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Legal & General - CEO to step down after a decade at the helm

Legal and General's CEO, Sir Nigel Wilson, is stepping down from his role because he plans to retire.

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Legal & General's CEO, Sir Nigel Wilson, is stepping down from his role because he plans to retire. He will remain in the position until a replacement has been found. No time frame for this search has been set, but a formal search is due to start immediately.

Sir Nigel has been praised as a "world-class leader" after almost fourteen years of service to the company.

The shares were down 2.3% on the day.

View the latest Legal & General share price and how to deal

Our view

Legal & General's retiring CEO will be a tough act to follow. Since joining Legal and General 14 years ago, he's helped the group to deliver a total shareholder return of more than 600%. He will continue to deliver on the current strategy, until a replacement is found and brought up to speed.

In the meantime, the current high interest rate environment means the value of the group's investment portfolio has dropped, but L&G is set to benefit in other areas. That's because a major part of the business is its pension risk transfers (PRTs).

These see Legal & General take on responsibility for paying some, or all, of the pensions from a company's final salary pension scheme (often called bulk annuities). In return the group receives a lump sum. That's then managed by Legal & General Investment Management (LGIM) and underpinned with real assets developed by the Capital division (which includes UK housing and infrastructure projects).

Demand for bulk annuities is growing, and as well as already having a dominant UK position, L&G is increasing activity in overseas markets like the US and Canada too. The US market's huge, with $3.8tn of defined benefit pension schemes, and only around 7% of that has already moved to insurance companies like Legal & General. It's a small fish for now, but the opportunity is big.

International customers are accounting for an increasingly large slice of the assets under management in LGIM too, reducing reliance on UK savers. Despite turmoil in global markets, AUM only fell 3% over the first half. More importantly, external net inflows reached record levels with continued growth in higher margin areas such as thematic ETFs.

We'd be remiss not to mention the group's formidable solvency II ratio though, which is a core measure of capitalisation. At well north of 200%, this offers the group some resilience from adverse economic developments. Though, that doesn't make it immune to pressures. A sharp fall in equity or property markets would have a negative impact on the group's solvency ratio.

We also note that a core measure, cash generation, was up 22% and group surplus capital was up just shy of £1.0bn over the half, which supports plans to grow the dividend by 3-6% a year and offers wiggle room for investment in high growth opportunities.

Overall, we think a focus on growth is the right decision in the long term - especially as competitors are increasingly keen to muscle in on the bulk annuity business. The 8% prospective dividend yield should still be enough to keep shareholders happy - although as ever the dividend cannot be guaranteed.

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Aarin Chiekrie
Aarin Chiekrie
Equity Analyst

Aarin is a member of the Equity Research team. Alongside our other analysts, he provides regular research and analysis on individual companies and wider sectors. Having a keen interest in global economics, he knows how macro-events can impact individual companies.

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Article history
Published: 31st January 2023