Rising interest rates are a gift to insurers such as Legal & General, which have vast books of annuities. Yet the potential for the FTSE 100 constituent to beat targets for capital generation and dividends is not reflected in an undemanding market rating. Why? Because of angst over the impact of any rise in corporate and sovereign debt defaults as economic prospects weaken.
However, even in the event of a credit stress scenario of the same ilk as the spike in defaults that occurred in 2001-02, which includes a “big letter” downgrade of 20 per cent of all assets, Legal & General’s Solvency II ratio would stand at 190 per cent, far above the regulatory minimum.
The shares trade at only eight times forward
