RBC Capital Markets has cut its earnings forecasts for Legal & General Group PLC (LSE:LGEN) across all three of its main business divisions, placing the insurer's shares on underperform with a price target of 220p, a level the stock has already traded through at 236p.
The broker's core operating profit forecasts fall by around 3% per year through to 2028, leaving RBC around 3% below market consensus, with the sharpest downgrade in asset management where estimates are cut by 13% for 2026.
The most pressing concern is the UK pension risk transfer (PRT) market, where Legal & General competes to take on the pension liabilities of corporate schemes in exchange for a premium.
RBC sees heightened competitive pressure on several fronts. Three rival insurers have recently come under North American ownership, bringing fresh capital and an appetite for market share.
New UK-based entrants are being particularly aggressive on price. Scottish Widows, a Lloyds Banking Group subsidiary, is exploring origination partnerships to compete on larger deals.
Meanwhile, the Prudential Regulation Authority, the UK banking supervisor, has taken a negative view of FundedRe, a reinsurance structure that Legal & General has used to cede around 20% of its premiums and which has provided capital relief.
Asset management presents a separate set of problems. Despite positive net new money flows and higher average assets under management, fee-related earnings and operating profits were flat year on year, with the cost-income ratio rising a further percentage point to 75%.
A roughly £50 million write-down to earnings from shareholder assets pushes RBC's forecasts below the company's own target of £500-600 million by 2028.
On solvency, RBC forecasts the Solvency II ratio, a measure of an insurer's financial resilience, declining from 207% this year to 190% by 2028 as buybacks and new business strain erode the buffer, leaving it at the lower end of the company's own 160-190% operating range guidance.
The dividend, which offers a prospective yield of 9.6% for 2027, is the stock's main attraction, and RBC acknowledges it is highly likely to be paid, supported by £2.4 billion of planned returns over the next 12 months, including buybacks.
The concern is not whether the dividend is safe in the near term, but whether the business can generate sufficient surplus to grow it meaningfully beyond 2028 without continuing to lean on balance sheet reserves.