Legal & General Retirement Institutional (LGRI), the UK bulk annuity division of Legal & General, has made strong progress in multiple sectors, including Pension Risk Transfer (PRT), individual annuities, and US protection, transacting £6.8 billion of PRT year-to-date and experiencing a notable rise in pension schemes approaching the insurance market.
Alongside heightened interest, the firm has seen a rise in £1 billion+ transactions, noting that more such pension schemes have plans to complete deals in the months ahead.
“The pipeline for 2023 is the largest we have seen and we are on track for one of our busiest years ever,” says the company.
It has also secured new business premiums in PRT that align with its long-term average margins and capital strain.
Under the accounting standard IFRS 17, Legal & General recognises a substantial store of future value for shareholders, amounting to £14 billion.
This value is represented by the Contractual Service Margin (CSM) and Risk Adjustment (RA), which will unwind into profits over time.
The CSM has increased from £11.2 billion to £12.1 billion due to contributions from new business and assumption changes.
LGRI and Retail, account for approximately 60% and 40% of the stock of value, respectively. The company has provided guidance to assist analysts and investors in modeling IFRS 17 profits for these divisions.
The estimated IFRS 17 operating profit for FY22 is £2.1 billion, with the main drivers of change being the inclusion of new business profits and assumption changes in the CSM.
The adoption of IFRS 17 is expected to result in a more stable and predictable operating profit profile for Legal & General, driven by steady CSM and RA releases.
The company anticipates that the contribution from new insurance business and assumption changes will continue to exceed the run-off from its existing insurance book, leading to earnings growth over time.
Writing £10 billion of UK PRT per annum could result in a compound annual growth rate (CAGR) of 6-7% in related operating profit over five years.
In the Retail sector, Legal & General has experienced ongoing higher demand for individual lifetime and fixed-term annuities, driven by improved rates due to higher interest rates.
Total annuity new business premiums at the end of June were approximately £575 million, a 27% increase compared to the previous year. In the US protection segment, new business is up 39% year-on-year, with an Annual Premium Equivalent (APE) of approximately $86 million.
However, UK protection new business is down 13% year-on-year, primarily due to fewer large Group Protection schemes entering the market.
Legal & General’s solvency coverage ratio as of June 30, 2023, is estimated to be approximately 225%, indicating strong capital generation.
This ratio reflects ongoing operational surplus generation and accounts for the payment of the 2022 final dividend, with a slight decrease from the previous year’s ratio of 236%.
