Legal & General PLC
Legal & General’s 2025 Results
Dear Reader,
Legal & General has kicked off 2026 with a solid set of full‑year numbers for 2025, headline core operating profit up 6% to £1.62 billion and earnings per share rising 9%, right at the top end of guidance. The group also unveiled a record £1.2 billion share buyback, alongside a modest 2% dividend increase to 21.79p.
CEO António Simões pitched the results as proof that L&G’s reshaping is taking hold, legacy complexities have been cleared, the balance sheet remains robust with a 210% Solvency II coverage ratio, and each of the main divisions, Institutional Retirement, Retail, and Asset Management, is contributing to growth.
Still, investors were cautious, the shares slipped around 5–6% on results day, reflecting broader market jitters and some softer numbers under the surface, particularly in asset management. Even so, with £1.2 trillion under management, strong pension‑risk‑transfer volumes of £11.8 billion, and a clearer strategic focus, Legal & General enters 2026 in leaner shape and aiming for another year of mid‑to high‑single‑digit EPS growth.
The Financials
Market Capitalisation~£15 billion
Core Operating EPS 20.9 p (+9% YoY)
Dividend per Share (FY 2025) 21.79 p (+2% YoY)
Dividend Yield≈ 8.8 – 9.0 %
P/E Ratio (forward)≈ 8 × earnings
Price / Book Value≈ 0.9 ×
Balance Sheet
Legal & General’s balance sheet remains one of the most resilient in the sector. The company now holds roughly twice the capital required by regulators, giving it a strong buffer against market volatility or adverse interest‑rate moves. That ratio eased modestly versus last year, largely due to the £1.2 billion share buyback and higher dividends rather than any deterioration in the business. Core capital generation was healthy at £1.5 billion, up 5%, demonstrating continuing strength in its insurance and asset‑heavy businesses. The group also carries £13.3 billion of “future profit”, income from annuity and pension‑risk contracts that will emerge over time effectively a built‑in earnings pipeline. The clean‑up of non‑core US assets further simplified the structure and freed up capital, while leverage remains low by insurance‑sector standards, helping L&G preserve its credit rating and funding flexibility.
Income Statement
Operating performance through 2025 was solid, though not without nuances. Core operating profit rose 6% to £1.62 billion, and earnings per share advanced 9%, meeting the top end of market expectations. The main engine was Institutional Retirement, which wrote £11.8 billion of bulk annuity and pension‑risk‑transfer business a vital driver of growth given strong demand from UK corporates de‑risking their defined‑benefit schemes. Meanwhile, the Retail division benefited from steady annuity sales and workplace pension inflows, partially offsetting pressure in Asset Management, where inflows were healthy but fee margins remain under strain. The lower IFRS profit before tax (around £807 million) was influenced by investment volatility and restructuring charges linked to the group’s simplification plan. A 2% dividend increase to 21.79p reinforces management’s confidence in sustainable profitability and the long‑term cash‑generating capacity of the business.
Cash Flow
Cash generation continues to underpin Legal & General’s appeal. The company produced roughly £1.5 billion in operating cash during 2025, more than enough to fund both its dividend commitments and the new £1.2 billion buyback. Management is targeting a total of £2.4 billion returned to shareholders over the next year, with an ambition to reach £5 billion by 2027. This strength reflects resilient inflows from retirement and protection products, alongside improving investment yields on gilts and corporate credit. The disciplined redeployment of surplus cash shifting from lower‑return legacy assets into private markets, infrastructure, and green‑energy investment supports long‑term earnings diversification. While buybacks reduce the capital ratio on paper, they underline management’s conviction that organic capital generation can comfortably replenish those funds while rewarding shareholders directly.
Investment View
Legal & General now sits at an interesting junction, a business with dependable profitability and one of the FTSE 100’s most generous dividend streams, trading at a valuation that still prices in little growth. At around 245p per share, the stock yields close to 8.5%, with analysts forecasting low‑ to mid‑single‑digit dividend growth through 2026.
On a forward P/E of roughly 8×, it remains materially cheaper than the broader insurance peer group, suggesting the market remains cautious about L&G’s path under new leadership. Yet the company continues to generate strong capital, and if management delivers on its simplification and capital‑return promises, there is scope for a modest re‑rating back toward 10× earnings, implying 20–25% upside on a 12‑month view.
