# Legal & General on track to deliver good growth in FY22

- Link: https://www.directorstalkinterviews.com/legal-general-on-track-to-deliver-good-growth-in-fy22/4121084909
- Published: 2022-10-04T07:50:16+01:00
- Author: Amilia Stone

**Legal & General Group Plc** (LON:LGEN) has maintained the positive momentum seen
over the first half of the year and is continuing to deliver into H2, despite the
prevailing macro conditions. Volatility has increased significantly in H2, but this
has limited economic impact on our businesses.

**Update on LGIM’s UK LDI business**

Recent extraordinary increases in interest rates, and the unprecedented speed of
those increases, have caused challenges for the pension fund clients and counterparties
of LGIM’s UK LDI (Liability Driven Investment) business.

The Bank of England announced last Wednesday its intention, in line with its financial
stability objectives, to carry out purchases of long dated gilts in a temporary 
and targeted way to restore orderly market conditions. Interest rates have reduced
as a result.

These steps have helped to alleviate the pressure on our clients. We are continuing
to work closely with them to achieve appropriate hedging levels in their portfolios.
LGIM acts as an agent between our LDI clients and market counterparties and therefore
has no balance sheet exposure. 

**Legal & General’s Annuity Portfolio**

The Group’s annuity portfolio continues to perform well and demand for global PRT
is accelerating.

Despite volatile markets, the Group’s annuity portfolio has not experienced any 
difficulty in meeting collateral calls and we have not been forced sellers of gilts
or bonds. One of the strengths of the UK insurance regime is that we regularly monitor
and stress our capital and liquidity requirements to a 1 in 200 stress level so 
that we can withstand shocks like we have seen in the past few days. We hold considerable
buffers over these prudent requirements and have a wide array of tools available
to manage collateral calls – for example, being able to post a variety of different
types of assets, or assets in different currencies, as collateral.

Demand for global PRT continues to increase, with funding deficits reducing because
of rising interest rates and widening credit spreads. LGRI (Legal & General Retirement
Institutional) has transacted or is in exclusive negotiations with a further £1.3bn
of PRT since H1, including two transactions signed last week, taking the total written
year to date to £5.8bn. The global pipeline for the remainder of 2022 and into 2023
is the busiest we have ever seen, and we are on track to deliver another strong 
result this year.

Volumes continue to be written at margins and capital strain in line with our long-
term average, and we expect the UK annuity portfolio to be self-sustaining again
in 2022.

**International growth**

We have a strong PRT pipeline in the US and Canada. We have started to source two
new areas of Direct Investment in the US to support that pipeline, and we are further
building out our US Alternative asset origination capabilities via Ancora L&G, LGC’s
first US investment, which is focused on developing life science and technology 
assets alongside anchor institutions. The partnership with Ancora is progressing
well and we expect to announce details of our first two schemes shortly.** **

**Solvency, Leverage and Liquidity**

The Group estimates its Solvency coverage ratio as at 30 September 2022 to be between
235-240%, up at least 23 percentage points from HY 2022 (212%), principally reflecting
the contribution from higher interest rates and strong ongoing operational surplus
generation, and after paying the 2022 interim dividend.

Group liquidity remains strong with c£2.3bn of available cash across the Treasury
and the LGC Traded portfolio and is in addition to the large amount of cash and 
gilts held by the annuity portfolio. All our businesses continue to generate high
levels of cash. IFRS and Solvency II leverage ratios continue to reduce as the balance
sheet grows. Ratings from Fitch (AA-), Moody’s (Aa3) and S&P (AA-) remain strong
and unchanged^([[1]](https://www.londonstockexchange.com/#_ftn1)).

**Expectations for FY22 operating profit and capital generation unchanged**

In line with the guidance provided at HY, we expect to deliver FY operating profit
growth in line with the growth delivered in H1 (8%) and FY capital generation of
£1.8bn. We expect interest rate increases to continue to have a positive impact 
on our earnings per share and on our solvency coverage ratio.

> **Sir Nigel Wilson, Group Chief Executive, Legal & General said:**
> “Our businesses are resilient, and we are on track to deliver good growth in key
> financial metrics for FY 2022. Rising interest rates are having a positive impact
> on demand for PRT, and on our EPS and solvency coverage ratio. Our balance sheet
> and liquidity position remain strong, and our businesses are highly cash generative.
> We continue to work closely with our customers to support them through this period
> of increased market volatility.”

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