Legal & General Group Plc

Legal & General reported operating profit from divisions of £2.9 billion, up 10%/12% depending on the section cited by management, EPS of £0.3833, up 12%, ROE of 20.7%, full-year dividend of £0.1937, up 5%, surplus generation of £1.8 billion, up 10%, and a record Solvency II coverage ratio of 236% (240% as of Friday). By division, LGRI operating profit was £1.25 billion, up 9%, LGC operating profit was £509 million, up 10%, LGIM operating profit was £340 million, and Retail operating profit was £825 million, up 33%. LGRI wrote nearly £10 billion of global PRT in 2022 across 61 transactions, including $2.1 billion in the U.S. and £700 million in Canada, with capital strain below 4%. LGIM AUM fell 16% to £1.2 trillion and its cost:income ratio was 65%; Retail protection gross written premium was £3.1 billion, up 8%. Looking ahead, management said the dividend growth rate of 5% is aimed to be maintained to full year 2024, PRT at £8 billion to £10 billion is now treated as the base case, and larger transactions would be funded from surplus solvency capital as needed.

Nigel Wilson framed 2022 as another proof point that Legal & General’s diversified model can keep compounding through changing markets, pointing to more than a decade of consistent growth, stronger shareholder returns, and a much stronger balance sheet. He was especially optimistic on PRT, saying market volumes should expand materially as more pension schemes become fully funded and that Solvency II reform should unlock more investment flexibility and asset diversification. His tone was highly confident and strategic, emphasizing that L&G can self-manufacture assets, self-fund its annuity business, and use its integrated model as a long-term competitive advantage.

Jeff Davies walked through the financial results and emphasized that capital generation remains comfortably ahead of the dividend. He cited operating profit of £2.5 billion, EPS of £0.3833, operational surplus generation of £1.8 billion, and a Solvency II surplus of nearly £10 billion, with net surplus generation of £1.4 billion versus a £1.1 billion dividend. On capital allocation, he said the board is recommending a 5% dividend increase and aims to maintain that rate to full year 2024; he also said larger PRT deals could be treated like M&A and funded from the strong solvency capital base. On the businesses, he noted LGRI wrote nearly £10 billion of PRT at margins with capital strain below 4%, LGIM’s AUM dropped 16% to £1.2 trillion with a 65% cost:income ratio, and Retail booked a $40 million provision for COVID and flu uncertainty.

Analysts focused heavily on how Legal & General would fund and source larger PRT deals, whether the group would use reinsurance, and how much the Solvency II reform could improve economics. Management said very large transactions could be split, that large U.K. deals are likely to be more feasible than similarly sized U.S. deals, and that reinsurance is a tool they will use selectively alongside internal asset manufacturing and external managers. Questions also probed LGIM’s cost base and LGC cash generation; management replied that LGC could generate about £400 million to £450 million of cash in 2023, CALA is being budgeted prudently near the current run-rate, and LGIM will keep investing selectively even if the cost:income ratio stays elevated. On solvency, management said they are comfortable using some surplus capital for growth but do not plan to fully hedge away the rate-driven benefit because that would be uneconomic.