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Investing.com -- J.P. Morgan has downgraded Legal & General Group to “neutral” from “overweight,” cutting its price target to 275p from 290p, in a note dated Wednesday.
The revision follows a cautious reassessment of the insurer’s valuation, earnings outlook and market position.
While the company exceeded consensus operating profit in the first half of 2025 and raised guidance for back-book optimisation, the bank noted that profit upgrades are modest and there is limited scope for earnings to exceed market expectations.
The downgrade reflects several concerns. L&G continues to face ongoing negative investment variances, which have weighed on net profit in recent years and are expected to persist in the near term.
J.P. Morgan also flagged that the company’s dividends and share buybacks are not currently covered by operational capital generation, projecting coverage only by 2027-28.
The brokerage expects the Solvency II ratio to decline through 2028, which could raise the company’s cost of equity compared with UK life insurance peers.
Another factor is intensifying competition in the UK pension risk transfer market. The number of active competitors has risen to 10, with new entrants including large global private asset managers entering via acquisitions.
J.P. Morgan believes this heightened competition could prevent new business margins from recovering to historic levels and constrain contractual service margin growth, even though L&G remains well positioned to write £10 billion-£13 billion of bulk annuities annually.
Valuation also played a key role in the downgrade. L&G now trades at about 11x 2026 estimated earnings, compared with roughly 10.5x for the UK life sector.
The sale of its US business has reduced operational capital generation, making its free cash flow profile less attractive relative to peers. Despite expected double-digit EPS growth in coming years, the bank sees better relative performance prospects elsewhere in the sector.