Highlights

  • M&G estimates a one-off reduction of approximately GBP 230 million in Group Solvency II Own Funds if the proposed reforms are approved in their current form.
  • The company expects its Shareholder Solvency II coverage ratio to decline by around 1 percentage point under the new ground rent framework.
  • Annual adjusted operating profit and underlying capital generation could decrease by about GBP 15 million from 2028, before mitigating actions.

M&G (LSE:MNG) has outlined the potential financial and capital implications of the UK Government’s proposed Leasehold Reform Bill, which targets changes to ground rents across England and Wales. While the company has reconfirmed its operating profit growth, capital generation targets, and dividend policy, the proposed legislation is expected to affect asset valuations, solvency metrics, and future earnings from its annuity book once implemented.

Government Proposal Targets Ground Rents

The UK Government has announced proposed reforms to ground rents applicable to residential leaseholds in England and Wales. Under the current plan, existing annual ground rents would be capped at GBP 250 starting in 2028 for a transition period of 40 years, after which ground rents would be reduced to zero. The announcement has prompted responses from investors with exposure to ground rent assets, including M&G.

Direct Exposure Through Shareholder Fund

M&G’s exposure arises primarily through GBP 722 million of ground rent assets held within the Prudential Assurance Company shareholder fund, based on figures as of 30 June 2025. These assets form part of the company’s long-term investment portfolio and contribute to surplus generation within its annuity business.

Should the proposed legislation proceed unchanged, M&G expects a write-down in asset valuations that would lead to a one-off reduction of around GBP 230 million in Group Solvency II Own Funds. Due to the release of Solvency Capital Requirement allowances already recognised, the corresponding impact on the Group Solvency II surplus is estimated at GBP 140 million.

Impact on Solvency and Capital Metrics

The proposed reforms are expected to reduce the Solvency Capital Requirement by approximately GBP 90 million, resulting in a net decrease in surplus. M&G also anticipates a decrease of roughly 1 percentage point in its Shareholder Solvency II coverage ratio, alongside a leverage ratio increase of less than 1 percentage point.

From an accounting perspective, the changes could result in a day-one non-operating loss of approximately GBP 310 million on a pre-tax IFRS basis.

Earnings Effect From 2028 Onwards

Once the reforms take effect, likely from 2028, M&G expects a reduction of about GBP 15 million per year in adjusted operating profit and underlying capital generation. This is linked to lower surplus assets within the annuity book. The company has noted that these estimates are before actions such as balance sheet optimisation and cost management initiatives.

Strategic Position and Next Steps

M&G has reconfirmed the adjusted operating profit growth and capital generation targets announced in March 2025, as well as its progressive dividend policy.

MNG shares were trading at GBX 306.6 per share at the time of writing on 27 January 2026.