Legal & General Says That Collateral Calls Were Easily Met

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Legal & General Group announced on Tuesday that despite the fact that it does not face any challenges in satisfying collateral demands. It is not required to sell gilts or bonds. The company will assist pension fund customers who have been thrown off balance as a result of increases in interest rates.

New Trade Update

A company trade update is as follows: despite increased volatility in the second half of the year, “little economic impact” on firms. It meant that full-year operating profit of around 8% and capital creation of 1.8 billion pounds were still predicted to be achieved.

“We continually analyze and stress test our capital and liquidity requirements to a 1 in 200 stress level. It enables us to absorb shocks like we have observed in the past few days,”. L&G stated, hailing the UK insurance climate as a strength of the industry there.

After a controversial government “mini-budget” on September 23, which caused a precipitous drop in the value of UK government bonds. Widespread British pension schemes were exposed to risk. 

As a result, some pension funds were forced to sell assets. In a bid to satisfy the collateral demands of liability-driven investment managers in order to protect their faltering derivatives positions.

Pension Funds And Assets Reconciliation

The LDI funds, which allow pension funds to reconcile their obligations with their assets and the future payments they must make to pension members. They were receiving margin calls from relationship banks and other key financial institutions.

According to the statement, in order to properly manage collateral calls, “we preserve huge buffers above these practical demands.”

The business anticipates that its solvency coverage ratio will be between 235% and 240% as of the 30th of September. Which is an improvement of at least 23 percentage points compared to the prediction for the first half of 2022.

The temporary purchases of long-dated gilts by the Bank of England have helped to lessen the burden on L&G’s clients. Though the business has pledged to continue working with them to achieve sensible hedging levels regardless of the effect these purchases have had.

“Our businesses are robust, and we are on pace to produce solid growth in key financial measures for full year 2022,”. According to Sir Nigel Wilson, group chief executive. “Our businesses are resilient,”

Our financial sheet and liquidity situation are both stable, and our operations generate a significant amount of cash on a regular basis.

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