Legal & General Group Plc · LSE:LGEN
Legal & General — Investor Day (December 2024)
57 slides from Legal & General's investor day presentation, Dec 4, 2024
Slide 1: Institutional Retirement Deep Dive, December 2024
Institutional Retirement Deep Dive, December 2024
Slide 2: Forward-looking statements
Forward-looking statements This presentation and any related conference call or webcast (including any related Q&A session) may contain certain forward-looking statements relating to Legal & General, its plans and its current goals and expectations relating to future financial condition, performance
Slide 3: Agenda for today
Agenda for today 1. Introduction António Simões, Group CEO 2. Our Institutional Retirement proposition Andrew Kail, Institutional Retirement CEO 3. Financial outlook Jeff Davies, Group CFO Followed by Q&A 3 Institutional Retirement Deep Dive
Slide 4: Introduction
Introduction António Simões | Group CEO
Slide 5: A compelling vision for growth and shareholder value
A compelling vision for growth and shareholder value A simpler, more synergistic model, Well-positioned businesses with competitive becoming more capital-light over time advantages aligned to structural trends Asset Management Simpler, more focused model with a rigorous approach to execution = Insti
Slide 6: Clear momentum in executing our strategy
Clear momentum in executing our strategy … 12 June New strategy launched at Capital Markets Event in June 1 July Private Markets Access Fund (£12bn) July & Aug 15 July Affordable Homes Fund with Access and GMPF (£4bn) 18 Sept Disposal of CALA (£1.35bn valuation) Fund launches (FY28 assets)1 Septembe
Slide 7: … with disciplined capital allocation
… with disciplined capital allocation INSTITUTIONAL Financial RETIREMENT performance RETAIL UK PRT Investment above our 14% return International PRT CALA on cash and capital hurdle Disposed Protection Private New fund launches businesses Markets Taurus acquisition AND / OR UK Savings and Retirement
Slide 8: Refreshed management team to drive future growth
Refreshed management team to drive future growth New appointments Existing leadership Divisional Leadership Functional Leadership Jeff Davies Andrew Kail Institutional Retirement Finance + Corporate Investments Eric Adler Emma Hardaker-Jones Asset Management HR + Transformation In role as of 2nd Dec
Slide 9: Asset Management: capital light business growth
Asset Management: capital light business growth Private market fund launches to deliver Eric Adler £20bn private assets by 20282 Asset Management Average fee rate of 50-90 bps Average fee US Real estate acquisition of Taurus revenue margin Divisional Capital Markets Event metrics First $200m of seed
Slide 10: Retail: proposition enhancements driving growth
Retail: proposition enhancements driving growth Launch of Workplace DC app for Very strong growth in our 5.4m members individual annuities Q3 YTD premiums Laura Mason +£4.5bn Q3 YTD net flows1 £1.7bn (Q3 2023 : £0.9bn) Retail Lifetime Annuities 23.6% market share2 Divisional Capital Markets Event me
Slide 11: Institutional Retirement: delivering our strong pipeline
Institutional Retirement: delivering our strong pipeline 0.4 10.5 1.7 c.£0.5bn exclusive (expected to close in 2024)2 Andrew Kail 8.4 Institutional Retirement Record volumes in US and Canada Divisional Capital Markets Event metrics £10.0bn PRT 10.0 (already written in 2024)2 UK PRT (2024-28)1 £50-65
Slide 12: Key messages
Key messages Sustainable Growth Clear strategy with strong execution momentum Sharper Focus Disciplined approach to capital allocation Enhanced Returns On track to achieve our targets 12 Institutional Retirement Deep Dive
Slide 13: Our proposition
Our proposition Andrew Kail | Institutional Retirement CEO
Slide 14: Key messages
Key messages Attractive and • Growth in global Pension Risk Transfer (PRT) volumes to remain strong growing market • PRT is still the most attractive option for trustees and sponsors Positioned • Our competitive advantage is driven by our scale, asset sourcing and synergistic model to win • We help
Slide 15: The £1 trillion global market opportunity
The £1 trillion global market opportunity New business in Market Market size (GBP) % insured today % insured by 20331 next decade £1.8trn 16% ► c.50% £0.5trn £2.4trn 11% ► c.30% £0.4trn £1.1trn 10% ► c.15% £0.1trn Total £5.3trn 12% c.35% £1trn + potential in other markets e.g. Netherlands, Japan 15
Slide 16: Elevated UK volumes over the next decade
