11 Queen Victoria Street
London EC4N 4TP
Telephone: (0171) 528 6200
Fax: (0171) 528 6222
Incorporated: 1920 as The Legal & General Assurance Society
Total Assets: £45.88 billion (US$76.16 billion) (1996)
Stock Exchanges: London
Ticker Symbol: LGGNY
SICs: 6082 Foreign Trade & International Banking Institutions; 6311 Life Insurance; 6321 Accident & Health Insurance; 6324 Hospital & Medical Service Plans; 6331 Fire, Marine & Casualty Insurance; 6719 Offices of Holding Companies, Not Elsewhere Classified
By consistently delivering competitive, value for money products and high quality service through the commitment of our people, Legal & General intends to be the customer's preferred choice of financial services.
Legal & General Group plc is one of Great Britain's largest insurance concerns. Although it also writes home, auto, health, and other nonlife policies and offers investment-management and banking services, life insurance has always stood at the core of its operations. In fact, it sold nothing but life insurance until after World War I. In the late 1990s, about 90 percent of Legal & General's profits came from its domestic operations, with the remainder generated from subsidiaries in Australia, the United States, France, and the Netherlands.
Founded in 1836 by Six Lawyers
The Legal & General Life Assurance Society was founded in 1836, when British life insurance was just beginning to thrive. At that time, rapid population increases in Great Britain and a surge in real personal income were creating favorable conditions for the life insurance industry. Between 1834 and 1836, 310 joint-stock life insurance companies were created, of which Legal & General turned out to be one of the most durable. Its founders were six London lawyers--Sergeant John Adams, Basil Montagu, W. C. L. Keene, Kenyon S. Parker, J. H. R. Chichester, and George L. Baker--who convened their first board meeting in a legal office at 18 Lincoln's Inn Fields in June 1836. At that meeting, Adams was elected as chairman and the company's initial capitalization was set at £1 million, a goal it reached through sale of stock in 1839. The first board of directors was set at 24 members, raised to 30 at the next meeting, and shares were limited to members of the legal profession.
In October 1836, Legal & General accepted its first policy, for the solicitor Thomas Smith. Although the society carefully screened each applicant for insurance, Smith proved not to be a good risk--he died four years later and his policy of £1,000 was paid after the society had received only about £177 in premiums. That fall, the firm appointed six provincial agents, including one in Edinburgh, and within its first year of business it accepted more than 100 policies.
Legal & General began to loan money to both corporate and individual customers soon after its founding. In 1841 it loaned £20,000 to the Stockton and Hartlepool Railway, and in 1852 it authorized £60,000 worth of credit to the Regent Canal Company. A request from the Great Western Railway in 1846 for a loan of £65,000 was, however, turned down. A substantial number of London aristocrats also took out loans from the firm at this time, more likely than not to cover gambling debts.
Legal & General expanded throughout the rest of the 19th century. In the 1850s it entered the real estate business, investing heavily in the development of Birkenhead, near London, and the transformation of Belvedere Estate into a residential area in 1860. To serve its growing core life insurance business, Legal & General established its first office outside London, in Manchester, in 1889. At the turn of the century, the firm's total assets exceeded £2 million and it was the second largest insurance company, in terms of capitalization, in Great Britain doing only ordinary life business.
Expansion Overseas Following World War I
Legal & General emerged from World War I intact, despite four years of paying an unusually high number of claims because of war casualties and the influenza epidemic of 1918. In 1920 the society incorporated and dropped the word "Life" from its name. The company began writing fire and accident policies, a business that immediately proved successful; the new popularity of automobile and airplane travel created a huge demand for accident insurance. In 1929 the restriction of society membership to those in the legal profession was lifted. The Great Depression's effect on the world economy in the 1930s was scarcely felt by the British insurance industry. In fact, historian G. Clayton pointed out in his British Insurance that, if anything, widespread pessimism in bad times tended to increase the demand for insurance.
Legal & General expanded overseas and by acquiring other companies. In 1931 it opened a life insurance office in Johannesburg. In 1933 it strengthened its pensions operations when it acquired the London office of New York-based Metropolitan Life Insurance, after restrictions placed on U.S. insurance companies in the wake of the 1929 stock market crash made it unprofitable for Met Life to continue its British business. The next year Legal & General further strengthened its position both at home and abroad by acquiring Gresham Life Assurance and Gresham Fire and Accident. The Gresham mergers were particularly important for their long histories of doing business overseas. Gresham's fire insurance business in Australia provided a base from which Legal & General would begin to penetrate the Australian market in 1948.
