Legal & General Finance PLC — Moody’s affirms Legal & General’s A2 senior unsecured ratings with stable outlook
Rating Action:
Moody’s affirms Legal & General’s A2 senior unsecured
ratings with stable outlook
31 March 2021
London, March 31, 2021 – Moody’s Investors Service (“Moody’s”) has affirmed the long-term issuer
and debt ratings of Legal & General Group Plc (L&G or Group; A2 issuer, A3(hyb) subordinate).
In the same action, Moody’s has affirmed the Aa3 Insurance Financial Strength Rating (IFSR) of
Legal and General Assurance Society Limited (LGAS), and affirmed the Prime-1 short term rating for
guaranteed commercial paper of Legal & General Finance PLC. The outlook is stable.
A list of affected ratings can be found at the end of this press release.
RATINGS RATIONALE
The affirmation of L&G’s ratings reflects the Group’s strong competitive position and excellent brand
in the UK life and savings market, a track record of reporting consistently strong return on capital
(ROC), which Moody’s believe will be sustained, and strong financial flexibility. These strengths
are somewhat tempered by the Group’s significant exposure to longevity risk, and relatively limited
geographic and business line diversification due to its primary focus on the UK life and savings
market. Furthermore, the Group’s Solvency II ratio, although at a good level, is lower than similarly
rated peers.
Moody’s expects L&G to maintain a strong competitive position and one of the strongest brands in
the UK life insurance and savings market. The Group is very well-placed within the UK bulk annuity
market which saw a high new business volume in 2020 despite the economic uncertainties induced
by the coronavirus, and which Moody’s expects to remain one of the best long-term structural growth
opportunities across the entire European insurance sector. The franchise also benefits from L&G’s
strong market position in the UK protection market, and asset management where it owns one of
Europe’s largest asset managers with assets under management of around £1.3 trillion.
L&G has very good business diversification although its business profile is somewhat constrained
by the UK life and savings orientation and significant exposure to longevity risk (although much of
this risk on new bulk annuity deals is reinsured) from its overall annuity book which contributes to
more than half of the Group’s operating profit. This is notwithstanding L&G’s intention to improve its
geographic diversification via growth in asset management, US protection and US bulk annuities.
L&G’s financial profile is also strong, and Moody’s expects profitability to remain a key strength.
During 2020, L&G reported a resilient and stable level of operating profit at £2.2 billion
notwithstanding an estimated £228 million coronavirus-related impact and, although net income fell,
ROC was strong at around 11%. The Group’s 5 year average ROC of around 13% compares very
favourably with peers and despite a still uncertain macroeconomic environment, Moody’s expects
the strength of the business franchise to continue to materialise into above average profitability.
L&G’s financial flexibility is strong including a consistent track record of accessing debt markets.
At YE20, adjusted financial leverage was stable at around 28% and Moody’s expects this metric
to remain below 30% longer-term. The Group’s earnings coverage on a 5 year average basis
remains very healthy at around 10x, although coverage in 2020 reduced to around 8x as a result of
the reduced net income. This reduction was largely driven by a reduced discount rate to calculate
protection reserves which has largely reversed with the recent rise in interest rates.
As concerns capitalisation, the Group’s Solvency II ratio (on a “Shareholders’ view”) reduced at
YE20 to 177% (YE19: 184%), or around 169% if adjusted for the final dividend payment. Whilst at a
good level, this ratio is lower than some peers and remains very sensitive to interest rate movements
although the recent increase in rates drove the ratio up to 192% as of 5 March.
Like other UK life insurers, L&G’s solvency ratio benefits significantly from the “Matching Adjustment”
which is sensitive to the credit quality of debt securities including those internally rated which
represented around 25% of the Group’s debt securities as at YE20. Moody’s expects the Group’s
shareholder asset risk to continue to increase gradually, as it continues to broaden its asset base
in order to achieve more attractive returns. L&G is especially focused on increasing its exposure
to relatively illiquid, long-duration direct investments which act as a match for its illiquid annuity
liabilities. This in turn will increase the amount of internally rated assets which puts an added
emphasis on the Group maintaining an independent and robust credit assessment capability.
STABLE OUTLOOK
The stable outlook for the Group’s rated entities reflects Moody’s expectation that L&G will maintain
strong profitability and financial flexibility as well as its strong competitive position and excellent
brand in the UK life and savings market.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
L&G GROUP
Moody’s said that the following factors could place upward pressure on the Group’s ratings: (i)
a substantial improvement in the geographic diversification of revenues and profit; (ii) adjusted
financial leverage and total leverage consistently below 25% and 30% respectively and earnings
coverage consistently above 10x; (iii) material improvement in solvency such that the Group’s
regulatory solvency coverage is consistently above 200%.
Conversely, Moody’s said that the following factors could place downward pressure on the Group’s
ratings: (i) material deterioration in solvency such that the Group’s Solvency II ratio is consistently
below 160%; (ii) a material deterioration of bottom line earnings and underlying profits; (iii) adjusted
financial leverage consistently above 30% and earnings coverage below 6x.
L&G’s PERPETUAL RESTRICTED TIER 1 CONTINGENT CONVERTIBLE NOTES
The key drivers of the notes’ Baa3(hyb) rating are the level of the Group’s Solvency II ratio and the
Aa3 IFSR of LGAS. The notes could be upgraded if the Group would target and consistently report a
Solvency II ratio above 190% and/or if the Aa3 IFSR of LGAS is upgraded.
Conversely, the notes could be downgraded if the Group’s Solvency II ratio is consistently below
160% and/or if the Aa3 IFSR of LGAS is downgraded.
