REG - Legal & General Grp - Trading Statement

Legal & GeneralAnnouncement

04/10/2022 07:00

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RNS Number : 6385B  Legal & General Group Plc  04 October 2022

Legal & General: Continued positive momentum and a robust balance sheet despite market volatility

Legal & General Group Plc ("Legal & General" or the "Group") has
maintained the positive momentum seen over the first half of the year and is
continuing to deliver into H2, despite the prevailing macro conditions.
Volatility has increased significantly in H2, but this has limited economic
impact on our businesses.

Update on LGIM's UK LDI business

Recent extraordinary increases in interest rates, and the unprecedented speed
of those increases, have caused challenges for the pension fund clients and
counterparties of LGIM's UK LDI (Liability Driven Investment) business.

The Bank of England announced last Wednesday its intention, in line with its
financial stability objectives, to carry out purchases of long dated gilts in
a temporary and targeted way to restore orderly market conditions. Interest
rates have reduced as a result.

These steps have helped to alleviate the pressure on our clients. We are
continuing to work closely with them to achieve appropriate hedging levels in
their portfolios. LGIM acts as an agent between our LDI clients and market
counterparties and therefore has no balance sheet exposure.

Legal & General's Annuity Portfolio

The Group's annuity portfolio continues to perform well and demand for global
PRT is accelerating.

Despite volatile markets, the Group's annuity portfolio has not experienced
any difficulty in meeting collateral calls and we have not been forced sellers
of gilts or bonds. One of the strengths of the UK insurance regime is that we
regularly monitor and stress our capital and liquidity requirements to a 1 in
200 stress level so that we can withstand shocks like we have seen in the past
few days. We hold considerable buffers over these prudent requirements and
have a wide array of tools available to manage collateral calls - for example,
being able to post a variety of different types of assets, or assets in
different currencies, as collateral.

Demand for global PRT continues to increase, with funding deficits reducing
because of rising interest rates and widening credit spreads. LGRI (Legal
& General Retirement Institutional) has transacted or is in exclusive
negotiations with a further £1.3bn of PRT since H1, including two
transactions signed last week, taking the total written year to date to
£5.8bn. The global pipeline for the remainder of 2022 and into 2023 is the
busiest we have ever seen, and we are on track to deliver another strong
result this year.

Volumes continue to be written at margins and capital strain in line with our
long-term average, and we expect the UK annuity portfolio to be
self-sustaining again in 2022.

International growth

We have a strong PRT pipeline in the US and Canada. We have started to source
two new areas of Direct Investment in the US to support that pipeline, and we
are further building out our US Alternative asset origination capabilities via
Ancora L&G, LGC's first US investment, which is focused on developing life
science and technology assets alongside anchor institutions. The partnership
with Ancora is progressing well and we expect to announce details of our first
two schemes shortly.

Solvency, Leverage and Liquidity

The Group estimates its Solvency coverage ratio as at 30 September 2022 to be
between 235-240%, up at least 23 percentage points from HY 2022 (212%),
principally reflecting the contribution from higher interest rates and strong
ongoing operational surplus generation, and after paying the 2022 interim
dividend.

Group liquidity remains strong with c£2.3bn of available cash across the
Treasury and the LGC Traded portfolio and is in addition to the large amount
of cash and gilts held by the annuity portfolio. All our businesses continue
to generate high levels of cash. IFRS and Solvency II leverage ratios continue
to reduce as the balance sheet grows. Ratings from Fitch (AA-), Moody's (Aa3)
and S&P (AA-) remain strong and unchanged 1  (#_ftn1) .

Expectations for FY22 operating profit and capital generation unchanged

In line with the guidance provided at HY, we expect to deliver FY operating
profit growth in line with the growth delivered in H1 (8%) and FY capital
generation of £1.8bn. We expect interest rate increases to continue to have a
positive impact on our earnings per share and on our solvency coverage ratio.

 

Sir Nigel Wilson, Group Chief Executive, Legal & General said:

"Our businesses are resilient, and we are on track to deliver good growth in
key financial metrics for FY 2022. Rising interest rates are having a positive
impact on demand for PRT, and on our EPS and solvency coverage ratio. Our
balance sheet and liquidity position remain strong, and our businesses are
highly cash generative. We continue to work closely with our customers to
support them through this period of increased market volatility."

 

 

Notes to editors

About Legal & General

Established in 1836, Legal & General is one of the UK's leading financial
services groups and a major global investor, with around £1.3 trillion in
total assets under management (as at H1 2022) of which a third is
international. We also provide powerful asset origination capabilities.
Together, these underpin our leading retirement and protection solutions: we
are a leading international player in pension risk transfer, in UK and US life
insurance, and in UK workplace pensions and retirement income. Through
inclusive capitalism, we aim to build a better society by investing in
long-term assets that benefit everyone. As at 3 October 2022, Legal &
General has a market capitalisation of £13.3 billion.

Forward looking statements

This announcement may contain certain forward-looking statements relating to
Legal & General, its plans and its current goals and expectations relating
to future financial condition, performance and results. By their nature,
forward-looking statements involve uncertainty because they relate to future
events and circumstances which are beyond Legal & General's control,
including, among others, UK domestic and global economic and business
conditions, market-related risks such as fluctuations in interest rates and
exchange rates, the policies and actions of regulatory and Governmental
authorities, the impact of competition, the timing impact of these events and
other uncertainties of future acquisitions or combinations within relevant
industries. As a result, Legal & General's actual future condition,
performance and results may differ materially from the plans, goals and
expectations set out in these forward-looking statements and persons reading
this announcement should not place reliance on forward-looking statements.
These forward-looking statements are made only as at the date on which such
statements are made and Legal & General does not undertake to update
forward-looking statements contained in this announcement or any other
forward-looking statement it may make.

 

 

Further information

Investors:

Edward Houghton         Group Strategy and Investor Relations Director
            +44 (0)203 124 2091

Nim Ilankovan               Investor Relations Director
                                  +44 (0)203 124 2054

Blake Carr                     Investor Relations Director
                                      +1 240 397 0053

Media:

Graeme Wilson              Tulchan Communications
                                +44 (0)207 353 4200

 

 1  (#_ftnref1) Ratings shown are Legal and General Assurance Society (LGAS)
Limited financial strength rating

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