In its latest market update, Legal & General Group (L&G) has reported that its global Pension Risk Transfer (PRT) business continues to perform strongly, as the firm secured new business wins in each the UK, US and Canada in the last few weeks.
Year-to-date, Legal & General Retirement Institutional (LGRI) states it has transacted or is in exclusive negotiations on £9.3bn of global PRT business (UK, £7.1bn and International, $2.6bn), which already exceeds the £7.2bn of global PRT secured in 2021.
L&G notes that there has been a step-up in the number of pension schemes approaching the insurance market and the global pipeline into 2023 is the busiest it has seen. It adds that LCP anticipates £100-200bn of UK PRT demand over the next three years.
L&G writes, “We are on track to deliver another strong PRT result this year and a record year for our international PRT business.
“We have continued to source high-quality assets at attractive yields throughout the second half of the year. These assets have been used both to increase the overall yield on our backbook as well as to secure the recent new business. PRT volumes have been secured at margins and capital strain that are in line with our long-term average.”
The group also notes that its UK annuity portfolio has continued to be highly resilient to market moves and has not experienced any difficulty in meeting collateral calls.
It adds that positioning remains defensive with approximately 10% of the portfolio held in cash and high-quality government bonds, with no material changes to the investment or liquidity management strategy anticipated in the near future. L&G expect the portfolio to be self-sustaining again in 2022.
Also within the market report, the group announced that it welcomes the references in the Autumn Statement to Solvency II reform.
L&G writes, “We believe the proposals represent positive progress and will allow us greater flexibility to make appropriate investments, including ones which: develop new infrastructure, contribute to the UK Government’s levelling-up agenda, and support positive climate outcomes.”
The Group estimates its Solvency coverage ratio as at 11th November 2022 to be between 225-230%, reflecting the contribution from higher interest rates and strong ongoing operational surplus generation (FY21: 187%).
L&G expects the reform to the risk margin to increase its solvency ratio by 3-4 percentage points. It also notes that currently, approximately half of the assets backing its annuity portfolio are bonds issued by companies that are not based in the UK. L&G expect the percentage of UK-based assets backing its UK annuity portfolio to increase following the implementation of these reforms.
As for full year results, consistent with the guidance provided at HY22, L&G expect to deliver resilient FY22 operating profit growth in line with the 8% delivered in H1 (£1.16bn vs £1.08bn) and FY22 capital generation of £1.8bn.