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Best’s News & Research Service - November 16, 2018 09:12 AM (EST)

A.M. Best Affirms Credit Ratings of Legal & General Group Plc and Legal and General Assurance Society Limited

  • November 16, 2018 09:12 AM (EST)

London //BestWire// - A.M. Best has affirmed the Long-Term Issuer Credit Rating (Long-Term ICR) of “a” of the non-operating holding company, Legal & General Group Plc (L&G) (United Kingdom). Concurrently, A.M. Best has affirmed the Financial Strength Rating of A+ (Superior) and the Long-Term ICR of “aa-” of Legal and General Assurance Society Limited (United Kingdom), the largest operating insurance company in the L&G group. The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect L&G’s very strong balance sheet strength, strong operating performance, favourable business profile and appropriate enterprise risk management.

L&G has maintained risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), at the strongest level in recent years, underpinned by robust retained earnings. Financial leverage is conservative and there is good interest coverage. The increasing proportion of illiquid assets in L&G’s investment portfolio, which increases the company’s exposure to valuation uncertainties and volatility, is an offsetting factor. A.M. Best has investigated the effect of investment stress scenarios on the group’s risk-adjusted capitalisation, with a focus on elevated levels of realised defaults and permanent reductions in value, in addition to spread widening. A.M. Best considers the group’s balance sheet strength to be robust in these scenarios, significantly assisted by the issue of subordinated debt in 2017 and the sale of the mature savings business announced in December 2017.

L&G has a strong earnings record, as demonstrated by a five-year average return on equity of 18.1% (as per A.M. Best’s calculations). In 2017, L&G’s profit before tax increased by 32% to GBP 2.1 billion, driven by higher margins on new annuity business, the growing scale of the annuity fund, a conservative release of longevity reserves and solid performances across the group’s other divisions. Return on equity was attractive at 25%, reflecting the good results. A.M. Best expects performance to remain strong, supported by the group’s excellent market positions in its chosen products in the U.K., growth outside the U.K. and careful management of its investment portfolio, including the close matching of liabilities.

L&G is one of the U.K.’s largest providers of individual life insurance products, with a well-established business model focused on activities with good medium term sales prospects in which it holds leading positions. The L&G group offers protection, retirement and investment products. However, a narrow active product range and a concentrated geographic footprint increase the company’s sensitivity to U.K. regulatory changes, although non-U.K. sales are growing. L&G has defended its leading position in the pension risk transfer market successfully in recent years through some of the largest transactions completed in the segment to date. In addition, Legal & General Investment Management Limited, L&G’s asset management business, has successfully continued its international expansion in Asia and the United States, to some extent counterbalancing its concentration in the U.K. market.

This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.

A.M. Best is a global rating agency and information provider with a unique focus on the insurance industry.

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