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Moody’s downgrades L&G

Credit ratings agency Moody’s has downgraded Legal & General Assurance Society’s insurance financial strength rating from Aa1 to Aa2 and L&G Insurance Limited’s IFSR rating from Aa3 to A1.

Moody’s has also downgraded L&G Group’s senior unsecured debt rating from A1 to A2, its subordinated debt from A2 to A3 and preferred from A3 to Baa1.

It affirmed the Prime-1 short-term rating for commercial paper of Legal & General Finance PLC. These companies carry a negative ratings’ outlook.

The downgrade follows the release of the firm’s preliminary results and reflects the reduction in the group’s capital position and lower operating profitability.

Vice president senior credit officer Antonello Aquino says: “Legal & General’s capital position has fallen materially as the result of the extreme market conditions of the last quarter of 2008, which persisted into the first few months of 2009. The Group’s surplus capital has been almost halved between September 2008 and late March 2009.”

The group reported a £1.8bn IGD surplus capital – after accounting for £120m for the final dividend – at year-end compared with £4.1bn at year-end 2007, representing a decline of over 55 per cent.

The IGD surplus continued deteriorating in the first part of 2009 and stood at an estimated £1.5bn at March 23, 2008. The reduction in the surplus was mostly the result of the negative equity market movements and the strengthened default reserves.

The Group’s profitability has also been, and is likely to remain, under pressure as the result of negative global economic conditions, equity market volatility and low interest rates, according to Moody’s.

Aquino says: “Moody’s views the UK life market as one of the most competitive in Europe and the possibility of a relatively prolonged period of slowdown in the economy will continue to put pressure on life insurers’ profitability, including on L&G, due to the Group’s concentration on the
UK market.”


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