Legal & General has announced the sale of its US insurance entity to longstanding partner Meiji Yasuda for a total value of £1.8bn.
Meiji Yasuda will take full ownership of the US protection business and have a 20% interest in the US pension risk transfer (PRT) business. L&G will keep 80% of existing and new PRT through reinsurance arrangements.
Following completion, which is expected toward the end of 2025, L&G expects to return an additional £1.0bn through share buybacks.
The shares rose 6.4% in early trading.
Our view
With full-year results around the corner, the announced shake-up of the US business and evolving partnership in the region marks the latest strategy shift from CEO, António Simões. News of a big new buyback (never guaranteed) and plans for its US partner, Meiji Yasuda, to build a 5% stake in the business were both well received on the day.
L&G’s operations span across retirement, retail and asset management - with pretty much every service you can think of in each of those buckets.
Last year we had more meaty changes, and the combined Asset Management division looks more streamlined. It aims to grow private market assets and deliver improved profits by 2028. It’s rightly an area of focus given recent performance from the investment management arm has disappointed. Returning to, and then exceeding, historical profit levels here is key.
Higher interest rates have been causing some trouble for assets under management in the investment management division, though things are starting to stabilise. At the same time, higher rates are benefiting the larger retirement businesses.
Pension risk transfers (PRTs) are core to operations. These see L&G take on responsibility for paying some or all of the pensions from a company's final salary pension scheme (often called bulk annuities). In return, the group receives a lump sum managed by the new Asset Management division. This circular flow within the business means L&G can deliver strong margins on its bulk annuity business, which is a core benefit of the model.
The UK is the most mature global market, but L&G has its eyes set further afield. The new partnership in the US means L&G can ditch its US protection business, which doesn’t quite align with the broader strategy, while retaining a strong foothold in the US PRT market – we think it makes a lot of sense.
We'd be remiss not to mention the group's formidable solvency II ratio, a core measure of capitalisation. At well north of 200%, this offers the group some resilience. Plus, with capital generation exceeding dividend payouts, the prospective yield of 9% looks well supported. Of course, there are no guarantees.
There are many strings to L&G's bow, with bulk annuities at its core. We see the market staying healthy over the medium term. Overall, the valuation doesn't look too demanding to us but reflects some key challenges. The first is to deliver improved performance from the refreshed Asset Management division, which will carry some execution risk.
Environmental, social and governance (ESG) risk
The financials sector is medium-risk in terms of ESG. Product governance is the largest risk for most companies, especially those in the US and Europe with enhanced regulatory scrutiny. Data privacy and security are also increasingly important risks for banks and diversified financial firms. Business ethics, ESG integration and labour relations also contribute to the industry’s ESG risk profile.
According to Sustainalytics, Legal & General’s overall management of material ESG issues is strong.
L&G's board of directors oversees sustainability, with 30% of executive bonuses linked to ESG factors, and the company ensures cybersecurity through certification. Despite promoting business ethics and having an anonymous whistleblower channel, it could improve transparency in customer due diligence and employee training on responsible marketing.
Legal & General key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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