the investment provision. And actually, there was a question online, which I can see here on, can you split it was the bigger question about the GBP 1.6 billion. So maybe you could try to mention the small one and the big one there and then come back with the interest rate hedging. And I'll talk about the government one.
Sure. Yeah. Yeah. Yeah. Yeah. The cost provision, I mean, it is just being prudent about the implementation of the operating model changes in LGIM, the outsourcing to State Street. As Antonio said, we've started to go live on that. We've got more to go.
Yeah. Phase I done?
And so we all like to think we're brilliant at change. But generally, they overrun. So we're being really prudent on that and just trying to make sure that we've made some provision for that. We're hoping Michelle beats it with her team. And we release it in the future. And we will watch this back.
But it's not a target.
The rate sensitivity, yeah, all I was saying was we were slightly longer than we expected to be at the end of December, which is why the rates, the Solvency II sensitivity was just marginally lower. So I didn't want you baking in the 10%-11% because we think it will just go up a couple of percent. The Solvency II and IFRS are now actually quite separate because we've been using the designation of assets under IFRS 9, as we've said. So we've managed to get quite close now to where we wanted. It's pretty neutral if you look at that disclosure. I'm amazed you got that. Impressive. Then there's a footnote that says, in January, we did a bit more because Boots landed in December. We did a bit more in January. So the IFRS is GBP 25 million for 100 basis points down. It's slightly convex.
So up, we're still going to work on reducing that. But we're very happy where that's been. And similarly, for the same reason, we did some stuff on inflation because the Boots had landed. It all takes time. So we thought it was more useful to give you updated IFRS sensitivities as well. But broadly, less happening on the Solvency II. Just one or two basis points up, we suspect, when we've changed everything around. And did you want to?
No, I'll do yes. Do you want to just do that?
Yeah. It was just sort of a what's the split? The one I think most people have got there. What's the split of the?
Just the overall investment variance.
Of the investment variance, the 1.5, 1.6. And obviously, there's GBP 500 million or so, which is one's a quirk of Solvency II. Longevity, we've talked about the buyout of our own pension scheme, where we put that through. It's very much sort of a one-off, no pension scheme ever again. Government's very happy that there's no more pension scheme accounting. And then in the remainder, we've talked about the residual values. The only real it says, what's real assets in payment, real loss? It's only the modular and the Onto, the couple of hundred million. Others are either provisions, as we've talked about, or absolutely just mark-to-market, unrealized. We're very long-term investors. We're hoping to get the upside as well as downside on those in the same way as we do on equities. So that was really the breakdown.
Yeah. Thank you. Your first question on government proposals. You put a bunch of stuff together. But if you think of PPF and super funds, our view has been that PRT has served the market and society well. And it protects the benefits of the individuals and annuitants. And we have, over many years, funneled some of those assets into the productive economy. From a super funds perspective and a PPF perspective, we see the solution for schemes that cannot be bought in. Yes, we can see that as a solution. But we don't see it necessarily. And we've been quite clear. For the schemes that are well-funded and where we and other insurers could do a buy-in, buy-out, we see that as a gold standard. And so does the government more generally.
I think I would make a broader point, which is we do support all the initiatives around DB and DC assets being put to work from a productive assets perspective. As you know, we are a signatory to the Mansion House Compact. So we're very supportive of that. We're very engaged both on the DB and on the DC side. Thank you.
Thomas Bateman from Berenberg. I just want to go back to the capital return because capital returns are a really important part of the sector's performance at the moment. It just feels, despite the growth angle in the U.K. life sector, they're at risk of lagging behind the European peers a little bit. So I was just wondering how you think about that capital return, if you do benchmark it versus the peer group. Secondly, I think you said before that GBP 10 billion of UK PRT would drive 6%-7% growth in operating profit or capital generation. Is this still relevant given the increased use of reinsurance? And also, how does that change with high volumes? So if you do GBP 12-13 billion, does that move the operating profit growth up? And finally, there's been a lot of talk about US CRE exposure at the moment.
I know that you're investing into the specialist CRE market. But if you could just for a quick, quick update on any potential risks for U.S. CRE.
