Legal and General (LSE: LGEN) delivers 9% core EPS growth and launches record £1.2bn buyback as pension de-risking demand accelerates

Legal and General Group Plc (LSE: LGEN), one of the United Kingdom’s largest insurance and asset management conglomerates, reported full-year 2025 results on 11 March 2026 that showed core operating earnings per share rising 9% to 20.93p and core operating profit climbing 6% to £1.623bn, hitting the upper end of its three-year guidance range. The group simultaneously launched a £1.2bn share buyback, the largest in its history, funded predominantly from the £2.6bn disposal proceeds of its US protection business to Japanese insurer Meiji Yasuda Life Insurance Company. The combination of the buyback and a 2% dividend per share increase to 21.79p is expected to return £2.4bn to shareholders over the next twelve months, part of a broader pledge to distribute more than £5bn between 2025 and 2027. The market’s initial reaction was sharply negative: LGEN shares fell around 6% on results day to approximately 241p, even as analysts broadly acknowledged the underlying financial quality, suggesting investors are pricing in near-term capital deployment uncertainty rather than questioning the long-term franchise.

How did Legal and General Group perform across its three core divisions in full-year 2025?

The Institutional Retirement segment remains the financial engine of the group, delivering operating profit of £1.168bn, a 6% improvement on the prior year. The division wrote £11.8bn of global pension risk transfer (PRT) new business across 63 schemes, with UK volumes of £10.4bn including landmark buy-ins with Ford (£4.6bn), BP (£1.6bn) and NatWest (£1.1bn). New business strain came in at a disciplined 1% on UK PRT, reflecting Legal and General Group’s deliberate pivot toward a gilts-based investment strategy that reduces day-one capital consumption while creating incremental asset optimisation opportunities as back-book assets rotate into direct investments over time. Asset optimisation across the total £93bn annuity portfolio reached £331m for the year, comfortably ahead of the group’s medium-term guidance of more than £300m annually.

The Retail division grew operating profit 4% to £447m, with Workplace defined contribution proving a standout performer. Assets under administration in Workplace DC rose 21% to £114bn, with net flows of £6.2bn and a member base of 5.8 million. Legal and General Group now expects monthly Workplace contributions to reach £900m by the end of 2026 as schemes won in 2025 begin funding, adding a further £3.7bn of assets to onboard. Retail Annuity sales were £1.8bn, slightly below the prior-year £2.1bn, as higher interest rates and tighter gilt-based margins compressed new business profitability. The lifetime annuities IFRS new business margin fell to 5.9% from 7.5%, a structural pressure the group expects to persist.

Asset Management delivered flat operating profit of £402m but showed genuine strategic momentum beneath that headline. Fee-related earnings edged up to £258m, reversing a multi-year declining trend, as average fee margins expanded to 9.1 basis points from 8.8 basis points, driven by the growing proportion of private markets and higher-margin mandates in the book. The private markets platform grew assets under management to £75bn, up 32% year on year, incorporating the acquisition of European and Asia-Pacific real estate specialist Proprium Capital Partners. Total Asset Management AUM reached £1.197 trillion, a 5% increase year on year. Annualised Net New Revenue of £34m, a swing from negative £5m in 2024, is perhaps the clearest early indicator that the repositioning is taking hold.

What does the £1.2bn buyback signal about Legal and General Group’s capital confidence and financial discipline?

The buyback structure tells an important story about capital allocation intent. Of the £1.2bn total, £1bn is explicitly sourced from Meiji Yasuda disposal proceeds, with the remaining £200m coming from the existing distribution policy. That distinction matters: it demonstrates Legal and General Group’s willingness to return one-off disposal gains directly to shareholders rather than recycling them into balance sheet expansion or acquisitions. The Solvency II operational surplus generation of £1.53bn, up 5% on the prior year, underpins the dividend at the current ratio level and supports the group’s guidance that Solvency II net surplus generation will cover the dividend by 2027 under normal new business strain scenarios.

The Solvency II coverage ratio, on a pro forma basis incorporating the Meiji Yasuda transaction and the £1bn buyback, stands at 210%. That represents a meaningful compression from 232% a year earlier, driven by the buyback, dividend payments, adverse market movements, and elevated M&A and restructuring costs of £202m. Legal and General Group has introduced a new medium-term Solvency II operating range of 160% to 190%, signalling deliberate intent to deploy capital more aggressively as the PRT pipeline and private markets growth opportunities mature. At 210%, the group sits approximately 20 points above that range, which can be interpreted either as prudent buffer management or as an indication that meaningful capital deployment lies ahead, most likely through accelerated PRT volumes.

