In the wake of this crisis of credit and confidence, we are in economic recession in the UK, with lower business profitability, falling house prices, rising unemployment and deteriorating public finances.
Legal & General and the broader insurance sector suffered substantial share price falls during 2008 as confidence in financial services, and particularly in banks, declined, and there is now a renewed focus on the solvency and capital strength for all financial institutions. In this context it is worth emphasising the significant differences between banks and UK life insurance companies:- Insurers are providers, not consumers, of liquidity
- Generally, insurers are not highly leveraged, and are not generally proprietary traders
- Insurance regulations require a strong capital base with sufficient reserves to meet redemptions. Policies are generally of relatively long duration, with penalties for early redemption.
This combination of a conservative business model and strong prudential supervision reflects Legal & General’s own preferred approach to the stewardship of our customers’ assets.