Legal & General: Downgraded Amid Profitability and Cash Flow Concerns in a Competitive PRT Landscape

Legal & General (L&G) has found itself in a precarious position in 2025, with its U.S. subsidiaries downgraded to "A+" by S&P Global, accompanied by a negative outlook [1]. This downgrade, while not extending to the parent company’s ratings, signals growing concerns about the insurer’s capital position and profitability. The move echoes historical vulnerabilities: in 2009, Moody’s downgraded L&G after its capital surplus plummeted by 55% due to market volatility and reserve adjustments [2]. Today, similar themes resurface, with analysts citing weak operating profitability and liquidity risks—factors that also led to the 2024 downgrade of LLD, a subsidiary, to CC by Scope [3].

The root of L&G’s struggles lies in its exposure to the Pension Risk Transfer (PRT) sector, a high-growth but increasingly cutthroat market. While L&G reported £3.4 billion in global PRT volumes in H1 2025—a 127% increase from the prior year [3]—this growth has come at a cost. The UK PRT market, expected to hit £40–50 billion in 2025 [4], is now a battleground for private equity firms, specialist insurers, and new entrants like Brookfield Annuity. These competitors have injected over £10 billion in capital, driving aggressive pricing strategies that have eroded margins by 20–30 basis points annually [2]. L&G’s CEO, António Simões, has publicly emphasized pricing discipline, but the reality is that the company’s margins are under siege.

What makes this scenario particularly risky for investors? L&G’s profitability hinges on its ability to balance scale with margin preservation. While its global PRT monitor forecasts a £1 trillion market opportunity by 2030 [4], the current environment demands a delicate balancing act. The company’s strategic partnerships—such as its collaboration with Blackstone and Meiji Yasuda—offer a lifeline, but they also highlight the need for external capital to offset internal pressures [4]. Meanwhile, L&G’s cash flow remains vulnerable to interest rate fluctuations and equity market volatility, both of which have historically dented its capital reserves [2].

For investors, the key question is whether L&G can adapt its capital allocation strategy to withstand the PRT sector’s margin compression. The company’s nearly four-decade experience in PRT is a strength, but it must now compete with well-funded rivals willing to underprice traditional insurers. If L&G’s cash flow struggles persist, its credit ratings could face further downward pressure, exacerbating borrowing costs and limiting growth opportunities.

In conclusion, while L&G’s PRT volumes are impressive, the competitive landscape and profitability risks demand a cautious approach. Investors should monitor the company’s capital ratios, interest cover, and strategic partnerships closely. The PRT sector’s long-term potential is undeniable, but in the short term, L&G’s ability to navigate margin erosion will define its success—or failure.

Source:[1] Legal & General Group's U.S. Subsidiaries Downgraded To 'A+'; Ratings On CreditWatch Negative; Group Ratings Affirmed · Robert J Greensted. [https://disclosure.spglobal.com/ru/regulatory/article/-/view/type/HTML/id/3321474][2] Moody's downgrades L&G. [https://www.moneymarketing.co.uk/news/moodys-downgrades-lg/][3] Scope downgrades LLD's issuer rating to CC, revises. [https://scoperatings.com/ratings-and-research/rating/EN/177616][4] L&G's 2025 global PRT monitor signals £1tn market... [https://www.reinsurancene.ws/lgs-2025-global-prt-monitor-signals-1tn-market-opportunity/]