Regulatory And Demographic Headwinds Will Pressure Future Stability

Key Takeaways

• Profitability and growth are pressured by low interest rates, rising liabilities from demographic shifts, and intensifying regulatory burdens.
  
• Heavy reliance on UK pension markets and slow technology adoption expose the group to margin compression, strong competition, and digital disruption risks.
  
• Legal & General is leveraging structural demographic trends, international partnerships, and digital transformation to drive recurring revenues, reduce costs, and boost long-term asset management growth.

Catalysts

Provides various insurance products and services in the United Kingdom, the United States, and internationally.

• Persistently low or volatile interest rates are expected to continue constraining investment yields on L&G's insurance and pension assets, with recent management commentary highlighting limited expected upside from back book optimization in the near term. This ongoing dynamic is likely to compress net interest margins and pressure group profitability for several years.
  
• Accelerating demographic changes, including aging populations in key UK and Western markets, while expanding L&G's book, are expected to drive a sharp increase in long-term liabilities and annuity claims outflows; the company's own actuaries confirm limited ability to mitigate longevity risk, especially for younger deferred annuitants, threatening both earnings stability and capital reserves.
  
• Heightened regulatory and ESG pressures are forecast to increase compliance and reporting costs as the Prudential Regulation Authority adopts more granular life stress testing; these policy headwinds are likely to reduce L&G's investment flexibility, driving down fee revenue and squeezing group margins over the medium term.
  
• Ongoing reliance on the UK bulk purchase annuity and pension risk transfer market exposes L&G to intensified competition and new entrants, with management admitting flat aggregate demand and margin pressure from greater market participation; this will likely limit revenue growth, especially as PRT deal flow becomes lumpy and pricing power weakens.
  
• The risk of digital disruption remains unresolved: L&G has only recently begun to see the benefits of technology investments, while large-scale, tech-enabled competitors and new customer preferences for low-cost, passive, or digital-first products threaten to erode market share, stunt top-line growth, and create ongoing expense drag across core businesses.

Legal & General Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Legal & General Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Legal & General Group's revenue will decrease by 5.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 2.1% today to 15.2% in 3 years time.
• The bearish analysts expect earnings to reach £1.6 billion (and earnings per share of £0.29) by about August 2028, up from £259.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 8.5x on those 2028 earnings, down from 55.8x today. This future PE is lower than the current PE for the GB Insurance industry at 14.5x.
• Analysts expect the number of shares outstanding to decline by 2.23% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.82%, as per the Simply Wall St company report.

Legal & General Group Future Earnings Per Share Growth

Risks

• The growing demand for pension risk transfer and bulk annuity (PRT) solutions, supported by aging populations in the UK and internationally, provides a long-term structural tailwind that can drive sustained increases in revenues and recurring fee income for Legal & General.
  
• Strategic partnerships, such as the new collaboration with Meiji Yasuda, are enhancing the company's access to international markets, unlocking additional capital for growth, and attracting substantial seed investment into private markets, increasing the potential for higher asset management revenues and improved margins.
  
• The company's ongoing digital transformation, operational simplification, and disciplined capital allocation are expected to structurally reduce costs and enhance operating leverage, potentially leading to rising net margins and higher sustainable earnings per share.
  
• Significant growth in assets under management, pivoting toward higher-fee private markets and infrastructure strategies, is expanding the addressable market for Asset Management and capitalizing on industry shifts toward alternative investments, creating potential for long-term increases in fee-related revenues.
  
• Robust capital generation, high solvency ratios, and shareholder-friendly capital return policies, including announced buybacks and dividend increases, signal strong balance sheet resilience and the ability to both fund growth initiatives and deliver enhanced returns through higher earnings and improved return on equity.

Valuation

• The assumed bearish price target for Legal & General Group is £2.15, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Legal & General Group's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £3.35, and the most bearish reporting a price target of just £2.15.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be £10.7 billion, earnings will come to £1.6 billion, and it would be trading on a PE ratio of 8.5x, assuming you use a discount rate of 6.8%.
• Given the current share price of £2.56, the bearish analyst price target of £2.15 is 19.1% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.