The rating agency says elevated industry and economic risks in the UK life sector continue to weigh on credit quality for insurers operating in this market and that it is lowering its ratings on L&G owing to its concentration in Britain.
The stable outlook takes into account these risks and recognises the strength of Legal & General’s business and financial profile to respond to these pressures.
Standard & Poor’s has also lowered its long-term counterparty credit ratings on the group holding company to A from A+ and our long-term counterparty credit and insurer financial strength ratings on L&G’s US-based life insurance subsidiaries, Banner Life Insurance Co. and William Penn Life Insurance Co. to A+ from AA-.
The outlook on all ratings is stable.
Credit analyst Mark Button says: “The downgrade of L&G and its operating subsidiaries reflects our view that industry and economic risks in the UK life sector remain elevated.
“In our opinion, these risks are weighing on credit quality for all insurers operating in this market. We consider that L&G’s concentration in the UK life market exposes it to these risks and to changes in the competitive landscape.
“Relative to other insurers with ratings in the AA category, this UK concentration is increasingly viewed as a weakness in its rating profile.
The ratings on L&G Assurance Society continue to reflect its very strong competitive position in the UK, very strong consolidated capital adequacy, and robust underlying operating performance.
“These strengths are partly offset, however, by the challenging operating environment for UK life insurers, its limited geographic diversification, and its weaker financial profile than historically.”
Button says the agency will continue to monitor the potential impact of the developing Solvency II standards.
He says: “Adoption by the EC of the latest CEIOPS advice would have significant implications for annuity writers in the UK, including L&G. A material adverse outcome from Solvency II that could not be mitigated by management could lead to negative rating actions. We see no upside potential for the rating over the near term.”