Legal & General (L&G) Half Year 2025 Results

Legal & General (L&G) delivered a strong performance in the first half of 2025, with core operating EPS up 9% at the top end of their targeted range. The company's strategic momentum is building, driven by profitable growth across its three core businesses: Institutional Retirement, Asset Management, and Retail. Key strategic actions include the sale of the US protection business, disposals in the Corporate Investments Unit, and new partnerships with Proprium Capital Partners and Blackstone. L&G remains firmly on track to achieve its financial targets and is committed to returning over £5bn to shareholders through dividends and share buybacks over the next three years.

Key Financial Highlights (H1 2025 vs H1 2024)

• Core operating profit: £859m, up 6% (H1 2024: £809m)
• Core operating EPS: 10.94p, up 9% (H1 2024: 10.07p)
• IFRS Profit before tax: £406m, up 28% (H1 2024: £316m)
• Solvency II capital generation: £729m, up 3% (H1 2024: £711m)

Solvency II coverage ratio: 217% (FY 2024: 232%, H1 2024: 223%) - Note: Reduction reflects 2024 final dividend payment and £500m share buyback; excludes temporary impacts from non-retained US business.

CSM (Contractual Service Margin): Increased to £12.1bn (up £0.2bn from H1 2024), increasing the store of future profit to £13.1bn.

Interim dividend per share: 6.12p, up 2%.

Share Buyback: 90% of the £500m buyback announced at full year results now complete.

Business Segment Performance

1. Institutional Retirement (IR)

Operating Profit: £618m, up 11% (H1 2024: £557m). This growth is "underpinned by the growing scale of back book earnings, consistent investment performance, and increased back book optimisation."

Global PRT (Pension Risk Transfer) Volumes: £5.2bn (H1: £3.4bn, plus £1.7bn in exclusivity since June 30, 2025). This marks a significant increase from £1.5bn in H1 2024.

New Business Strain (UK PRT): Approximately 1% Solvency II new business strain, indicating high capital efficiency.

Store of Future Profit (CSM & RA): £9.2bn for Institutional Retirement.

Strategic Advantage: L&G's "synergistic model" is a competitive advantage, with approximately 90% of UK deals transacted coming from Asset Management clients.

Partnerships: The "newly announced partnership with Blackstone further enhances this, providing a source of highly attractive and diversified matching adjustment assets from markets that complement our existing in-house expertise, most notably in US private credit and infrastructure." The partnership with Meiji Yasuda will "bolster our presence in the US."

Outlook: Strong pipeline for PRT, with expected UK market volumes of £40-50bn in 2025. Actively pricing or have visibility on £42bn of new deals in the next 12 months, including 9 deals over £1bn.

2. Asset Management

Operating Profit: £202m, down 6% (H1 2024: £214m). This reflects "the impact of market volatility, including the weakening of USD, which contributed to a 1% lower average AUM."

Management Fee Revenue: Up 2% to £492m, driven by "positive flows into higher margin channels such as Workplace DC and Wholesale."

Average Revenue Margin: Increased to 9bps, "close to our double-digit ambition."

Annualised Net New Revenue (ANNR): £15m, "reflecting successes in key channels."

• £8.1m from Defined Contribution (DC) business.
• £3m from annuity portfolio-related flows.
• £2.6m from Wholesale and ETF.
• £2.8m from Asia.

Private Markets AUM: Grew 14% to £65bn, contributing £11m to total ANNR.

Strategic Investments: Acquired Proprium Capital Partners (European and Asia-Pacific real estate investor) and launched the L&G Private Markets Access Fund (£1.4bn AUM since July 2024 launch).

Partnerships: Strategic partnership with Blackstone enhances credit origination and expands into wealth and wholesale channels. Working with Meiji Yasuda to develop co-investment solutions in private markets.

Responsible Investing: Managed £419bn in responsible investment strategies explicitly linked to ESG criteria.