World War II put a tight squeeze on the British insurance industry. Men and money fueled the war effort; the firms were asked to contribute the former by releasing employees devoted to generating new business and the latter by buying up low-interest government bonds, often selling securities paying higher yields in order to do so. Fire insurance claims skyrocketed as German bombs fell on England. Legal & General was among the many firms forced to relocate offices outside London for the duration because of the bombing. After several temporary relocations, the company ended up at a former school at Kingswood in Surrey. Its head office remained in Kingswood after the return of peace, and later its central computer was located there as well.
Once the war ended, the firm picked up where it had left off in 1939. In 1947 it began writing fire and accident policies in South Africa, as well as life insurance policies. In 1956 the company added life insurance to its nonlife business in Australia. Back home, the firm added marine insurance in 1949, using Andrew Weir & Company as its agent. In 1960 it acquired Andrew Weir's marine subsidiary, British Commonwealth Insurance.
From just after World War II through the late 1960s, Legal & General ranked behind Prudential as Great Britain's second largest life insurance company when measured by total sums insured, maintaining about ten percent of the market. It grew substantially early in the decade, and total assets reached the £1 billion mark by 1970. The 1960s, however, were not without contention for the firm: in 1966 angry shareholders complained when Legal & General failed to raise its dividend and the firm's directors did not adequately explain why. Rumors circulated in the financial press over the next year that Legal & General would "go mutual," with the shareholders selling out to the policyholders, but at its 1967 annual meeting the firm declared that the firm would not change hands.
International Expansion in the 1970s and 1980s
After a reorganization of the executive office in 1970, increasing international expansion of operations marked the decade for Legal & General. In 1972 it entered into cooperation agreements with three European insurance companies: Colonia of West Germany, La Paix of France, and Reale Mutuale of Italy. In 1973 it joined with the West German firm Cologne Reinsurance Company to purchase Victory Insurance, Britain's second-largest reinsurance company. Legal & General took the majority interest and subsequently bought Cologne's minority stake. In the same year, it sold off Gresham Life Assurance but retained most of its overseas businesses. Between 1974 and 1976, it signed cooperation agreements with AGO Holding (later part of AEGON of the Netherlands), Assubel of Belgium, Ireland's Life of Eire, Vadoise Vie of Switzerland, and Nippon Life. In 1976 Legal & General merged its South African general insurance business with that of Norwich Union under the name Aegis Insurance Company. The company also took some domestic actions during the 1970s. In 1971 it introduced a pensions-management subsidiary and set up the Tyndall Fund-Unit Assurance Company to gain a foothold in the unit-trust field. In 1973 Legal & General acquired the real estate developer Cavendish Land.
At the end of the decade, Legal & General underwent a major reorganization. It separated its British insurance operations, its international operations, and its investment-management activities into the three separate subsidiaries. The new parent company, still called Legal & General Group, became a non-insurance company. The move was made to give Legal & General greater financial flexibility and to differentiate its activities more clearly.
After this reorganization, Legal & General ventured into the U.S. market in 1981 when it acquired Government Employees Life Insurance Company for US$140 million. It changed the Washington, D.C.-based company's name to Banner Life the next year. In 1984 it acquired Unilife Netherlands, the Dutch subsidiary of the Unilife Assurance Group, and added it to Legal & General Netherlands. At the same time, however, not all of Legal & General's overseas ventures were working out. The firm decided to terminate its general insurance businesses in France and Australia in 1981. In 1987 Legal & General sold its 45 percent stake in Aegis Insurance, joining the trend among British companies toward divesting South African holdings because of declining profitability, shareholder pressure, and worries over political instability in that country.
The late 1980s were marked by Legal & General's attempt to bolster its U.S. operations amid some difficulty at home. Throughout much of the decade, the performance of Legal & General's pension fund asset management was embarrassingly poor. In 1987 the amount of assets managed by its investment arm shrank from £12.5 billion to £11 billion after the U.S. stock market crash. To remedy the situation, the firm lured David Prosser from his position as chief of the Coal Board's pension fund in January 1988 to head up its investment-management operations. In Prosser's first year, the investment division's asset pool increased to over £14 billion, and in March 1989 Legal & General strengthened its position in the U.S. market when it acquired William Penn Life Insurance Company of New York from Continental Corporation, a U.S. insurance concern, for US$80 million.
Legal & General also expanded in another direction when it reached a cooperative agreement with Kyoei Mutual Fire and Marine Insurance Company of Tokyo in 1989. The agreement gave the company greater access to the Japanese market. At the same time, it provided more business from Kyoei's industrial clients moving into the unified European market.