Elevated UK volumes over the next decade 80 70 60 50 New Baseline £45bn p.a. 40 30 Baseline £25bn p.a. 20 Baseline £10bn p.a. 10 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 Actual PRT volumes LCP lower bound forecast LCP forecast upside L&G volume
Slide 17: Rising client demand for UK PRT solutions
Rising client demand for UK PRT solutions Improved DB funding levels … … unlocking new options for sponsors and trustees Funding ratio 112% Healthy 100% Aggregate funding ratio funding levels expected to Pension Risk Transfer (PRT) continue 67% OR > 100% 59% Run-on 30% 75-100% Affordability Journey
Slide 18: PRT solutions remain the most attractive long-term option
PRT solutions remain the most attractive long-term option Sponsors Trustees It remains a question of Focus on core business Security of members’ benefits 'when' not 'if’ a scheme should fully insure and buy out its liabilities LCP PRT report – October 2024 Members Award-winning client service 18 Ins
Slide 19: Key messages
Attractive and • Growth in global Pension Risk Transfer (PRT) volumes to remain strong growing market • PRT is still the most attractive option for trustees and sponsors Positioned • Our competitive advantage is driven by our scale, asset sourcing and synergistic model to win • We help clients of al
Slide 20: The leading global player in PRT
The leading global player in PRT Total UK PRT written by L&G and competitors since 20161 #1 35+ years 1m+ 70 60 Longest serving provider Retirement customers2 25%+ £70bn+ 50 40 Market share (last 10 yrs) retirement income secured £bn 30 20 10 $12bn+ CAD$2bn retirement income secured retirement incom
Slide 21: Why our clients choose us
Why our clients choose us 1. Competitive pricing Benefits of our scale and whole L&G model creating value to share with clients in pricing 5. Client service 2. Brand, track record and purpose High quality service from our Clients trust us; they value our heritage and in-house administration team rec
Slide 22: 1. Competitive pricing from our scaled synergistic model
1. Competitive pricing from our scaled synergistic model Pricing advantages from … Our model Our scale Asset Management Expertise in longevity, reinsurance Differentiated asset origination and portfolio management Operational capacity to Capital diversification write higher volumes Institutional Ret
Slide 23: 2. Brand, track record and purpose
2. Brand, track record and purpose Brand Track record in PRT Purpose Household name with Market leader with Productive and responsible a 188-year heritage & >35 years' experience and a investment constant FTSE 100 presence track record of innovation “Trustees want L&G to be bidding for business. Tha
Slide 24: 3. Longstanding relationships from Asset Management
3. Longstanding relationships from Asset Management Asset Management: Strength in UK DB PRT extends relationships and delivers: Committed AUM UK DB schemes with an c.1,700 active L&G relationship Higher margin assets Investment in origination capabilities 84% 86% 14% 62% 38% Public Private Public Pr
Slide 25: 4. Whole of market, utilising bespoke solutions
4. Whole of market, utilising bespoke solutions Splits by scheme size >£1bn £100m ENDGAME – solutions for large schemes >£1bn - £1bn FLOW – our dedicated buyout proposition for small schemes £100m <£100m - £1bn Immediate Standardisation for End-to-end solution transactable pricing efficiency & scale
Slide 26: 5. High quality client service from our in-house team
5. High quality client service from our in-house team First class buy-in £5bn +70 administration Paid to clients and World Class Net customers in 20231 Promoter Score 270k 0.07% Seamless on-boarding Members onboarded Member complaints in last five years 14 CCA Global Excellence Awards since 2021 Eff
Slide 27: Key messages
Attractive and • Growth in global Pension Risk Transfer (PRT) volumes to remain strong growing market • PRT is still the most attractive option for trustees and sponsors Positioned • Our competitive advantage is driven by our scale, asset sourcing and synergistic model to win • We help clients of al
Slide 28: Our in-house asset manufacturing is a competitive advantage
Our in-house asset manufacturing is a competitive advantage Differentiated alpha from £14bn 50-150bps in-house asset manufacture Manufactured Yield uplift assets to-date range £32bn Direct Investments1 Additional open market £18bn 30-50bps Open market Yield uplift sourcing to meet scale demands sour
Slide 29: Enhanced returns from differentiated asset origination
