December 7, 2022
Legal and general investors reassured on turmoil in pension funds

After an investment strategy Legal & General has reassured investors on its financial health, the insurer helped shore up the recent bond market turmoil for UK pension funds.

The FTSE 100 Group is one of the largest players in the market for so-called liability-driven investment strategies, which many defined benefit pension plans have adopted in recent years in an effort to help them match their liabilities and assets, often derivatives. using the.

Strategies that require pension funds to post collateral have come under intense pressure since the chancellorship Scheme of Quasi Quarteng Yields on UK government bonds rose sharply thanks to unfunded tax cuts.

Shares of L&G closed at 221.9p on Monday, down 13 percent from levels prior to the unveiling of Quarteng’s financial plan on September 23.

The insurer said Tuesday that it is on track to deliver earnings in line with the guidance it provided with its half-year results in August. Chief Executive Nigel Wilson said, “Our businesses are resilient, and we are well on track to deliver strong growth in key financial metrics for the full year 2022.”

In the volatility in the bond market following Quarteng’s “mini” budget, concerns grew about L&G’s LDI strategies and its own annuity business. The company’s asset management division, LGIM, is one of the UK’s largest providers of LDI products.

The group on Tuesday sought to reassure investors on both fronts. “Despite market volatility, the group’s annuity portfolio has not experienced any difficulty in meeting collateral calls and we have not been compelled to sell gilts or bonds,” the company said in a statement.

On LDI, it noted that the recent increase in interest rates had “caused challenges for pension fund clients and counterparties of LGIM’s UK LDI (liability-driven investment) business” but added that “LGIM continues to create challenges for our LDI clients and markets.” Acts as an agent between the counterparties. and hence has no balance sheet exposure”.

L&G said its solvency ratio – a measure of available capital as a ratio of minimum essential – had risen to between 235 and 240 per cent, up from 212 per cent at the end of September.

Jefferies analysts said on Monday that “the biggest risk for L&G is that the crisis has discredited the firm’s risk management capabilities. In the process, it is possible that it will drive outflows from LDI funds.” , as clients reallocate to alternative strategies with less liquidity risk.”

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