Legal & General continued to make excellent progress in 2006, achieving record new business, operating profits and market share. Your Company has performed well and achieved significant operational successes, extending its already strong franchise in the UK market.

Today, we provide financial products to over 5.7 million customers. We have a total market share of over 20% of the UK individual protection market, and with equity investments of around 3.8% of the FTSE 100 Index, we are one of the largest single investors in ‘UK plc’. Our role as a financial product provider and a manager of long term savings and pension assets is underpinned by our commitment to corporate and social responsibility, and to our 9,700 employees.

Strategic Continuity

Legal & General has a clear strategy which has consistently delivered results. Customer service, value for money products, strong multi-channel distribution and excellent administration – all underscored by financial strength and integrity – drive value for customers and shareholders alike.

Our business is principally in the UK, and our long term focus on this core market has proved well-founded. In 2006, a positive economic backdrop and increasing public awareness of savings and pensions contributed to strong growth in new business, as did the continuing stimulus from the ‘A-day’ changes to pensions. Our main overseas businesses, in the United States, France and the Netherlands, performed steadily during the year.

We balance both production and distribution. Our product portfolio is managed to recognise the different characteristics of protection, annuity and savings businesses, and our wide product range reflects the variety of opportunity in the market and our own preferences for flexibility and spreading risk.

Our multi-channel distribution encompasses business partners, Independent Financial Advisers (IFAs) and direct sales. This reduces the risk of over-dependence on any single route to market, building flexibility and resilience into our business model. Many of our business partners are household names in UK financial services, and we are committed to the development of new distribution models and online solutions. We were delighted to be chosen as a strategic partner by the Nationwide Building Society in early 2007, and are looking forward to working closely with them, as with all of our other partners.

Excellent administration is strategically important to your Company. Many of our customers hold long term products and rely on our service as much as on our product and investment expertise. We continue to invest significantly in new technology and our Customer Experience Programme.

Financial Highlights

Worldwide new business grew by 42% to £1,842 million on an Annual Premium Equivalent (APE) basis, a new record for Legal & General. New business growth was accompanied by increases in profits. EEV Operating Profit, rose by 13% to £1,233m in 2006.

Legal & General’s strong balance sheet enables us to prosper, even in difficult trading conditions. Financial strength remains a key strategic differentiator for distribution partners and customers alike.

Dividend and Shareholder Return

In 2006, Legal & General delivered a Total Shareholder Return (TSR) of 34%.

The Board remains committed to a progressive dividend policy. In July 2006 we increased the interim dividend by 5.5%. We now recommend an increase of 5.0% to the final dividend, making a full year increase of 5.1%. Our recommendation is based on a thorough review of the Company’s financial strength and current investment market conditions, taking account of the capital required to support future investment and new business.

In November 2006, we announced the initial conclusions of our capital and cash flow review. These included a commitment to review our capital position on a regular basis, and have indicated that we will return excess capital to shareholders where appropriate.

Management Strength

This year was Tim Breedon’s first as Group Chief Executive. The performance of the business under his leadership has fully justified the Board’s confidence in appointing him. The transition has been seamless, and Tim has brought to the role his own qualities of intellectual rigour and commitment to continuous improvement.

During 2006, we implemented a realignment programme to improve focus on specific businesses and create end-to-end responsibility for product development, delivery and administration within business units. The with-profits business now has its own distinct management structure. I am proud of the way staff at all levels of the business responded to this challenge while continuing to win and execute record volumes of profitable new business. Our employees and our culture are two of our greatest assets. I would like to thank all our staff. Their commitment to teamwork and customer focus are core strengths that run through all our business.

Board Changes

Rudy Markham joined the Board as an independent non-executive director in October 2006. As Chief Financial Officer of Unilever PLC, he brings extensive business and financial experience. Barrie Morgans stepped down from the Board on 18 May 2006, having served with distinction for nine years. We thank him for his able Chairmanship of the Audit Committee and his contribution to the affairs of the Company. Beverley Hodson will stand down from the Board at the AGM, and we would also like to thank her for her contribution over the last seven years.

Shareholder Communications

Most shareholders would like a more focused, shorter, report from companies in which they invest. This year we are providing a Summary Financial Statement (SFS) as an alternative to our normal Annual Report and Accounts (ARA). Unless you have specifically requested the full ARA, you will be receiving the SFS. Both will be available on the Group’s website: www.legalandgeneralgroup.com. In future, we expect to make more use of e-commerce for reporting. We will inform you of our plans later this year.

In line with new Companies Act’s Narrative Reporting requirements, we now detail our financial ‘Key Performance Indicators’ (KPIs), and provide a description of the principal risks and uncertainties. These relate closely to the Company’s strategy and the objectives set for executive directors.

Outlook

Your Company is well positioned for the future. We envisage continuing economic growth in the UK for the coming year, which will in turn drive business growth across our core product lines. We see a continuing A-day effect, and increased customer awareness of the need to save and invest for longer retirements. This stands to benefit both our consumer and institutional businesses. Our ongoing commitment to strong and balanced distribution will enable us to access customers increasingly effectively, while also continuing to position ourselves for technological and market evolution.

In a competitive market environment, the strategic continuity of our business model and the strength and capability of management, staff and our established culture, enable us to focus on operational delivery. We are confident we will deliver further shareholder value in 2007.

Sir Rob Margetts
Chairman