L&G restates loss as profit

Legal & General has restated its 2009 operating profit on an IFRS basis in a way it claims more closely matches insurers who use European Embedded Value reporting. This turned an operating loss of £189m to a profit of £592m.

It said there were four components to the restatement:

Removal of investment variances

For our non profit Risk and Savings businesses, the difference between the actual investment return (net of the corresponding liability movement) and the expected investment return will be reported below operating profit in the Variation from longer term investment return. For 2008 this includes removing the £650 million credit default provision from Risk operating profit. This is consistent with the treatment of investment return on shareholder assets and the treatment of investment return on an EEV basis. For 2008 these investment variances were £774m negative. For H1 2009 they were £366m negative.

Removal of deferred tax variances

IFRS reporting requires deferred tax balances to be presented on an undiscounted basis. This, coupled with market value unit pricing structure, creates an accounting mismatch within unit linked funds which will be presented below operating profit. For 2008 these deferred tax variances were £8m positive. For H1 2009 they were £11m negative

Removal of pension scheme movements

Movements in the accounting value of annuities held by defined benefit pension schemes are driven by interest rate changes which are outside of management control. These will be removed from the Group capital and financing element of operating profit on an IFRS and EEV basis. For 2008 these effects were £15m negative. For H1 2009 they were £4m positive.

Removal of own debt holdings

The impact of eliminating own debt holdings is reflected below operating profit. This arises from the difference between the carrying value of the debt and the fair value of the asset held in the balance sheet. In previous reporting periods this amount has been nil.