Ratings agency AM Best has upgraded Legal & General Reinsurance Company No. 2 Limited’s (Bermuda) Financial Strength Rating (FSR) to A+ (Superior) from A (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “aa-” (Superior) from “a” (Excellent).
Concurrently, the firm has also affirmed the Long-Term ICR of “a” (Excellent) of the non-operating holding company, Legal & General Group Plc (L&G) (United Kingdom). The outlook of all the ratings is stable.
The ratings reflect L&G’s “very strong” consolidated balance sheet strength, as measured by Best’s Capital Adequacy Ratio (BCAR). AM Best explains, “The group’s risk-adjusted capitalisation includes meaningful contributions from economic capital embedded in long-term business and equity credit for hybrid debt, which are considered weaker quality in the capital structure. The assessment also factors in the group’s excellent financial flexibility, through its access to capital markets, coupled with good fungibility of capital.”
L&G is supported by its strong operating performance, as demonstrated by a five-year (2018-2022, under IFRS 4) weighted average return-on-equity (ROE) ratio of 19.6% (as calculated by AM Best). The profitability of the pension risk transfer (PRT) business and retail division have been key factors for returns over the period.
However, it should be noted that overall performance in 2023 was adversely impacted by material unrealised mark-to-market losses due to higher rates on asset valuations and translated into an ROE of 9.7% (under IFRS 17).
AM Best expects, based on the group’s published half-year 2024 results, that L&G’s performance this year will be in line with its historical average, benefitting from higher reinvestment yields, and the unwind of unrealised losses.
The group is a key player in the United Kingdom market across bulk annuities, protection products, and asset management services. The ratings also reflect the benefits of a good diversification of earnings with a comprehensive offering of end-to-end pension de-risking and retirement solutions.
L&G is continuing its expansion into the North American PRT market by leveraging its expertise as a leader in the United Kingdom. Moreover, the group’s asset management division provides further diversification to its business profile as one of the largest asset managers worldwide.
Concurrently, AM Best has affirmed the FSR of A+ (Superior) and the Long-Term ICRs of “aa-” (Superior) of L&G’s rated subsidiaries: Legal and General Assurance Society Limited, Banner Life Insurance Company, and William Penn Life Insurance Company of New York.
