A.M. Best Affirms Ratings of Legal and General Group and Legal and General Assurance Society Limited [Health & Beauty Close – Up]

A.M. Best Europe - Rating Services Limited has affirmed the issuer credit rating of a of the non-operating holding company, Legal and General Group (United Kingdom), as well as the ratings for all debt issued or guaranteed by L&G.

In a release dated May 25, A.M. Best said at the same time, A.M. Best has affirmed the financial strength rating of A+ (Superior) and ICR of aa- of Legal and General Assurance Society Limited. The outlook for all ratings is stable.

The ratings reflect current good risk-adjusted capitalization for LGAS and robust capitalization at the group level, which is expected to be maintained going forward, together with a resilient business position. A partially offsetting factor is the significant decline in profits the group experienced in 2011, predominantly driven by a sharp decline in unrealised gains on investments.

L&G's capital position is recovering its strength as capital and surplus as at the financial year ending Dec.31, 2011 had increased to GBP 5.2 billion, up from GBP 4.8 billion as at the end of the previous year. In 2011, there was a significant reduction in the unallocated divisible surplus (supporting the with-profits fund) predominantly due to unrealised investment losses during the year. This is one of the soft capital elements for which A.M. Best gives credit.

Though L&G is not immune to the volatility of the financial markets, A.M. Best expects the group to remain resilient and to respond positively to the regulatory changes the businesses face in the United Kingdom with the Retail Distribution Review and pensions auto-enrolment. Solvency II remains a challenge for the industry, and L&G is making progress enhancing its risk management and corporate governance capabilities to prepare itself for the challenge.

Although L&G's 2011 IFRS profits before tax of GBP 778 million were 40 percent lower than the previous year, the group's cash generation and operating profit figures exceeded prior year. The group suffered a significant decline in unrealised gains in its investment portfolio through its profit and loss account, which was the main contributor of a decline in technical results of 22 percent to GBP 1.8 billion.

Upward rating movements are unlikely at this point.

Downward rating pressures could emerge from a worsening of the financial and life insurance market conditions in the UK (L&G's largest market), a significant shift in group strategy or a material decline in risk-adjusted capitalization.

The debt rating of a has been affirmed for the following senior debt issues:

Legal and General Finance-

-- GBP 10 million 5.800 percent senior unsecured notes, due 2041

-- GBP 40 million 5.750 percent senior unsecured notes, due 2033

-- GBP 200 million 5.875 percent senior unsecured notes, due 2033

-- GBP 350 million 5.875 percent senior unsecured notes, due 2031

The debt rating of a- has been affirmed for the following:

Legal and General Group-

-- GBP 400 million 5.875 percent undated subordinated notes

-- EUR 600 million 4.000 percent subordinated notes, due 2025

-- GBP 600 million 6.385 percent perpetual preferred securities

-- GBP 300 million 10.000 percent subordinated notes, due 2041

The indicative rating of a has been affirmed for the following debt securities issued under the GBP 2 billion medium term note programme:

Legal and General Finance-

-- Senior debt

The indicative rating of a- has been affirmed for the following debt securities issued under the GBP 2 billion medium term note programme.

Legal and General Group-

-- Subordinated debt

A.M. Best Company is an insurance rating and information source.

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