Moody's downgrades L&G due to reliance on UK market
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Moody’s has downgraded Legal & General’s insurance financial strength rating.
The credit rating agency says the move reflects its negative view on the UK life market and the fact L&G relies on the UK for the vast majority of its business.
Moody’s says it views the UK life market as one of the most competitive in Europe as well as being one of the insurance markets most affected by a relatively prolonged period of weak economic growth.
It expects that “likely sluggish” UK economic growth and high level of household debt will weigh on consumption and limit life insurance market growth opportunities in the near term, negatively impacting UK life insurers’ business and profitability growth.
Moody’s believes the retail distribution review will bring some disruption in the short-to-medium term to the structure of distribution in the UK.
With its strong focus on the UK life market - 92 per cent of total sales in 2009 - the agency regards L&G as particularly exposed to these risks.
Although it says the impact is likely to be partially mitigated for L&G due to its strong brand reputation, its agreements with banks and already decreasing reliance on up-front commission with IFAs.
Vice President senior credit officer Antonello Aquino says: “Compared to other Aa rated European insurance groups, L&G is less well diversified both in terms of geography and business lines, with a focus on UK life & pension business.
“Despite its strong brand in the UK Life market and consistent growth in market share, its dependence on the UK life market makes business growth opportunities and profitability improvements for the company more challenging than many of its peers.”
But the agency says L&G’s ratings continue to reflect very strong financial metrics with respect to profitability and financial flexibility.
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