UBS sees limited upside for Legal & General as bulk annuity market heats up Proactive uses images sourced from Shutterstock
UBS has raised its price target on Legal & General Group PLC (LSE:LGEN), the FTSE 100 insurance and asset management group, to 260p from 250p, but retained its ‘neutral’ rating, concluding that the shares are close to fully valued at current levels around 271p.
The broker’s sum-of-the-parts analysis, based on recent transaction multiples in the bulk purchase annuity (BPA) market, implies a fair value of 280p per share.
The note comes amid intensifying interest in the UK BPA market following three transactions in 2025: Athora’s £5.7 billion acquisition of Pension Insurance Corporation, Brookfield’s £2.4 billion purchase of Just Group and JAB Insurance’s acquisition of Utmost’s BPA business.
Those deals have fuelled speculation about a potential takeover of L&G itself, roughly 60% of whose business is in annuities.
UBS found that L&G’s BPA operation generates returns on Solvency II own funds of 9% to 10%, broadly in line with peers including PIC, Just and Rothesay, which sit within a range of 8% to 12%.
The broker argued that because L&G’s returns are not differentiated from the wider market, valuing the annuity book at 1 to 1.3 times own funds, the range established by recent deals is appropriate.
Applying the midpoint of 1.15 times to L&G’s insurance business, adding asset management at 10 times post-tax earnings in line with listed peers, and adjusting for corporate costs and the remainder of a £1.2 billion share buyback, produces the 280p cross-check.
An alternative approach, valuing the £93 billion annuity book at 8% to 10% of assets under administration as implied by the PIC and Just transactions, gives a range of £7.5 billion to £9.5 billion for L&G’s annuity business.
UBS also flagged growing competitive risks in the BPA market, where around £1 trillion of defined benefit pension scheme assets remain outstanding across roughly 4,800 UK schemes, with consultants forecasting £50 billion of annual transactions over the next decade.
The number of participants has risen from eight to 10, with further competition expected from alternative capital providers, new propositions such as M&G’s with-profits BPA, and potential superfund approvals, all of which could limit scope for pricing improvement.