So I'll take the first one. And Jeff, can you take the other two? So from a capital returns perspective, look, there's not much more I can say today. As I said, 5% dividend growth. We intend to do the same for 2024. And I'll be more clear about capital allocation and distribution on the 12th of June. To your point, do we benchmark? Yes, of course. We benchmark ourselves against everybody else. We also have to go back to the principles of we look at what are the returns of our growth opportunities versus the alternative of distributing that capital. And that's different firm by firm. And if you look at large European insurers and others, they have fundamentally different business models than ours. So the answer can be different because we are different.
But that's something I want to set out very clearly on the 12th of June with, here's a strategy, here's capital allocation, and here's capital distribution. But yes, we look at competitors. Thank you.
Yeah. The other two? Sure. Yes. So that's right. That's what I was quoting earlier, that sort of GBP 10 billion extra of annuities drives that up profit growth 6%-7%. We talked about that in the sort of IFRS 17 teaching, if you like, when we were first doing that. That stands. We've been looking at that. Clearly, if we write more so that's GBP 10 billion net, obviously. You have to be retaining the value to be able to get that. But obviously, individual annuities contributes to that as well significantly. So to the extent we write more, the maths of it's a bigger book. You get a bigger CSM. You get more expected margin unwind. It will grow faster, yes. And so to the extent you're writing more, you get more upside. Clearly, the profits are spread over the whole lifetime for annuities.
But clearly, that's part of the value proposition of writing this stuff. It makes greater returns on capital. And it gives you a very large store of profits that unwinds into the future. And we give you the runoff for that. U.S. CRE, and the simple answer is very, very little. But to give it a bit of color, middle of last year in particular, I remember emailing back and forth with Risk, with the investment CIO, if you like, of the U.S. balance sheet, which is where it says there was virtually nothing in the U.K. balance sheet for this. And I think there were three assets on a watchlist. And they were all $10 million or less. And they were waiting for someone to resign a lease, that sort of thing. So it was basically immaterial for us as a group.
Yeah. Thanks, Jeff.
Thank you. William Hawkins from KBW. Just the one question. I'm sorry.
Yeah. I sort of set the expectation that you had to have three. It had a perverse effect in my.
It's really simple. When you were giving your early look remarks, Antonio, I don't think I heard you refer to technology explicitly. So I'm just wondering if you can give some early look thoughts about what you think about the technology platform that you've inherited, where you think you may be inheriting areas where Legal & General already has a competitive advantage, and where that may be an area that you want to be thinking about for investment for the future?
Yeah. Thank you, William. Actually, that's a really good question. In my slide, the one where I spent a bit the one that had more content, where we talked about the trends, if you look on the left, I was quite deliberate about the four trends that I chose. And clearly, a trend to more personal responsibility, the DB to DC is important. I highlighted climate change. I highlighted the changing macroenvironment. But the fourth one that I highlighted there, which I didn't speak to, you're right, is what's the impact of technology and AI specifically, but technology more broadly, not just as an enabler of business, but as a catalyst for business change. So what have I seen? There are different parts of L&G that are more or less strategically advantaged or disadvantaged from a technology perspective.
What you can expect is on the 12th of June for us to also be more clear about the role that technology plays as a catalyst for business. I've just come back from Frederick, Maryland, our U.S. protection business. That's a good example of a business that is, compared to our competitors in the U.S., probably more advantaged from a technology perspective. You've mentioned the results. Both Jeff and Bernie did that. That business has really been able to, in one product, one channel, beat most of our other competitors because we're better from a technology perspective. That's a great example. I wouldn't say that's universal across L&G. In many cases, we're actually playing catch-up. Actually, what we're doing with State Street is an investment that we hadn't done before. So that investment, I wouldn't argue, is cutting edge. It's really a catch-up in terms of technology.
And so more about that on the 12th of June. But well spotted. And it's an important trend. Thank you, William. I went to Larissa already. So I don't so I'll come to this section. And there, actually. So any.
Nope. We're done.
Any other questions? Okay. We had one question online. I'll do a final thing. What is the outlook for costs in LGIM? You get the last to answer the last question. I think we sort of answered that. But since Fahad asked it online, Michelle, outlook for costs in LGIM?
Sure. And similar to what I said earlier on, it is absolutely the case that we are disciplining cost management, that we are driving out efficiency, but that we are also continuing to invest. And that is really important. So we don't just focus on the cost line. We talked about revenue. And that is really what we are focused on every single day.
Great. So I think, looking around, I think that's it for today. Thank you. Thank you for coming. Thank you for all your questions. And I look forward to seeing you on the 12th of June at our Capital Markets Event.