LIST OF AFFECTED RATINGS
Issuer: Legal & General Group Plc
..Affirmations:
….Long-term Issuer Rating, affirmed A2
….Senior Unsecured Medium-Term Note Program, affirmed (P)A2
….Subordinate Regular Bond/Debenture, affirmed A3(hyb)
….Subordinate Medium-Term Note Program, affirmed (P)A3
….Preferred Stock non-cumulative, affirmed Baa3(hyb)
..Outlook Action:
….Outlook remains Stable
Issuer: Legal & General Finance PLC
..Affirmations:
….Long-term Issuer Rating, affirmed A2
….Backed Senior Unsecured Regular Bond/Debenture, affirmed A2
….Backed Senior Unsecured Medium-Term Note Program, affirmed (P)A2
….Backed Commercial Paper, affirmed P-1
..Outlook Action:
….Outlook remains Stable
Issuer: Legal and General Assurance Society Limited
..Affirmation:
….Insurance Financial Strength Rating, affirmed Aa3
..Outlook Action:
….Outlook remains Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Life Insurers Methodology published in
November 2019 and available at
https://www.moodys.com/researchdocumentcontentpage.aspx?
docid=PBC_1187348
. Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody’s key rating assumptions and sensitivity analysis, see
the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure
form. Moody’s Rating Symbols and Definitions can be found at:
https://www.moodys.com/
researchdocumentcontentpage.aspx?docid=PBC_79004
.
For ratings issued on a program, series, category/class of debt or security this announcement
provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or
note of the same series, category/class of debt, security or pursuant to a program for which the
ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices.
For ratings issued on a support provider, this announcement provides certain regulatory disclosures
in relation to the credit rating action on the support provider and in relation to each particular credit
rating action for securities that derive their credit ratings from the support provider’s credit rating.
For provisional ratings, this announcement provides certain regulatory disclosures in relation to the
provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent
to the final issuance of the debt, in each case where the transaction structure and terms have not
changed prior to the assignment of the definitive rating in a manner that would have affected the
rating. For further information please see the ratings tab on the issuer/entity page for the respective
issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies)
of this credit rating action, and whose ratings may change as a result of this credit rating action, the
associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach
exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated
entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no
amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited
Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the
related rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our
credit analysis can be found at
https://www.moodys.com/researchdocumentcontentpage.aspx?
docid=PBC_1243406
.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s
affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No
1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the
Moody’s office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the
Moody’s legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory
disclosures for each credit rating.
Dominic Simpson
VP-Sr Credit Officer
Financial Institutions Group
Moody’s Investors Service Ltd.
One Canada Square
Canary Wharf
London
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Antonello Aquino
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody’s Investors Service Ltd.
One Canada Square
Canary Wharf
London, E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their
licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
CREDIT RATINGS ISSUED BY MOODY’S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT
OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS,
OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND
INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE
SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN
ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME
DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT.
SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR
INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED
BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK,
INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE
VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND
OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS
OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE
QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS
OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES.
MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO
NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S
CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND
DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR
SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND
PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY
PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND
OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND
UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY
AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE,
HOLDING, OR SALE.
MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS
ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS
AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS,
ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT
DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER
PROFESSIONAL ADVISER.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT
LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR
OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED,
DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR
ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY
MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.
MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE
NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED
FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT
IN THEM BEING CONSIDERED A BENCHMARK.
All information contained herein is obtained by MOODY’S from sources believed by it to be
accurate and reliable. Because of the possibility of human or mechanical error as well as other
factors, however, all information contained herein is provided “AS IS” without warranty of any kind.
MOODY’S adopts all necessary measures so that the information it uses in assigning a credit
rating is of sufficient quality and from sources MOODY’S considers to be reliable including, when
appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot
in every instance independently verify or validate information received in the rating process or in
preparing its Publications.
To the extent permitted by law, MOODY’S and its directors, officers, employees, agents,
representatives, licensors and suppliers disclaim liability to any person or entity for any indirect,
special, consequential, or incidental losses or damages whatsoever arising from or in connection
with the information contained herein or the use of or inability to use any such information, even if
MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers
is advised in advance of the possibility of such losses or damages, including but not limited to:
(a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant
financial instrument is not the subject of a particular credit rating assigned by MOODY’S.
To the extent permitted by law, MOODY’S and its directors, officers, employees, agents,
representatives, licensors and suppliers disclaim liability for any direct or compensatory losses
or damages caused to any person or entity, including but not limited to by any negligence (but
excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt,
by law cannot be excluded) on the part of, or any contingency within or beyond the control of,
MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers,
arising from or in connection with the information contained herein or the use of or inability to use
any such information.
NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS,
COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF
ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE
BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.
Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s
Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and
municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s
Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s
Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from
$1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies
and procedures to address the independence of Moody’s Investors Service credit ratings and credit
rating processes. Information regarding certain affiliations that may exist between directors of MCO
and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and
have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted
annually at
www.moodys.com
under the heading “Investor Relations — Corporate Governance —
Director and Shareholder Affiliation Policy.”
Additional terms for Australia only: Any publication into Australia of this document is pursuant to the
Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited
ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136
972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale
clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access
this document from within Australia, you represent to MOODY’S that you are, or are accessing
the document as a representative of, a “wholesale client” and that neither you nor the entity you
represent will directly or indirectly disseminate this document or its contents to “retail clients” within
the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as
to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or
any form of security that is available to retail investors.
Additional terms for Japan only: Moody’s Japan K.K. (“MJKK”) is a wholly-owned credit rating agency
subsidiary of Moody’s Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc.,
a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating
agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization
(“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-
NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated
obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit
rating agencies registered with the Japan Financial Services Agency and their registration numbers
are FSA Commissioner (Ratings) No. 2 and 3 respectively.
MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including
corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated
by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to
MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging
from JPY125,000 to approximately JPY550,000,000.
MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory
requirements.