Enhanced returns from differentiated asset origination Delivered Committed Housing Oxford In-house c.£6bn in Life-time £4bn investment c.50-150 manufactured mortgages across partnership with DI bps uplift1 UK and Europe Oxford University Property Affordable homes Open market c.30-50 >£5bn in Sale an
Slide 30: Agile asset allocations to seize on market opportunities
Agile asset allocations to seize on market opportunities Increased credit sourcing Build to Rent and private credit Lifetime Mortgages Gilt strategies Spread (Bps) 018 2019 2020 2021 2022 2023 2024 Net Credit Spreads over Gilts Liability Pricing over Gilts 30 Institutional Retirement Deep Dive
Slide 31: Success in writing PRT in changing market conditions
Success in writing PRT in changing market conditions Global new business written by L&G (£bn) 14 11 10.5 YTD1 10 9 9 Canada US 7 UK 2018 2019 2020 2021 2022 2023 2024 YTD 31 Institutional Retirement Deep Dive 1. Written year to date or exclusive and expected to transact in 2024, as at end November 2
Slide 32: Performance generates consistent value creation
Performance generates consistent value creation Institutional Retirement Operating Profit (£bn) Annualised1: 1.1 1.0 Robust operating profit of £1bn+ 0.8 Strong growth outlook as we write new business HY24: 0.56 FY22 FY23 FY24 32 Institutional Retirement Deep Dive 1. FY24 operating profit of £1.1bn
Slide 33: Recent successes and strong pipeline for 2025
Recent successes and strong pipeline for 2025 2024 success stories UK pipeline for 2025 4 x £1bn+ transactions in H2 £1bn £8.4bn Additional exclusive volumes 12th ICI transaction – £7bn in total expected to complete in Q1 2025 YTD volumes (written or expected 10+ Opening of Glasgow office to to clos
Slide 34: Key messages
Key messages Attractive and • Growth in global Pension Risk Transfer (PRT) volumes to remain strong growing market • PRT is still the most attractive option for trustees and sponsors Positioned • Our competitive advantage is driven by our scale, asset sourcing and synergistic model to win • We help
Slide 35: Financial outlook
Financial outlook Jeff Davies | Group CFO
Slide 36: Key messages
Key messages How we Economic value derived from earning a spread on growing PRT generate value assets – timing and recognition varies under IFRS and Solvency Track record in Value creation over decades demands a diligent approach to risk management risk management – we have a good track record Poten
Slide 37: Value generation principally from spread-based business
Value generation principally from spread-based business Net spread × Originating assets and liabilities at scale + Additional value creation 37 Institutional Retirement Deep Dive
Slide 38: Value from net spread converted to IFRS and SII
Value from net spread converted to IFRS and SII × + Reporting treatment Indicative asset margin1 • New business spread capitalised upfront in store of Simplifies to … Operating future profits profit impact2 IFRS • Steady release of store of future profits into P&L plus investment margin and other sm
Slide 39: Growing our asset base as we write new business
Growing our asset base as we write new business × + Indicative growth in Institutional Retirement assets1 c.5-6% CAGR 3 Main drivers of net growth (indicative) New business growth (assuming £10bn PRT p.a.) +10% c£70bn2 Stable run-off of in-force book4 (4)% 2024 2025 2026 2027 2028 2023 In-Force 2024
Slide 40: Further upside potential from back book optimisation
Further upside potential from back book optimisation × + Ongoing optimisation of our Bond Portfolio + Switching Traded Assets into Direct Investments + Liability reinsurance At least £1bn of additional cumulative value from back book optimisation of the annuity portfolio (2024-2028)1 1. Figures appl
Slide 41: Indicative value generation under Solvency II
Indicative value generation under Solvency II ‘Locked in’ value Growth at 5-6% CAGR Further upside (assuming £10bn PRT p.a.) 90-110bps × c.£70bn + £1bn+ Solvency II value Indicative OSG asset Opening Institutional Optimisation creation1 margin2 Retirement assets actions (2024-28)3 + Additional c.£50
Slide 42: Key messages
Key messages How we Economic value derived from earning a spread on PRT volumes – generate value timing and recognition varies under IFRS and Solvency Track record in Value creation over decades demands a diligent approach to risk management risk management – we have a good track record Potential fo
Slide 43: Diligent selection and management of key risks
