Legal & General (LSE: LGEN) saw its share price plunge to around 244p on Wednesday, marking a drop of roughly 6% in mid-week trading after the FTSE 100 financial giant released full-year results that came in slightly below market expectations.
The decline made Legal & General one of the notable fallers on the UK’s benchmark index during the session. Investors reacted quickly to the earnings update, focusing on softer-than-expected profitability and a weaker capital metric, even though several headline numbers still showed year-on-year growth.
Profit growth fails to meet expectations
Legal & General reported core operating profit of £1.6bn for the 2025 financial year, representing a 6% increase compared with the previous year. While the result indicated steady business growth, it missed analysts’ expectations of roughly £1.7bn.
Even small earnings shortfalls can trigger sharp market reactions, particularly for large financial stocks that investors often hold for reliability and predictable cash flow. With expectations already high, the profit miss appears to have been enough to trigger Wednesday’s sell-off.
The group did, however, deliver stronger earnings per share. Core operating EPS climbed 9% to 20.93p, landing at the top end of the company’s previously guided growth range of 6% to 9%.
Still, markets tend to focus heavily on headline expectations during results season, and the lower-than-forecast profit figure dominated investor sentiment.
Asset management growth disappoints
Another factor weighing on the stock was performance in Legal & General’s asset management business. The division reported only modest growth in assets under management, leaving operating profit largely unchanged year-on-year at £402m.
For investors hoping the asset management arm would provide stronger momentum, the lack of meaningful expansion appeared disappointing. As asset managers generate revenue largely through fees on managed assets, slower AUM growth can signal weaker earnings potential over time.
The flat profit figure from the division therefore became a key focus for analysts reviewing the results.
Capital strength weaker than forecast
The company’s Solvency II ratio also drew attention. Legal & General reported a coverage ratio of 210% at the end of the year, compared with 230% in 2024. The result also missed market forecasts by around 10 percentage points.
Solvency II ratios are a crucial measure of financial strength for insurers, reflecting how much capital a firm holds relative to its liabilities. While a ratio above 200% still indicates a strong capital position by industry standards, the drop raised questions among investors.
The company said the lower ratio partly reflects the upcoming sale of its US insurance assets, which forms part of a broader strategic restructuring.
New capital target and record buyback
Alongside its results, Legal & General announced a shift in its capital management strategy. The company said it would lower its medium-term Solvency II target range to between 160% and 190%.
Management believes the adjustment will allow the group to return more capital to shareholders while still maintaining a robust financial position.
As part of that plan, the company unveiled a share buyback programme worth £1.2bn scheduled for 2026. The programme would be the largest buyback in Legal & General’s history and slightly above market expectations.
Buybacks reduce the number of shares outstanding and can support earnings per share over time. They are also often interpreted by investors as a sign of management confidence in the company’s long-term prospects.
More information about the company’s capital strategy and shareholder returns can be found on Legal & General’s investor relations page.
Dividend growth continues
Legal & General also reaffirmed its commitment to dividend growth, announcing a planned 2% increase in its annual dividend. The move continues the gradual dividend expansion that has helped the stock remain popular among income investors.
Following the share price decline, the company’s forward dividend yield has risen to roughly 9%, making it one of the highest yields among major FTSE 100 companies.
The stock’s valuation has also become more attractive following the sell-off. Legal & General now trades at a price-to-earnings ratio of around 10.2 times, below the broader FTSE 100 average.
Financial data platforms such as Yahoo Finance show that the company has historically attracted income-focused investors due to its consistent dividend payments.
Market sentiment adds pressure
Broader market conditions may also have amplified Wednesday’s sell-off. Investors across global markets remain cautious due to ongoing geopolitical tensions, including the continuing conflict in the Middle East.
Periods of heightened uncertainty often make investors more sensitive to earnings disappointments, particularly in large financial stocks.
Long-term outlook remains a key focus
Despite the immediate decline in its share price, Legal & General remains a major player in retirement services, pensions and asset management.
The company has benefited from structural trends such as ageing populations and increasing demand for retirement planning products. Over the past decade, the business has delivered an average annual return close to 10% when dividends are included.
Legal & General is also restructuring parts of its operations to focus more heavily on higher-margin services and scalable growth areas.
While investors may remain cautious in the short term following the earnings miss, long-term shareholders will likely focus on whether the company can continue generating steady profits while maintaining its attractive dividend policy.
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