Legal & General Group Plc Update

Shares of Legal & General Group Plc (LON:LGEN) rose over 3% on Wednesday following an update on its pension risk transfer (PRT) business and capital returns.

Increased Share Buyback Capacity

The company announced an increased share buyback capacity ahead of its Institutional Retirement Deep Dive event.

UK PRT Volumes

L&G expects its UK PRT volumes for the year to total £8.4 billion, significantly below the consensus estimate of £11.3 billion.

Market Share and Investment Strategy

Although lower volumes suggest a potential decline in market share from 25% historically to around 17%, the company noted that its strategy of focusing more on gilts rather than credit investments has greatly reduced capital strain. This year, the strain on the UK PRT business has been approximately 1%, well below the company’s guidance of under 4%.

Capital Impact

This reduced strain translates to an estimated £300 million of additional capital, part of which will enhance L&G’s share buyback capacity. RBC analysts remarked this provides potential upside to the current consensus of a £200 million buyback for fiscal year 2024.

Investor Reassurance

The improved capital returns outlook seems to have reassured investors, despite ongoing concerns about the profitability of the business compared to historical performance.

Long-Term Guidance

Despite the volume drop, L&G reaffirmed its long-term guidance of £50-65 billion in UK PRT transactions from 2024 to 2028, supported by a strong deal pipeline. The company also reiterated its target for a 5-7% compound annual growth rate in operating profit for its retirement division through 2028.

Analysts at RBC noted, “Overall, despite our view that the PRT has lost some of its lustre, we remain constructive on the opportunity and forecast £11-12bn pa over the next five years.”