A.M. Best Affirms Financial Strength Ratings of Legal & General Assurance Society; Affirms Ratings of Legal & General Group.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit rating (ICR) of "aa" of Legal & General Assurance Society Limited (L&G ASL) (United Kingdom). At the same time, A.M. Best has affirmed the ICR of "a+" of the non-operating holding company, Legal & General Group Plc (L&G). The ratings for debt issues and L&G's U.S. subsidiaries have also been affirmed. (See complete list below.) The outlook for all ratings remains stable.

The ratings reflect L&G's strengthening business profile in the United Kingdom, resilient financial performance and strong risk-adjusted capital position. The main offsetting factors are the potential further pressures on new business margins in a highly competitive environment and the increasing utilisation of "soft" capital elements as part of the group's funding structure.

Strengthening market position--L&G benefits from a leading business profile and the current trends towards concentration in the UK market. A.M. Best believes that the group's increase in market share to approximately 11% is to continue during the next year, albeit at a slightly reduced pace. New business growth is expected to remain heavily concentrated on annuities and investments products, while pensions are likely to be boosted by simplification rules due in force from April 2006. The reduction in new protection and mortgage-related business experienced during the first half of 2005 is expected to continue, mainly driven by the slowdown in the housing market.

Resilient financial results, albeit with reducing new business margins--A.M. Best anticipates new business margins to continue to be under pressure, after a reduction from 5% to 4.1% as a percentage of present value of new business premiums in 2005, due to increased competition in the UK market and the contraction in the higher-profit generating protection lines. Consolidated after-tax profits, however, are expected to remain resilient given the growth in business written, the significant amount of maturing business, stable investment returns and the decreasing relative importance of transfers from with-profits funds.

Strong risk-adjusted capitalisation with increasing utilisation of 'soft' capital components--A.M. Best believes that L&G's total risk-adjusted capitalisation is likely to remain strong, growing in line with the expected business expansion. However, the overall quality of the capital will continue to change with an increased reliance on 'soft' components such as subordinated debt, value of in force (VIF) and with-profits orphan estate.

The ratings of "a+" of the existing senior debt issues have been affirmed for L&G.

The ratings of "a" of the existing subordinated debt issues have been affirmed for L&G.

The FSR of A+ (Superior) has been affirmed and an ICR of "aa" has been assigned for the following U.S. subsidiaries of L&G. The outlook for all ratings remains stable.

--Banner Life Insurance Company

--William Penn Life Insurance Company of New York 

The ratings of the US companies aforementioned reflect their profitable operations on a GAAP and embedded value basis, sound capitalization and high quality investment portfolio. The ratings also reflect the parental support from L&G. Partially offsetting these strengths are the companies' limited operating profile, the highly competitive nature of the U.S. term life market and statutory volatility as a result of new business strain.

For Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.