L&G: Post EU Referendum Update
In light of the significant market volatility following the outcome of the EU Referendum, Legal & General Group plc (“Legal & General” or “the Company”) is updating the market on its balance sheet strength: specifically its Solvency II ratio, credit portfolio, derisking actions and providing cash generation guidance for the half year.
Our Solvency II surplus is c.£4.9bn1, we expect our net cash for half year 2016 to be up 15% and we run an ‘A minus’ rated credit portfolio of £44.8bn2.
Legal & General’s central planning scenario, ahead of the Referendum, was for a 50-50 probability of a vote for the UK to leave. We positioned our balance sheet accordingly to reduce risk for our customers and shareholders. We undertook a number of derisking actions in respect of our asset portfolios, including the traded equities held within our shareholder funds, before the Referendum to mitigate our balance sheet against the downside risk of a “leave” vote.
Surplus Solvency II capital of around £5bn:
We have a strong regulatory capital balance sheet.
We estimate, based on market conditions at 4:30pm on 27 June 2016, the Group’s Solvency II coverage ratio (PRA basis) was c.156%1 with Eligible Own Funds of c.£13.7bn, SCR of c.£8.8bn and hence a surplus of c.£4.9bn.
The year-end 2015 Solvency II balance sheet (PRA basis) had a coverage ratio of 169%3 with Eligible Own Funds of £13.5bn and a Solvency Capital Requirement (“SCR”) of £8.0bn resulting in a surplus of £5.5bn.
Changes in the first half of 2016 include the payment of the 2015 final dividend of £592m reduced the coverage ratio by c.7% points and the acquisition of the £2.9bn UK annuity portfolio from Aegon reduced surplus by c.£50m and the coverage ratio by c.3% points. The increase in the SCR from year-end 2015 has largely been driven by the fall in risk free rates.
Overall, our Solvency II balance sheet has demonstrated its resilience to market volatility, including that caused to date by the EU Referendum outcome.
well-diversified ASSET PORTFOLIO:
Our global credit team keeps our portfolios under continuous review and in recent months has actively de-risked the credit component of Eligible Own Funds as well as Legal & General Retirement’s (“LGR’s”) £44.8bn2 ‘A minus’ rated bond portfolio. This has included selling sub-investment grade credit and reducing our exposure to European banks’ subordinated debt. The portfolio is well diversified by sector and by geography.
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