Solvency II debt leverage of 33% on a pro forma basis is elevated in the short term following the buyback-funded redemption of subordinated notes, but Legal and General Group expects Own Funds growth over time to bring this down without requiring fresh equity issuance. Two new subordinated note issuances in 2025, a £600m sterling tranche at 6.625% due 2055 and a EUR 700m euro tranche at 4.375% due 2055, refreshed the debt stack at what management characterises as attractive funding terms, though the net effect on the cost of debt was a rise from 4.9% to 5.1%.

Why did Legal and General Group shares sell off on strong results day and what does the market reaction indicate?

LGEN shares closed on 13 March 2026 at approximately 246p, having traded as low as 241p on results day, representing a decline of around 6% from pre-announcement levels despite the headline earnings beat and record buyback. The 52-week range spans approximately 207p to 280p, placing the current price in the lower half of that range. The consensus analyst target of around 258p to 268p implies modest upside from current levels, with the mix of ratings skewed toward Hold, reflecting balanced views on near-term execution risk versus longer-term capital generation quality.

The sell-off is most plausibly explained by several investor concerns. First, the deliberate decision to compress the Solvency II coverage ratio toward a 160% to 190% operating range signals that shareholder capital returns will compete more directly with the capital demands of writing PRT at scale, a tension that becomes more acute as Legal and General Group targets approximately £50bn of UK PRT market volumes in 2026. Second, the fall in Asset Management’s profit before tax to £72m from £211m, driven by £236m of investment and other variances and £94m of M&A and restructuring costs, was more pronounced than some institutional models had anticipated. Third, Retail Annuity margins are visibly under pressure from a structural shift to gilts-based investment strategies, raising questions about the sustainability of the Retail division’s contribution at current volume and margin levels.

The contrarian case rests on the quality of Legal and General Group’s contractual service margin as a genuine store of visible, locked-in future profit. The group’s total CSM and Risk Adjustment reached £13.3bn, a clean £12.4bn in CSM net of tax, with the institutional retirement CSM growing to £8.7bn. This balance sheet construct provides multi-year earnings visibility that traditional income statement analysis underestimates. An operating return on equity of 54.4%, more than 19 percentage points above the prior year level, is structurally compelling for long-term institutional holders positioned around the UK defined benefit de-risking super-cycle.

How does Legal and General Group’s pension risk transfer pipeline position compare to its 2028 targets and UK market dynamics?

Legal and General Group enters 2026 with what it describes as a healthy PRT pipeline, actively pricing on transactions totalling £17bn in the UK alone, and management visibility on at least 10 transactions individually exceeding £1bn that may complete during the year, with the majority expected in the second half. The group anticipates overall UK PRT market volumes of approximately £50bn in 2026, a significant step-up from prior-year levels, driven by the structural maturation of UK defined benefit pension scheme surpluses and rising appetite among trustees to transfer longevity and investment risk to insurers.

Against its 2024 to 2028 cumulative UK PRT target of £50bn to £65bn, Legal and General Group has written £18.8bn through year-end 2025, representing approximately 29% to 38% of the target in year one. The pace of new business strain, maintained below 4% in every year of the target window and sitting at approximately 1% on UK PRT in 2025, confirms that capital efficiency remains the primary discipline governing new business acceptance rather than volume alone. Internationally, Legal and General Group delivered US PRT new business of approximately $1.4bn in 2025 through the retained reinsurance structure with Meiji Yasuda, and Canadian PRT volumes of CAD $0.6bn. The Bermudan reinsurance hub that anchors international PRT activity is expected to scale further as Legal and General Group positions itself as a multinational pension de-risking platform.

What are the strategic implications of the Meiji Yasuda transaction and Legal and General Group’s exit from US protection?

The completion of the Meiji Yasuda transaction in February 2026 for net proceeds of $2.6bn, generating an estimated IFRS disposal profit of approximately £1.4bn, marks a definitive sharpening of Legal and General Group’s portfolio. The disposal eliminated a US protection business that, while profitable, consumed capital and management attention in a market where Legal and General Group lacked the scale advantages it holds in UK PRT and Retail. Retaining 80% of existing and new US PRT volumes through a reinsurance agreement with Meiji Yasuda allows Legal and General Group to participate in the structural growth of the US pension de-risking market without the balance sheet complexity of directly writing US protection.

