Legal & General shares drop on $250 million buyback, merger of investment units

By Carolyn Cohn

LONDON (Reuters) - British life insurer Legal & General is planning a 200 million pound ($254.9 million) share buyback and a merger of its investment units, it said on Wednesday as it looks to boost returns, though the changes disappointed investors.

L&G will combine Legal & General Investment Management, one of the biggest investors in the UK stock market, and its alternative asset platform Legal & General Capital, it said in a statement ahead of a capital markets day outlining its new strategy.

LGIM CEO Michelle Scrimgeour will step down following the changes, L&G said.

L&G's shares fell 3.2%, taking the insurer to the bottom of the FTSE 100, with KBW analysts describing the new financial targets as "slightly underwhelming".

The buyback is part of a new strategy targeting 5% growth in dividend per share for the full year 2024, followed by 2% annual dividend per share growth to 2027, along with further "similar" buybacks, the insurer said.

"There's a sharper focus from everything we are doing in terms of execution and we will deliver enhanced returns," new CEO Antonio Simoes told a media call, adding that the asset management merger would enable the insurer to cut duplication but would not mean job losses.

"This is a growth plan...this is not about redundancies."

Simoes also said in the statement that the changes marked a "shift towards fee-based earnings at higher returns on capital".

L&G is a major player in the bulk annuity market - insuring defined benefit, or final salary pension schemes. The business requires high levels of regulatory capital, which can impact investor returns.

The company posted flat operating profit for 2023, citing tough market conditions.

It said on Wednesdsay it aimed to write 50 billion-65 billion pounds in UK bulk annuities by year-end 2028, to generate cash to drive asset management growth. The growing UK bulk annuity market currently totals around 50 billion pounds annually.

The bulk annuity business is a much smaller part of strategies deployed by rivals Aviva and M&G.

L&G said it was targeting an annual compound growth rate of 6-9% in core operating earnings per share to 2027, at a return on equity above 20%.

Simoes also said the insurer planned more focus on its international business, particularly in the United States.

L&G plans to grow its assets under management in private markets to 85 billion pounds by 2028, compared with 48 billion last year.

It said housebuilder CALA would be managed separately from the asset management unit ahead of potential divestment.

($1 = 0.7847 pounds)

(Reporting by Carolyn Cohn; Editing by Sinead Cruise, Jan Harvey and Michael Perry)