Legal & General’s chief executive is eyeing up £42 billion worth of pension risk transfer deals and said he was “not concerned” by the threat posed by big new competitors to the sector, including Apollo Global Management and Brookfield.
António Simões said: “There’s been a lot of chatter about competition, but I am not concerned. It’s healthy. We are the market leader.” He added that L&G was continuing to be disciplined on pricing.
Simões was reporting consensus-beating core operating profits of £859 million for the six months to June, up 6 per cent, and expressed confidence in meeting targets for the full year.
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One of L&G’s most profitable specialisms has been the taking over of the assets and liabilities of legacy pension funds, deals known as pension risk transfer or PRT, and landed £3.4 billion worth of deals in the half, up from £1.5 billion last time.
António Simões
LEGAL & GENERAL
Simões said that in the UK alone, L&G was actively pricing on or could see £42 billion worth of potential deals being done in the next 12 months, including nine of more than £1 billion each.
He was unperturbed by the arrival of the private equity group Apollo Global Management, whose European insurance business Athora last month agreed a £5.7 billion deal to buy one of the UK’s most active PRT players, Pension Insurance Corp. Canada’s giant Brookfield has also entered the PRT market, last week making a £2.4 billion agreed cash offer for Just Group.
Employers are keen to offload legacy defined benefit pension schemes, which have long since been closed to their existing employees and are seen by most as a costly distraction. L&G this year struck PRT deals with Deutsche Bank, Inchcape Motors, Sanofi and Honda UK.
While Rachel Reeves is introducing measures to try to encourage employers to “run on” their DB schemes in the hope they will push into more productive assets, the insurance industry is confident of huge amounts of PRT business in the next five years.
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Phoenix Group’s Standard Life division today announced its biggest PRT deal to date, a £1.9 billion buy-in of the part of the DB scheme sponsored by the insurance broking giant Marsh McLennan, taking on pension promises to 6,500 people.
Simões, a former Santander banker who took the top job at L&G in January 2024, said momentum in the business was building after signing an alliance with the Japanese insurer Meiji Yasuda in February and a deal with Blackstone last month to push deeper into private assets.
L&G was on track to return £5 billion to shareholders over three years through buybacks and dividends, he said. The interim dividend was set at 6.12p, up 2 per cent, as expected. Many investors hold L&G as an income stock, attracted by the yield of around 8.4 per cent.
Shares in L&G were marked down as some analysts expressed disappointment about the solvency ratio, a key measure of capital strength, which dropped to 217 per cent from 223 per cent. Simões said he was very comfortable with the number. In afternoon trading the shares were down 6¼p, or 2.4 per cent, at 255¼p.
L&G is one of Britain’s biggest pensions and savings groups and includes an asset management arm responsible for £1.1 trillion of assets. Total assets under management dropped by 1 per cent in the period because of falling bond prices and a weaker dollar.