Diligent selection and management of key risks Well-positioned diversified investment grade portfolio Credit High quality Direct Investment portfolio risk Strong track record of mitigating default and downgrade risks Longevity Longevity risk on new business substantially reinsured with a diverse rei
Slide 44: Strong credit management of our high-quality annuity portfolio
Strong credit management of our high-quality annuity portfolio Public and private credit portfolio Real Estate Rest of World Public credit Tech & telecomms Cash & Europe Other Lifetime mortgages Property- Stable portfolio managed to related 5% Sovereign-like assets 53% mitigate downgrades and 13% de
Slide 45: Our Direct Investments provide very reliable cashflows
Our Direct Investments provide very reliable cashflows £32bn in Direct Investments (c.38% total annuity portfolio) Direct property Long-term rental c.67% of Direct Investments A rated or better Lifetime mortgages A- 38% Social infra 99.9% scheduled cashflows received2 57% Implied portfolio Economic
Slide 46: Around half of total annuity book longevity risk is reinsured
Around half of total annuity book longevity risk is reinsured Longevity risk management of annuity back book Other, 3% Buoyant longevity reinsurance swap market with competitive pricing Longevity reinsurance 40% Active panel of 19 high quality counterparties Helpful risk and capital management tool
Slide 47: Key messages
Key messages How we Economic value derived from earning a spread on PRT volumes – generate value timing and recognition varies under IFRS and Solvency Track record in Value creation over decades demands a diligent approach to risk management risk management – we have a good track record Potential fo
Slide 48: Strong 2024 performance with £10.5bn new business volumes
Strong 2024 performance with £10.5bn new business volumes Increased use of gilts-based investment strategy Higher risk-free rate 2024 YTD metrics Tighter corporate credit spreads £10.5bn c.7% 14%+ c.1% Total PRT new IFRS new UK PRT business Return on capital business margin2 capital strain volumes1
Slide 49: Low strain gilts approach provides scope for larger buybacks
Low strain gilts approach provides scope for larger buybacks Gilts-based strategy Day One Thereafter Highly attractive returns on capital Release of store of future profits IFRS impact Slightly lower growth in with significant scope for store of future profit back book optimisation Highly attractive
Slide 50: On track to deliver Divisional and Group CME metrics
On track to deliver Divisional and Group CME metrics Group Institutional Retirement Core Operating EPS CAGR (FY24-FY27) 6-9% UK PRT (2024-28) £50-65bn Operating Return on Equity (2025-27) >20% UK PRT strain (2024-28) <4% Cumulative SII capital Operating profit CAGR generation (2025-27) £5-6bn (FY23-
Slide 51: Key messages
Key messages Attractive and • Growth in global Pension Risk Transfer (PRT) volumes to remain strong growing market • PRT is still the most attractive option for trustees and sponsors Positioned • Our competitive advantage is driven by our scale, asset sourcing and synergistic model to win • We help
Slide 52: Q&A
Q&A
Slide 53: Key messages
Key messages Attractive and • Growth in global Pension Risk Transfer (PRT) volumes to remain strong growing market • PRT is still the most attractive option for trustees and sponsors Positioned • Our competitive advantage is driven by our scale, asset sourcing and synergistic model to win • We help
Slide 54: Appendices
Appendices
Slide 55: Capital generation will also grow as we continue to write PRT
Capital generation will also grow as we continue to write PRT Indicative OSG for Institutional Retirement 0.9 assuming £10bn p.a. new business (£bn)1 0.8 5-6% 0.1 CAGR2 0.7 0.1 0.1 0.6 0.1 0.1 Additional upside from: 0.1 0.1 0.1 0.1 0.1 • Asset Management fees associated with 0.5 PRT (c.£50m per ann
Slide 56: New business creates additional future long-term capital flows
New business creates additional future long-term capital flows Writing £10bn of UK PRT generates more than £1.5bn of surplus >£1.5bn Cumulative OSG Payback 4 years 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 4
Slide 57: Expected Capital Emergence for Institutional Retirement
Expected Capital Emergence for Institutional Retirement1 2045- 2054- 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 Total 2053 2062 In Force2 Business 611 595 546 534 507 485 470 457 437 473 455 438 419 403 381 361 342 322 302 233 212 1,089 3