Legal & General reaches £1.8bn deal to sell US protection arm

Legal & General has struck a ‘transformative’ deal with a major Japanese life insurer to sell its US protection business.

The FTSE 100 financial services giant said it would offload its US protection arm for $2.3billion (£1.8billion) to Meiji Yasuda, one of Japan’s oldest and largest insurers.

Meiji Yasuda has also agreed to take an estimated 5 per cent stake in L&G and gain a 20 per cent economic interest in the firm’s US pension risk transfer arm as part of a new strategic partnership.

PRTs refer to companies transferring the responsibility of distributing defined benefit pension liabilities onto insurers, often to help boost their balance sheet.

It expects to receive $2.3billion (£1.8billion) from the transaction, which is set to be finalised towards the end of this year.

L&G intends to invest approximately £400million in its US PRT reinsurance business and a possible £1billion on share buybacks.

Consequently, the London-based firm anticipates returning about 40 per cent of its market cap to shareholders between 2025 and 2027.

António Simões, chief executive of L&G, said: ‘This is a transformative transaction that brings significant strategic and financial benefits to the group and demonstrates our commitment to deliver on our strategy.’

Legal & General Group shares topped the FTSE 100 on Friday morning following the announcement, rising 6.3 per cent to 253.9p.

Under a strategy unveiled last June, the Portuguese-born boss is targeting £65billion worth of completed corporate pension deals by the end of 2028.

He is also simplifying operations, selling off housebuilder Cala Homes for £1.4billion to a joint venture including investment firms Sixth Street Partners and Patron Capital.

Alongside this, Simoes wants to grow the firm’s asset management operations, which already have an established partnership with Meiji Yasuda.

The Tokyo-based group will outsource the investment management of its US PRT and protection assets to L&G as part of their tie-up.

Hideki Nagashima, president and CEO of Meiji Yasuda, added: ‘Our intention to acquire a 5 per cent shareholding in L&G reflects our confidence in their leadership, strategy and long-term prospects.’

Russ Mould, investment director at AJ Bell, said the latter move does not necessarily mean Meiji Yasuda is planning a full-blown acquisition.

He said: ‘While there’s no suggestion this is the precursor to any sort of eventual takeover and it is likely just about cementing the relationship, it may nonetheless set some tongues wagging.’