On Friday, the FT brooked a story which at first site is a bit obscure, concerning Japanese and American businesses.
Legal & General has brokered a deal to sell its US insurance business to Japan’s Meiji Yasuda for $2.3bn in cash, as chief executive António Simões moves to overhaul the insurer.
L&G said on Friday it would sell its US protection business, which offers life insurance policies and pays out when employees get ill. The Japanese group will also take a 20 per cent economic interest in L&G’s US pension risk transfer — or bulk annuity — business, which takes on pension obligations from companies selling their schemes.
L&G will keep 80 per cent exposure to existing and new corporate pension deals through reinsurance arrangements. Additionally, Meiji Yasuda plans to acquire a stake of about 5 per cent in L&G.
The result was a surge in L&G’s share price that put 8% on its £15bn capitalisation as L&G explained that shareholders would be getting 40% of the share value as cash through dividends and share buy-backs – over the next three years.
L&G will be smaller and more focussed on what it does in the UK. Probably a lower-risk strategy watching what is happening in the US and certainly of interest to people like me, who have their savings with L&G and are hoping they’ll be offered a pension to go with the saving! I am small beer but put me together with hundreds of thousands of others and you get to a master trust with £30bn it- waiting for a pension.
I went down to see Sarah Aitken who runs the pension side. Her pension manager Rita Butler-Jones is retiring and the likes of Tesco who use the master trust(s) will be interested to see how L&G develop their pension business. By that I mean the payment of pensions from this £30bn +. I hope that they offer something more than an annuity. I would like my money invested not sat in bonds and I’d like my pension rates reflecting the better returns I’d expect from long-term investment.
So as I read the reports in the FT, I was pleased to see this
The sale is Simões’ latest step to slim down L&G since he joined last year from Spanish bank Santander and unveiled a major overhaul aimed at simplifying the business. L&G sold its UK housebuilder Cala in a £1.4bn deal last year as part of the plan.
The question is whether , as Britain’s third largest DC provider (and largest commercial master trust provider) Legal & General will become a pension provider. I have had a go at them for calling their individual annuities “pension annuities”. They are not.
I hope to see Robert Waugh in March. Robert is chair of their two master trusts and make fulfil representations that they engage with the Pension SuperHaven, a means for insurers to embrace occupational pensions as defined benefit retirement income. Robert was very kind to us at AgeWage when we started out measuring individual performance in occupational pensions (he was then with a large British bank).
I mention British Banks , because L&G is a British insurer but it is also an asset manager and the provider of occupational and personal pensions that carry people’s retirement financial prospects. For a decade I have tried to work with the IGC that looks after its personal pensions, but I am now thinking the future for L&G and other insurers as pension providers, rest with master trusts. So my focus is shifting.
David Fairs, in his conversation on the VFM podcast, states that (group) personal pensions no longer look the future for DC saving and I’d agree. David and I worked together on these products in the first decade of this century when “stakeholder” was the buzzword. At that time trust based DC plans were marginalized in Government thinking. I am in an L&G GPP because of my employer (First Actuarial) and I find myself outside the conversation I have been having with Sarah and her colleagues.
I hope that in time, L&G will find a way to go forward with a proposition that allows personal pension holders to consolidate their pots into the large DC master trusts.
L&G is going to be smaller and more focussed. What it does in the US is of no business of mine but what it does in the UK is of great interest and business of mine.
L&G has done well out of the bulk annuity market and it is writing individual annuity business in increasing volumes. But this is no substitute for pensions. Let’s hope that the new focus on the UK will mean that in years to come, L&G writes pension as well as annuity business. I am here to suggest how.
