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Rating Action:

Moody’s assigns Baa3(hyb) rating to Legal & General’s perpetual contingent convertible notes

17 June 2020

London , June 17, 2020 – Moody's Investors Service (Moody's) has today assigned a Baa3(hyb) rating to the fixed rate reset perpetual restricted Tier 1 contingent convertible notes ("notes") to be issued by Legal & General Group Plc ("L&G" or "Group", issuer rating A2, stable outlook). The rating is based on the expectation that there will be no material difference between current and final documentation in relation to the notes.

The notes will convert into ordinary shares if the Group's Solvency II coverage ratio breaches certain triggers. Moody's approach to rating such "high trigger" contingent capital securities is described in its cross-sector insurance rating methodology Assigning Instrument Ratings for Insurers (https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1093824 ) published in May 2018.

RATINGS RATIONALE

The Baa3(hyb) rating of the notes reflects their deeply subordinated status (the notes rank junior to L&G's senior creditors and instruments that qualify as Tier 2 and Tier 3 Own funds, pari passu with obligations that count as Tier 1 Own funds and senior to ordinary shares), and the risk of coupon cancellation on a non-cumulative basis (coupons can be cancelled at any time at the issuer option and are mandatorily cancelled in certain circumstances, including if the Group's Solvency II ratio falls below 100% or in case of regulatory intervention).

The notes will be converted in full into common shares if the Group's Own funds fall to or below 75% of the Group's Solvency capital requirements (SCR), or if the Group's Own funds fall below 100% of SCR for more than three months. The notes will also be converted in full to ordinary shares if the Group's Own funds fall to or below the Group's minimum capital requirement.

Moody's assesses the probability of a conversion trigger breach using an approach that is model-based. The outcome of the model is then supplemented by qualitative considerations, which can be insurer or jurisdictional specific.

The model takes into account the Group's creditworthiness as captured by the Aa3 insurance financial strength rating (IFSR) of L&G's main operating company, Legal and General Assurance Society Limited ("LGAS"), and Moody's expectation of the Group Solvency II ratio. The Baa3(hyb) rating assigned to the notes is resilient given the Group's latest published Solvency II ratio (End February, 2020: 174%) and its disclosed ratio sensitivities. The Baa3(hyb) rating is below the notional rating that would apply to L&G's preferred stock absent equity conversion or principal write-down features.

According to the terms and conditions of the notes, L&G may substitute or vary the terms of the notes under certain circumstances, although Moody's believes that the terms cannot be changed in a way that is materially adverse to the investor.

The notes -- whose proceeds are to be used for general corporate purposes -- are intended to qualify as restricted Tier 1 capital under Solvency II.

Their hybrid features will result in some equity credit under Moody's debt equity continuum based on the notes' maturity, interest deferral features, and subordination. Moody's expects the issuance in itself to slightly decrease L&G's adjusted financial leverage (YE 2019: 27.3%) given the high equity characteristics.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

The key drivers of the notes' rating are the level of the Group's Solvency II ratio and the Aa3 IFSR.

The notes could be upgraded if the Group would target and consistently report a Solvency II ratio above 190% and/or if the Aa3 IFSR of LGAS is upgraded.

Conversely, the notes could be downgraded if the Group's Solvency II ratio is consistently below 160% and/or if the Aa3 IFSR of LGAS is downgraded.

RATING LIST

Assignment:

Preferred Stock Non-Cumulative, assigned Baa3(hyb)

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was Life Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187348 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004 .

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569 .

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Helena Kingsley-Tomkins
VP-Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London
United Kingdom
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

Antonello Aquino
Associate Managing Director
Financial Institutions Group
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

Releasing Office :
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London, E14 5FA
United Kingdom
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

© 2020 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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