Outlook: Expect ANNR to increase in H2 from fund launches and new partnerships. Transition of Workplace clients into Lifetime Advantage Fund (15% investment in Private Markets Access Fund) and co-investment with Meiji Yasuda in private markets.

3. Retail

Operating Profit: £237m, up 3% (H1 2024: £231m), driven by "higher back book optimisation on our annuity portfolio."

Customer Base: Grown to 12.4m.

Workplace Pension Assets (AUA): Surpassed £100bn (£101bn), up 7% from FY24.

Workplace Net New Flows: £4.0bn, up 21% from H1 2024 (£3.3bn).

Individual Annuity Sales: £745m (H1 2024: £1,174m). Despite a decrease, L&G expects continued market growth and aims to maintain strong market share.

Protection Business: Group Protection gross premium income: £388m, up 11%.

Retail Protection gross premium income: £771m, up from £760m, maintaining a strong market share of 18.5%.

Outlook: Focus on new client wins and member engagement in Workplace DC. Expect increased annuity sales in H2 and continued strong market position for Protection businesses.

4. Corporate Investments Unit

Operating Profit: £24m, down 66% (H1 2024: £71m). This reflects the sale of CALA in H2 2024.

Disposal Plan: "Ahead of plan, with a number of smaller disposals transacted year to date." Expect the "majority of the value remaining in the portfolio to be realised in the next 12-18 months."

Strategic Progress and Outlook

Sharpened Strategic Focus: Agreed sale of US protection business and partnership with Meiji Yasuda for $2.3bn. This reduces exposure to US mortality risk.

Capital Redeployment: Progressed disposal of assets in Corporate Investments Unit, redeploying capital towards growth.

Investment in Growth: Acquired Proprium Capital Partners and announced a strategic partnership with Blackstone to enhance competitive position in Annuities and Asset Management.

Shareholder Returns: Committed to "return over £5bn of capital, through dividends and share buybacks, within three years" (2025-2027). Interim dividend up 2%, in line with 2% per annum DPS growth target out to 2027.

Financial Targets (2024-2027): 6-9% CAGR in core operating EPS.

• 20% operating Return on Equity.
• £5-6bn cumulative Solvency II capital generation.

Overall Outlook: Positive outlook for H2 2025, on track to deliver full year core operating EPS growth of 6-9% and strong capital generation. Anticipate higher growth in Operational Surplus Generation (OSG) at full year, including over £300m in sustainable OSG management actions.

Risks and Uncertainties

L&G confirms a robust assessment of emerging and principal risks, categorised as Financial, Strategic, and Non-Financial.

1. Investment Market Performance and Conditions (Financial Risk - High Priority)

Impact: Volatility in financial and property markets, interest rate movements, and inflation can impact earnings, profitability, liquidity, and surplus capital. Falls in AUM can reduce fee income.

Mitigation: Positioning investment portfolios for various scenarios, setting risk limits, using hedging instruments, and maintaining liquidity flexibility. ORSA (Own Risk Solvency Assessment) process.

Outlook: Global economic outlook remains uncertain. UK and US economies are in transitional phases with fiscal pressure and elevated government bond yields creating both risks and opportunities. Geopolitical risks remain elevated. Asset values, especially commercial and residential property, are vulnerable to downward reappraisal, though commercial property shows some stabilization. Labour shortages persist.

2. Credit Default Risk (Financial Risk - High Priority)

Impact: Systemic corporate failures, economic slowdowns, or sovereign debt events could trigger defaults, impacting bond portfolios and balance sheet surplus. Exposure to banking, money market, and reinsurance counterparties.

Mitigation: Managing exposure through selection criteria, exposure limits, and global credit team capabilities. Actively trading to improve credit quality. Tightly managing reinsurer exposures (majority A- rated or higher).

Outlook: Risk of credit default typically rises during subdued economic growth. Closely monitoring drivers of credit spread widening. UK GDP robust in Q1, US mild contraction. Evolving impact of US tariffs and rising UK labor costs are significant uncertainties. Credit portfolio remains predominantly (99%+) investment grade.

