LONDON--(BUSINESS WIRE)--AM 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, AM Best has affirmed the Financial Strength Ratings of A+ (Superior) and the Long-Term ICRs of “aa-” of Legal and General Assurance Society Limited (LGAS) (United Kingdom), Banner Life Insurance Company (Banner Life) (Frederick, MD) and William Penn Life Insurance Company of New York (William Penn) (Valley Stream, NY). 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 (ERM). The ratings of LGAS, Banner Life and William Penn factor in their strategic importance to L&G, and their integration within the group.
L&G’s balance sheet strength assessment is underpinned by risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), at the strongest level. The assessment considers the group’s good organic capital generation and moderate financial leverage with good interest coverage. Offsetting factors include the increasing proportion of illiquid assets in L&G’s investment portfolio, which heightens the company’s exposure to valuation uncertainties and volatility, although AM Best notes that these assets are closely matched to the group’s liabilities.
L&G has a track record of strong operating earnings, as demonstrated by a five-year weighted average return on equity (ROE) of 19.9% (as per AM Best’s calculations) over the 2015-2019 period. Longevity releases added approximately 1-2 percentage points to the 2019 ROE of 20.0%. These releases were also a feature in 2017 and 2018, and are expected to continue in 2020. The group’s ROE also benefits from asset management earnings. In 2019, L&G’s profit before tax amounted to GBP 2.18 billion, in line with what the group reported in 2018. AM Best expects performance to remain strong, supported by L&G’s excellent market positions in its core products in the United Kingdom, growth in the pension risk transfer market in the United States and Canada and careful management of its investment portfolio, with close matching of liabilities.
L&G is one of the largest providers of individual life insurance products in the United Kingdom, with a well-established business model focused on activities with good medium-term sales prospects in which it holds leading positions. The group offers protection, retirement and investment products. However, a narrow active product range and a concentrated geographic footprint mean that the company is sensitive to regulatory changes in the United Kingdom. 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 (Holdings) Limited, L&G’s asset management business, has continued its international expansion successfully in the United States and Asia, thus providing an increasing degree of geographical diversification to the group’s activities whilst extending an impressive record of growth in assets under management.
L&G’s well-developed and sophisticated ERM is considered sufficient to meet the challenge of the credit and longevity risks inherent to the group’s annuity business.
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