Legal & General has today announced the largest UK Pension Risk Transfer deal this year and the fifth largest on record, a £4.6bn buyout with the Ford UK pension schemes. Year to date this takes L&G above £10bn of UK pension risk transfer volumes. Given the size, this is M&A in everything but name.

Spread business often earns about ten times the margin of fee business, so more PRT is welcome. PRT is a highly profitable line when written with discipline and supported by strong assets. It is too early to judge value creation since we only have headline numbers. There is no indication yet on margin, capital strain, or asset mix.

The PRT market has been more competitive this year, but at this scale only three players consistently compete and execute, L&G, PIC and Rothesay. My hope is that L&G deployed a good amount of its own capital rather than relying heavily on reinsurance. The balance sheet, solvency ratio of 217% at the half-year, is more than strong enough to support that, and many more deals of this size.

This chart shows that L&G has lagged the UK life sector. The underperformance has been particularly over the past six months. Over that period LGEN is +2%, against Aviva +24%, Chesnara +26%, Just Group +55%, M&G +31%, and Phoenix +16%.

~FTSE #insurance #LGEN

Not investment advice.