Legal and General shares down as strategic review announced

Legal and General posted what management described as “resilient” full-year results as its new boss said he was undertaking a strategic review of the business. New chief executive António Simões said it was the right time to “take a fresh perspective,” build the insurer’s track record and “set out a vision for profitable and sustainable growth.” Simões, who was previously at Spanish banking giant Santander, says he will outline the company’s new plans and strategy at the upcoming capital markets event on 12 June.

‘Challenging markets’ for the insurer

Meanwhile, he said that the company, which owns the UK’s biggest asset management business as well as its pensions and insurance divisions, had performed well in a difficult year. “We are on course to achieve our five-year targets, and demonstrated resilience in challenging markets to achieve record new business volumes in pension risk transfer, UK annuities and US protection, increasing our store of future profit,” Simões told investors. “Our international assets under management and alternative assets portfolio continue to grow, as does our position in the UK defined contribution pensions market.”

Operating profit remained flat at £1.67 billion for the full year 2023 (£1.66 billion in 2022). Pre-tax profits, excluding longevity and internal pension scheme accounting, fell to £561 million from £1 billion last year. This was due to the lower than expected valuation of property assets, the closure of Legal and General’s Modular Homes business and the write-down of its investment in Onto.

However, the insurer saw record volumes across its businesses, with £13.7 billion of institutional annuities (£10.5bn retained premium), £1.4 billion of individual annuities and $175m of US protection new business premium. Meanwhile, new business CSM (contractual service margin – the profit yet to be released from insurance contracts) contributed £1.2 billion (2022: £0.9 billion) and CSM grew 9% to £13 billion (£11.9 billion in 2022).

Strategic review: Nothing ruled out

Meanwhile, in terms of the strategic review, Simões would not be drawn on what he is planning but said he is “looking at everything” including the company’s house building division Cala Homes, although he described it as a “strong franchise”.

Legal & General’s Solvency II coverage ratio - essentially its financial stress test - dipped slightly but remained relatively strong at 224% (compared with 236% in 2022). The shares fell 2% on the day of the results.

Analysts at broker RBC Capital Markets described the figures as “mixed”. However, those at broker JP Morgan Chase think the shares could reach 295p and have an “overweight” recommendation.

Down 8% this year, at 244p, the shares are trading some way off their three-year highs of 299.6p seen in April 2021. They may also be worth watching for the 8% yield.

Past performance is not a guide to future performance.