Legal & General has revealed how it adjusted its balance sheet to reduce the risk of a Brexit for its customers and shareholders.
As a result of the market volatility following the outcome of the EU referendum, Legal & General stated it’s Solvency II surplus is roughly £4.9bn and it expects net cash for the half year of 2016 to be up 15 per cent.
The firm will run an ‘A minus’ rated credit portfolio of £44.8bn.
Legal & General’s central planning scenario, ahead of the referendum, was for a 50-50 probability of a vote for the UK to leave.
As such, the provider stated it had positioned its balance sheet accordingly to reduce risk for its customers and shareholders.
The firm undertook a number of derisking actions in respect of asset portfolios, including the traded equities held within shareholder funds, before the referendum to mitigate its balance sheet against the downside risk of a ‘leave’ vote.
Legal & General has not taken any action as a result of the downgrade of UK sovereign debt by Moody’s, Standard & Poor’s and Fitch because it had already treated UK Sovereign debt as AA rated in its internal model.
Additionally, the provider stated it holds a £2.3bn International Financial Reporting Standards provision for defaults on LGR’s portfolio, of which less than £10m has been used in the last five years.
The firm currently hold roughly £3.3bn of cash and cash equivalents within its eligible funds excluding cash held within with profits funds.
Legal & General’s statement on its position said that it sees its five key long term growth drivers as substantially unaffected by the EU Referendum.
These are ageing populations, globalisation of asset markets, creation of new real assets, welfare reform and digital.
Legal & General’s statements comes after yesterday (27 June) Aviva announced Brexit will have no significant operational impact on the company.
The provider - which saw a large fall in its share price following the vote to leave - stated despite recent market volatility following the outcome of the UK referendum on EU membership, Aviva’s capital position is resilient to market stress.
Additionally, the company estimated that as of close of the markets on Friday (24 June), its Solvency II coverage ratio remained close to the top of its working range of 150 per cent to 180 per cent.
Today (28 June) Legal & General also appointed Sir John Kingman as group chairman.
Sir Kingman has had an extensive Whitehall career, culminating as second permanent secretary of HM Treasury, where his responsibilities included serving as managing director of the finance and industry directorate and managing director of the public services and growth directorate.
ruth.gillbe@ft.com