3. Climate Change (Strategic Risk - Medium Priority)

Impact: Exposure to transition risks (abrupt shifts impacting value of high GHG emission assets) and physical risks (extreme weather impacting property assets, potential long-term effects on mortality). Reputation and litigation risks (greenwashing). Reliance on verifiable emissions data.

Mitigation: Embedding climate risk assessment in investment processes, measuring carbon intensity, setting reduction targets aligned with 1.5°C Paris objective, evolving approach to nature and biodiversity. Engaging with regulators and investee companies.

Outlook: Achieving global carbon reduction targets requires transformative change. Escalating frequency of extreme weather highlights climate volatility. Governments' failure to enable orderly transition increases risk of abrupt policy interventions. Rising anti-ESG sentiment could constrain global progress. L&G remains committed to ambition but acknowledges the challenging trajectory. Anticipate intensified focus on nature and biodiversity risks.

4. Demographic Experience, Regulatory Changes, Expenses, and Taxation (Financial Risk - Medium Priority)

Impact: Changes in mortality, lapse rates, expenses, interest rates, and credit defaults may require recalibration of assumptions, impacting profitability and provisions. Significant changes in legislation or regulation may increase costs, reduce revenues, or require more capital.

Mitigation: Significant analysis of variables for long-term insurance business. Selective use of reinsurance to reduce impact of variations in life expectancy. Active engagement with government and regulatory bodies to influence policy. Detailed gap analysis for implementation of regulatory changes.

Outlook: UK and US experienced elevated mortality post-Covid, though UK is now similar to 2019 levels. Sale of US protection business reduces US mortality risk. Cost-of-living pressures and government spending may influence future mortality. Emerging diseases and medical breakthroughs also shape expectations. UK Solvency reforms aim to broaden investment options for annuity providers. New UK minimum tax regime (15%) and Bermudan corporate income tax in effect from 2025. Ongoing uncertainty in international tax landscape.

5. Failure to Implement Regulatory/Legislative Change (Non-Financial Risk - Medium Priority)

Impact: Timely and effective implementation failures can lead to regulatory censure, reputational damage, and deteriorating customer outcomes. Changes could limit market operations or be detrimental if not adapted to quickly.

Mitigation: Internal control processes to identify, track, and review regulatory changes. Proactive engagement with principal regulators. Met Operational Resilience expectations.

Outlook: Ongoing review of regulatory environment (HM Treasury, FCA, PRA). Preparing for new Operational Resilience rules (H2 2026). FCA's fast-paced approach to handbook review. PRA supervisory priorities for insurance sector (Bulk Purchase Annuities, Matching Adjustment Regime reforms). Preparing for ISSB disclosure standards (2026) and evolving expectations on Nature. PRA highlights slow progress in managing climate-related financial risks.

6. Disruption from New Entrants/Technology/Policy (Strategic Risk - Medium Priority)

Impact: Strong competition; new entrants with lower costs or more efficient processes, potentially leveraging AI. AI could also impact asset valuations and liabilities (life sciences/healthcare).

Mitigation: Continuous monitoring of market factors. Launching a central AI Accelerator programme for secure internal test and learn use cases. Regulatory developments team monitors AI landscape.

Outlook: Rapid acceleration of digital business models and online servicing. Increased investment in automation, robotics, and machine learning. Advancing understanding of generative and traditional AI. Active engagement with UK Government on Pensions Investment Review and Mansion House Accord. Successfully completed integration testing with Pensions Dashboard Programme (launch April 2025). Pension reforms present opportunities and challenges.

Capital Allocation Framework

• L&G has a disciplined capital allocation framework prioritizing:
• Strong and sustainable balance sheet: Supported by robust capital generation.
• Investment for growth: With clear hurdle rates on organic growth and bolt-on acquisitions (14% hurdle rate).
• Shareholder returns: Surplus capital returned through dividends or buybacks.
• Capital from disposals will be deployed in line with this policy.