Chief Executive Officer António Simoes, a year into his tenure, has used the Meiji Yasuda disposal as the centrepiece of a broader portfolio simplification that also includes the wind-down of the Corporate Investments unit, which held approximately £500m of non-strategic assets at year-end and is expected to generate negligible operating profit from 2026 onwards as disposals complete. The acquisition of Proprium Capital Partners for £32m, which brings European and Asia-Pacific real estate capabilities into the Asset Management private markets platform, signals that bolt-on capability building in private markets remains on the agenda alongside portfolio rationalisation.

Can Legal and General Group’s Asset Management division credibly reach the £500m to £600m profit target by 2028?

Asset Management remains the division where investor scepticism is most concentrated and where Legal and General Group’s strategic narrative faces its sternest test. Operating profit has been essentially flat at around £400m for two consecutive years, the profit before tax fell sharply due to elevated restructuring and variance costs, and net outflows across the platform reached £27.7bn in 2025, concentrated in lower-margin Index and LDI mandates. The cost-income ratio of 75% leaves limited room for further operating leverage in the near term as the group continues to invest in digital infrastructure, private markets build-out, and platform transformation.

The credibility of the £500m to £600m operating profit target by 2028 rests on three compounding dynamics. First, the mix shift toward higher-margin private markets and defined contribution mandates is numerically visible: ANNR of £34m in 2025, swinging from negative £5m in 2024, confirms that net revenue on new flows is now positive and growing. Second, the private markets platform at £75bn AUM, on a trajectory toward the £85bn plus 2028 target, generates structurally higher fee margins per pound of AUM than the Index or LDI books. Third, the synergistic flow from Institutional Retirement PRT activity, which generated £27m of ANNR for the Asset Management division through new private credit allocations in 2025, provides an internal growth channel that competitors without an integrated insurance platform cannot replicate. The revised guidance that balance sheet investments within Asset Management will contribute £80m to £100m of operating profit annually, down from previous guidance by approximately £50m, reduces one source of target uncertainty but also tightens the margin of error on fee-related earnings growth.

What does Legal and General Group’s FY 2025 result mean for the company, its competitors, and the UK insurance sector?

• Legal and General Group hit the upper end of its 6% to 9% core EPS growth target in year one of a three-year strategy, and guides for the top of that range again in 2026, providing a rare combination of earnings momentum and capital return visibility in the UK financial sector.
• The £1.2bn buyback, the largest in the group’s history, represents genuine capital discipline: proceeds from the Meiji Yasuda disposal are being returned rather than recycled, resetting shareholder return expectations for the 2025 to 2027 period at a total distribution pledge of more than £5bn.
• The deliberate compression of the Solvency II coverage ratio from 232% toward a 160% to 190% operating range signals that capital deployment into UK and international PRT, and into private markets growth, will intensify. For competitors such as Aviva, Phoenix Group, and Rothesay Life, this implies Legal and General Group intends to compete aggressively on UK PRT pricing and volume in 2026.
• The UK Workplace DC market is a structural winner in the group’s retail strategy. Monthly contributions of £800m, growing to £900m by year-end 2026, and a platform of 5.8 million members create a compounding flywheel of assets that cross-sells retail annuities and drives Asset Management inflows.
• Asset Management’s ANNR of £34m and private markets AUM growth of 32% to £75bn are the clearest early signals that the repositioning under CEO Simoes is producing measurable results, though the scale of net outflows at £27.7bn confirms the transition period remains challenging.
• The annuity pipeline for 2026, with 10 transactions exceeding £1bn actively in sight, suggests UK PRT market volume could reach approximately £50bn, sustaining the structural de-risking super-cycle that underpins long-term premium demand for Legal and General Group’s institutional business.
• The fall in the lifetime annuities IFRS new business margin to 5.9% from 7.5% reflects real competitive and structural margin compression in retail annuities, not a company-specific failure, and peers in the retail retirement space face similar headwinds as gilts-based strategies become the default new business investment approach.
• The CSM of £12.4bn represents a genuine moat: it is a balance sheet store of contracted, locked-in future profit that provides earnings visibility over a 10 to 50-year horizon and insulates the group from short-term market volatility in ways that fee-based competitors cannot match.
• Elevated M&A and restructuring costs of £202m in 2025, expected to remain in the £100m to £200m range in 2026, reflect the genuine transformation costs of reshaping a business of Legal and General Group’s complexity. For now, these are an earnings headwind rather than a capital risk.
• Investors treating the 6% results-day sell-off as a definitive negative verdict may be underweighting the structural franchise value embedded in a 210% solvency ratio, a £1.53bn annual surplus generation engine, and a UK market leadership position in PRT, Workplace DC, and Retail Annuities that has been built over decades.