RE: Good Timing21 Nov 2025 15:29
Forensic
Good timing indeed. I did exactly the same a little higher up last week. Key for me is that LGEN has financial firewalls in place to remain a going concern during recessions. The risk lies more in short-term market pricing than in existential solvency.
How LGEN Protects Itself in Downturns
- Robust Balance Sheet
Legal & General has repeatedly reassured investors that its capital position is strong, even during turbulent events such as the UK’s 2022 mini-budget crisis. Despite sharp market volatility, LGEN confirmed that its full-year earnings were on track and its balance sheet remained resilient.
- Regulatory Capital Requirements
As a major UK insurer, LGEN operates under the Solvency II regime, which requires insurers to hold sufficient capital to withstand severe stress scenarios. This acts as a firewall against insolvency during recessions or crashes.
- Diversified Business Model
LGEN’s operations span insurance, pensions, asset management, and housing investments. This diversification reduces reliance on any single market segment, helping cushion shocks.
- Liquidity Management
The group maintains access to liquid assets and funding lines, ensuring it can meet obligations even if markets seize up.
- Stress Testing & Risk Management
LGEN regularly runs stress tests to model extreme scenarios (e.g., sharp equity falls, interest rate spikes). These tests inform capital planning and safeguard its ability to continue as a going concern.
What This Means for Investors
- Going Concern Assurance: LGEN’s safeguards are designed to ensure it can continue operating, paying claims, and servicing pensions even in severe downturns.
- Dividend Resilience: Historically, LGEN has maintained dividends through crises, supported by its capital strength.
- Market Sensitivity: While share prices may swing sharply in crashes, the underlying solvency of the business is protected by regulatory and internal safeguards.
It’s worth noting that while LGEN’s solvency firewall is strong, its share price can still be highly sensitive to sentiment in crashes. That creates opportunities: the business may remain fundamentally sound, but market panic could push valuations below intrinsic worth — exactly the kind of setup you look for in a post-crash shopping list. However, LGEN is considered to be undervalued 'right now' and I note has held up well in the current market downturn.
Good luck
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