Nigel Wilson Legal and General Email Address
Really nice to see you all. It has been three years since I have seen many of you. So, thank you, Nigel, for giving me the opportunity to say a few words. I think when we look at Asia, the opportunities that are available to us and you think about our capabilities, the incredible capabilities that we have in pensions and the investment in strategic growth drivers that we`re talking about, I`m very excited about the opportunities that we have in Asia, long-term savings, pensions, the fight against climate change and alternative investment in general. So, all these things that we are actively investigating. I sincerely hope that we will have more to say about the progress made in the near future. Thank you very much. Sure. Yes, the first one is reasonably simple.
It`s just the reduction. And so the methodology is still the same, it`s the offering of 43 basis points of the same assets as before, essentially. But I think Tim is sending me an email that I forgot, discount rates have gone up about 170 basis points. So it`s literally counting at a higher rate for the same cash flow, giving you a much smaller number. So if we brought it back to the old one, it would be practically the same. So there is not much change. The results of RBI Wave 6 show that the current cost-of-living crisis poses a real danger of worsening existing inequalities between and within different regions of the UK. Some of the findings, which show how difficult it is for some households to cope with the current financial climate, are difficult to read.
However, we must use them to reaffirm the urgent need for action at the fundamental and structural levels to ensure that we address the root causes of these inequalities and create greater equity and resilience within our communities. I think there were about six questions on that. I would just like to make a few general comments about the loan portfolio. I think we all feel very relaxed about the composition we get from it – we`ve decided that people don`t want BBB. So we give them BBB and then they come back and say, well, can you give us a BBB-one. We had no defaults in the wallet. So it`s not — it`s more discussed by you than by our rating agencies and regulators. He has been CEO of Legal & General Group since June 30, 2012, after leaving the company on June 1, 2012. September 2009 as Group Chief Financial Officer.  Nigel, thank you. Alan Devlin, Goldman Sachs. Two questions.
First, capital. What do you think about capital given your high solvency ratio and comments with the jaws of capital generation rising above the dividend? I think in your press release you mentioned for the first time that you would not commit excess capital, and that was in the best interest of efforts to reach shareholders. But given the very high volumes of accounting annuities in your comments that the things you anticipate in three or four years could be adopted sooner, would you use that excess capital to capitalize in that market if you could? Expert insights, analytics, and intelligent data help you break the noise to identify trends, risks, and opportunities. And second, a related question, just given the strong movement in interest rates on credit spreads that you`ve seen in the U.S. and the U.K., and you`ve talked about the investment portfolio. Does that change your perspective on mass annuity markets, which are gradually becoming more attractive for investing capital for lawyers, because you obviously have both markets that have become more attractive, but relatively speaking, something has changed? Thank you. “Climate change is the biggest investment opportunity in the world,” he says. Energy has become clean, green and cheap.
The North Sea offers an excellent opportunity for Britain to become a world leader in offshore wind energy. Unfortunately, I think America is very open for business, as my colleagues will tell you. And that`s why we`re getting some appeal from America, and in a sense, America`s attractiveness is increasing a little bit and the UK is decreasing a little bit, and in the current political and regulatory environment here. We want to do an about-face, hoping that one of the things the new Prime Minister is doing will reverse to give us more opportunities to invest here in Britain. Also, ironically, they are a bit ahead of us in areas such as home and office renovation and are already producing a corresponding asset class. But we want Britain to at least keep pace with the US and Europe. Michelle? Another policy decision called on Legal & General to pay a dividend to shareholders in spring 2020, shortly after the Bank of England warned against such distributions and many other companies withheld cash. “We did the right thing,” says Nigel. “I`ve never received so much mail from individual shareholders telling me that we did the right thing, telling me that the dividends we pay are their pension.” Assets under management edged down to £1.3 trillion, with international assets accounting for around 36% or £468 billion. We remain the market leader in the UK DC, where our strong client focus has helped grow assets under management to £129 billion and cover over 4.7 million employees in the workplace. And our wholesale business continues to grow well with £46 billion in assets under management.
We continue to make strategic progress in modernizing, diversifying and internationalizing the business. For example, we are expanding our range of ESG products. This includes ongoing preparations for the launch of a new renewable infrastructure share offering in partnership with NTR. I don`t think we`ve ever had a serious discussion in the board, I`m thinking about the right parameters. It is relatively new that we have passed another test with a solvency ratio of more than 200% and everyone is happy with it. I think we were the only financial services company with a market cap of over £10 billion, £12 billion to pay a dividend during COVID, so there are a lot of attractive features that we have and how resilient the model is. We don`t have a setting at the time X, Y, Z happens, and obviously we do, but we don`t. Despite market volatility, we generated record net inflows of £65.6 billion, representing 10% of open and external assets under management on an annualised basis.
Flows were diversified across the company and driven by strong international growth, reflecting close relationships with our customers. Net international flows accounted for more than half of Belgium`s total flows. UK TV streams have also been strong as customers look to minimise market volatility with continued demand for LDI solutions. The second is the solvency ratio. Well, 212% is a figure that sounds pretty good. I think you will agree that there is a lot of room here to absorb shocks. But what do you think? I mean, would you like to reap it through additional ROI or accelerated growth? Do you want to do that or do you just wait for the markets to calm down and you make a call at that time? I`ll do the last one if you want, I mean, again, it`s largely mathematical. Credit migration is very easy and we saw it in our numbers during the pandemic. It`s very simple because sub-investment grade spreads have widened.
So if we model our stress in a stereotypical way, let`s say, well, BBB is downgraded, and then we sell it down and down. So we make a bigger loss the moment we sell them in our model because the spreads are wider than they do. So we`ve seen exactly that in the pandemic, it`s just the calculation of having wider spreads as a starting point. So there`s nothing – we haven`t strengthened it or anything, it`s just the market conditions, the path to traffic.