1990s and Beyond
In the 1990s Legal & General continued to tinker with its various operations, exiting the reinsurance business at the start of the decade by selling off Victory to Nederlandes Reassurantie Group Holding N.V. In 1995 Legal & General entered into a joint venture with Woolwich Building Society to provide Woolwich customers with a variety of general insurance policies, including homeowner's insurance. That same year Legal & General's Australian subsidiary joined with Australian insurer SGIO Insurance to acquire SGIC, the insurance operations of the South Australian government, for A$170 million (£80 million). Through this transaction, Legal & General gained SGIC's life insurance business as well as an investment management contract for the South Australian government's third-party insurance pool. The company sold its commercial general insurance business to Guardian Insurance in 1996 and the following year began offering banking services in the United Kingdom after securing a banking license in June. The first service offered by this new venture was an instant access deposit account service, which was launched in July 1997.
Historically conservative in nature and thus usually capable of avoiding entanglement in scandals, Legal & General nonetheless found itself in the 1990s in the midst of an ongoing pensions misselling scandal. In early 1994 Lautro, an organization that self-regulated the U.K. life insurance industry, fined Legal & General a then-record £400,000 for failing to meet standards set by Lautro. The main charge, which the company did not dispute, was that some of its direct sales agents had convinced thousands of customers to leave lucrative occupational retirement plans and instead purchase personal pensions from Legal & General. Other life insurance companies were also implicated in the scandal, which may have wronged as many as half a million people in the late 1980s and early 1990s. In response, Legal & General established the new post of director of compliance in April 1994. Moreover, in March 1997 the company unveiled a pensions guarantee, which promised to pay individuals the pension they would have received had they retained their occupational retirement scheme. In early 1998, it was estimated that the pensions scandal might cost U.K. life insurance companies as much as £11 billion (US$17.6 billion).
Amid the continuing consolidation of the financial services industry--most notably the purchase of insurance companies by banks--Legal & General became the object of takeover rumors in late 1997 and early 1998, but the company insisted that it was large enough and strong enough to remain independent. In March 1998 Legal & General announced that its new business had increased 40 percent in fiscal 1997 compared to the previous year, while its pretax operating profits had risen 20 percent, to £349.6 million (US$583.8 million). Despite the continuing cloud hanging over it in the form of the pensions scandal, Legal & General appeared determined to stand alone. There was also evidence that the company was seeking to concentrate more intensely on the domestic market as Legal & General announced in late March 1998 that it was considering taking its Australian life insurance subsidiary public.
Principal Subsidiaries: Legal & General Finance plc; Legal & General Assurance Society Limited; Legal & General Insurance Limited; Legal & General Investment Management Limited; Legal & General Assurance (Pensions Management) Limited; Legal & General Mortgages Limited; Legal & General Mortgage Services Limited; Legal & General Property Limited; Legal & General (Unit Trust Managers) Limited; Legal & General Estate Agencies Limited; Legal & General Ventures Limited; Fairmount Group plc; Gresham Insurance Company Limited; Legal & General Life of Australia Limited; SGIC Life Limited (Australia); Legal & General (France) S.A.; Legal & General Bank (France) S.A.; Legal & General Nederland Levensverzekering Maatschappij N.V. (Netherlands); Banner Life Insurance Company (U.S.); William Penn Life Insurance Company of New York (U.S.).
Brown-Humes, Christopher, "L&G Insists on Independence," Financial Times, September 12, 1997, p. 23.
------, "L&G May Float Australian Life Side," Financial Times, March 31, 1998, p. 28.
------, "L&G Wants to Stay Independent," Financial Times, March 13, 1998, p. 27.
------, "Pensions Guarantee Unveiled by L&G," Financial Times, March 21, 1997, p. 8.
------, "Legal & General New Business Increases 40%," Financial Times, January 16, 1998, p. 22.
Clayton, G., British Insurance, London: Elek Books, 1971, 381 p.
Leigh-Bennett, E. P., On This Evidence, London: Baynard Press, 1936.
Smith, Alison, "L&G and Woolwich in Insurance Venture," Financial Times, July 17, 1995, p. 17.
------, "L&G Looks to Develop Banking Services," Financial Times, March 15, 1996, p. 26.
------, "L&G Shake-Up to Benefit Investors," Financial Times, November 17, 1995, p. 19.
------, "Record Lautro Fine for Legal & General," Financial Times, March 1, 1994, p. 1.
Tait, Nikki, "A $170m Joint Buy for L&G," Financial Times, November 21, 1995, p. 23.
Williams, Trevor, "UK's Legal & General Predicts Sour Results," Journal of Commerce, February 11, 1991, p. 10A.
Source: International Directory of Company Histories, Vol. 24. St. James Press, 1999.