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Legal & General arm in ageing downgrade

UK – Triple-A insurer Legal & General Assurance Society has been downgraded, as increased life expectancy threatens the financing of its growth in annuity sales.

Yesterday, Standard and Poor’s ratings agency downgraded the UK insurer from a Triple-A status to AA+. It was the first credit downgrade experienced by L&G for sixteen years.

“The downgrades reflect pressures on the group’s ability to finance above-market rates of new business growth and support extremely strong levels of capitalisation,” said S&P’s credit analyst, Manish Bakhda.

L&G has been very successful in its annuity business, but “while the group has succeeded in writing growing volumes of profitable annuity business, this has contributed to an increase in Legal & General Assurance Society’s exposure to longevity risk,” said S&P.

The issue of increasing life expectancy is putting pressure on global insurers, which are having to ensure that they have a sufficient capital base to support the increase. L&G AS’ downgrade is of particular significance as it was the only Triple-A rated insurer in Europe.

Speaking for S&P, analysts Mark Button, Paul Bradley and Manish Bakhda, said that the issue of increased life expectancy was something each of the European insurers was monitoring. They added that each country had different longevity assumptions, and companies were taking this into account and pricing contracts accordingly.

LGAS is part of the Legal & General Group.

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