Legal & General Group (LON:LGEN) reported higher first-half earnings, increased its interim dividend and said it expects full-year core operating earnings-per-share growth to exceed the top end of its prior 6% to 9% target range.
Chief Executive Officer António said the insurer, pension provider and asset manager delivered “clean and predictable” results after addressing legacy issues at its full-year update in March. Core operating profit increased 7% year over year, while core operating EPS rose 11%. Operating surplus generation per share increased 7%.
Institutional retirement growth supported by asset optimization
Institutional retirement, the group’s largest business, generated £646 million of core operating profit in the first half. The division wrote or held exclusivity on £5.7 billion of pension risk transfer, or PRT, business, compared with £5.2 billion at the same point a year earlier. The total included £2.1 billion of written business and £3.6 billion in exclusive transactions.
Legal & General said it remained selective in a competitive market characterized by tight credit spreads. The new-business margin on the £2.1 billion written during the first half declined to 4.2%, while new-business strain increased to 3.4%. However, management said each transaction continued to meet the company’s minimum 14% internal-rate-of-return threshold.
A key contributor to earnings was asset optimization, which generated £288 million across the institutional retirement and retail annuity portfolios, up from £212 million in the first half of the prior year. Institutional retirement accounted for £227 million of the total.
Management raised its expectation for annual asset optimization to more than £400 million, compared with prior guidance of more than £300 million. CFO Andrew Kail said the increase reflects more industrialized processes and opportunities to rotate assets across ratings, currencies and sectors without increasing capital requirements.
Institutional Retirement CEO Gareth Mee said examples included reallocating between U.K. and U.S. sovereign debt and selling triple-B-rated credit to purchase single-A-rated credit. He said the company seeks transactions that add little or no risk while producing an uplift that can exceed 10 basis points.
The group said it has increased sovereign exposure in its annuity portfolio, with sovereigns accounting for 29% of assets compared with 10% in 2022. Management said sovereign-based strategies can produce lower upfront IFRS 17 margins but create future asset-optimization opportunities. Legal & General said wider credit spreads could provide further upside, though it would not pursue yield when spreads are tight.
Asset management earnings rise as margins improve
Asset management was the strongest-performing division in the period, according to management. Fee-related earnings increased 37% year over year, while operating profit rose 10%. Revenue increased 13%, helped by net new revenue generated over the previous 18 months, while costs increased 5%.
The business generated £23 million in annualized net new revenue during the first half, which Kail said exceeded the cumulative amount generated from 2020 through 2024. Assets under management totaled £1.2 trillion.
Revenue margins improved to 9.6 basis points from 7 basis points in 2023, as higher-margin inflows offset outflows from lower-margin mandates. Private-markets assets under management rose by £4 billion in the half to £79 billion, putting the business on track to exceed its £85 billion target.
The cost-to-income ratio fell to 71% from 75%, the first decline in a decade. Asset Management CEO Eric Adler said the company was improving efficiency while building the capability to deliver more sophisticated mandates and partnership-style client solutions. Legal & General remains on track to reduce the ratio below 70% and to reach £500 million to £600 million of operating profit in 2028, with more than 80% expected to come from fee-related earnings.
Retail businesses gain momentum
Retail operating profit increased 5% in the first half. Workplace pension net flows rose 35% year over year to £6.2 billion, aided by onboarding schemes won last year. The company said it now receives almost £1 billion per month in recurring workplace flows.
End-to-end workplace pension profit, including administration and asset-management contributions, more than doubled to £48 million. Retail CEO Laura Mason said the figure excludes £25 million of investment in the administration proposition during the period. Legal & General is targeting £180 million of end-to-end workplace profit by 2028.
Individual annuity premiums increased 36%, while protection sales increased 22% and margins improved. The company also signed new distribution agreements with two large banks for protection products.
Management highlighted the connection among its businesses. It said 98% of first-half PRT transactions originated from longstanding asset-management relationships, while 90% of annuity assets are managed internally. In addition, 95% of workplace pension flows are managed by the group’s asset manager.
Outlook and capital priorities
Legal & General said it sees structural growth in pension risk transfer, defined-contribution workplace pensions and individual annuities. Management estimates global PRT flows could exceed £1 trillion over the next decade, including £500 billion in the U.K. It also said U.K. defined-contribution pension assets could double to £1.5 trillion by 2034.
In the U.S., the group has begun quoting on jumbo PRT transactions above $1 billion through its partnership with Meiji Yasuda. Management said it will remain disciplined on pricing and may write less PRT business if market conditions do not meet its return requirements.
The company expects its dividend to be covered by core operating EPS this year, with coverage improving in 2027. It also reiterated that net surplus generation is expected to cover the dividend by 2027. Management said it intends for its solvency ratio to trend into the 160% to 190% operating range over the coming years as it invests capital for growth.
Legal & General also said it will begin providing quarterly trading updates, with its first third-quarter update scheduled for Nov. 16.
About Legal & General Group (LON:LGEN)
Legal & General Group Plc provides various insurance products and services in the United Kingdom, the United States, and internationally. It operates in Legal & General Retirement Institutional (LGRI), Legal & General Investment Management (LGIM), Legal & General Capital (LGC), and Retail segments. The LGRI segment offers annuity contracts with guaranteed income for a specified time; and longevity insurance products. The LGIM segment offers index fund management; active fixed income funds and liquidity funds; active equity management; solution and liability driven investment; multi-asset funds; corporate pension scheme solutions; and real assets.
