Legal & General’s balance sheet has proven resilient following the UK’s decision to leave the EU partly because the British insurer trimmed its exposure to riskier assets before the vote.

Shares in insurers were among the hardest hit after the referendum result. Legal & General said its solvency II capital ratio — a measure of how much extra money it has to act as a cushion should markets fall — was 156% at the close on Monday, down just 3 percentage points due to the market volatility.

Shares in L&G climbed 8.3%, among the top gainers in the Ftse 100, albeit still some 33% below their level at the satar of the year. 

“In summary, a resilient trading statement, a robust balance and solvency position, and a materially undervalued stock,” said Shore Capital analyst Eamonn Flanagan, who has a “buy” recommendation on L&G stock. A ratio of 100% means insurers have enough capital to cover underwriting, investment, and operational risks, so anything above gives them more leeway for market fallout.

Ahead of the vote, L&G sold some sub-investment grade credit, reduced its exposure to European banks’ subordinated debt, and hedged some of its equity market exposure, it said.

L&G said it had not taken any action as a result of the downgrade of UK’s sovereign debt rating by Moody’s, Standard & Poor’s and Fitch as it had already treated the debt as AA rated in its Solvency II modelling. 

Reuters

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