L&G/Nigel Wilson: legacy of inclusive capitalism leaves insurer better off

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Capitalism has made a lot of people better off, repelling challenges from other political and economic systems. That premise’s validity has taken a beating since the financial crisis.

Sir Nigel Wilson, who steps down as Legal & General’s chief executive this year, believes the UK suffers more than most. He presided over his final set of interim results for the insurer on Tuesday. This provided an opportunity to assess his performance as a chief executive and an inclusive capitalist.

Wilson blames the UK’s chronic lack of investment for stagnant real wages and low productivity. If the country could not fix this when borrowing was cheap, doing it with interest rates at 15-year highs presents a greater challenge.

Lex chart on Legal & General showing dividend per share against dividend yield

Higher interest rates should help Wilson’s successor António Simões via bulk annuities. L&G sells these to defined benefit pension schemes, capping their risks. A record £25bn have already occurred this year. L&G expects to transact about £11bn itself.

Insurers must put up capital against bulk annuities. The £4.9bn of bulk deals done in the first half required £106mn of capital. But this 2.2 per cent ratio was nearly half the 4 per cent previously estimated.

This efficiency ratio should fall further next year. This is a good thing. Solvency reforms should shave another percentage point from the capital ratio.

Lex chart on Legal & General showing assets under management since 2012

As L&G takes on liabilities, it creates assets to back them. Homebuilding has been a key aspect of Wilson’s tenure. L&G had acquired or built almost 1,000 affordable homes by the end of 2022.

Since he took over in 2012 shareholder returns at L&G have beaten the broader UK life sector by half. Yet the stock and the sector remain unloved. A trailing dividend yield of 8 per cent for L&G is in line with peers Aviva and Phoenix. Investors worry about asset quality in bond and real estate portfolios.

Lex chart on Legal & General showing total returns against FTSE 350 Life Insurance index and the FTSE 100 index

Broader concerns about UK economic and political stability also persist. Wilson may have a chance to tackle those at the policy end if a rumoured move into government comes true.

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