For the first time in a number of weeks, political stability is beginning to return to the UK and the long term implications of the Brexit are slowly becoming clearer. After initial panic in the stock market, a more vivid picture is beginning to emerge of who will be the worst affected across different industries.
The Financial Times reports that Legal & General looks set to be the hardest hit of the big insurers. The company’s share price is down by almost a fifth since the referendum, a considerably worse position than rivals Prudential,
Aviva and Standard Life.
The reason why Legal & General is looking like the worst hit is its heightened exposure to the local UK market. Most of the company’s business is conducted domestically, making it particularly sensitive to any local instability or slowdown. Competitors like Aviva and Prudential have significant international business which they can fall back on in the case of any local jitters. While Legal & General does have a US operation, it’s in a growth phase and the company is far more reliant on the UK to keep business ticking along.
Legal & General also has a significant amount of corporate credit in UK real estate, an asset at a particularly high risk of being devalued following the Brexit. It could be even worse if the UK falls into a recession, triggering an ever greater fall in property values. A recession could also cause a drop in the sale of annuities and investments, representing a significant portion of the products Legal & General sells.
However, there are a few positives for Legal & General’s position. The company has significant financial reserves and in a statement immediately following the Brexit vote, said ageing populations, welfare reform and the creation of new real assets will provide the company long term growth.
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