AM Best has upgraded the financial strength rating to A+ (Superior) from A (Excellent) and the long-term issuer credit rating to “aa-” (Superior) from “a” (Excellent) of Bermudian-based Legal & General Reinsurance Company No 2 Ltd.

The agency also affirmed the long-term ICR of “a” (Excellent) of the non-operating holding company, Britain’s Legal & General Group Plc.

Concurrently, AM Best affirmed the FSR of A+ (Superior) and the long-term ICRs of “aa-” (Superior) of L&G’s rated subsidiaries.

The outlook of these credit ratings is stable.

The ratings reflect L&G’s consolidated balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, favourable business profile, and appropriate enterprise risk management.

The ratings of its rated subsidiaries factor in their strategic importance to L&G and their integration within the group.

L&G’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation, as measured by Best’s capital adequacy ratio, at the strongest level.

The agency said the group’s risk-adjusted capitalisation includes meaningful contribution from economic capital embedded in long-term business and equity credit for hybrid debt, which are considered weaker quality in the capital structure.

The assessment also factors in the group’s excellent financial flexibility, through its access to capital markets, coupled with good fungibility of capital.

AM Best said: “L&G has a track record of strong operating performance, as demonstrated by a five-year (2018-2022, under IFRS 4) weighted average return-on-equity ratio of 19.6 per cent (as calculated by AM Best).

“The profitability of the pension risk transfer (PRT) business and retail division have been the main drivers of returns over the period.

“Overall performance in 2023 was adversely impacted by material unrealised mark-to-market losses due to higher rates on asset valuations and translated into an ROE of 9.7 per cent (under IFRS 17).

“AM Best expects, based on the group’s published half-year 2024 results, L&G’s performance for the year to be in line with its historical average, benefiting from higher reinvestment yields, and the unwind of unrealised losses.”

The agency said the group holds a leading position in the British market across bulk annuities, protection products, and asset management services.

“It benefits from a good diversification of earnings with a comprehensive offering of end-to-end pension de-risking and retirement solutions.”

The agency said L&G is continuing its expansion into the North America PRT market by leveraging its expertise as a leader in Britain.

Moreover, the group’s asset management division provides a further degree of diversification to its business profile as one of the largest asset managers worldwide, AM Best said.