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Legal & General is targeting acquisitions in the US as it takes aim at the world’s biggest insurance market and one of the most difficult regions for European companies to crack.

Speaking to the Financial Times, chief executive Nigel Wilson says he wants to replicate the company’s UK model of investing in assets such as infrastructure to match the long-term products it sells to customers.

“In direct investments we may need to do a bolt-on acquisition in the US,” he says.

If Mr Wilson manages to turn the UK insurer into a significant operator in the US insurance market, he will have succeeded where many others have failed.

Over the past two decades other European companies have attempted the same feat but, with a few exceptions (such as Prudential), many have had to pull back or withdraw entirely.

Aviva went into the US market in 2006, but sold its business there six years later, taking a £2.3bn writedown in the process. British insurance entrepreneur Clive Cowdery recently sold his US business, which he had bought in 2013 and planned to use as a consolidation vehicle.

And Axa, one of Europe’s largest insurers, earlier this year announced plans to list part of its US operation as it recycles its capital into markets it sees as more promising.

In 2008, European companies were behind six of the top 20 individual annuity providers in the US, according to data from Limra, an industry research organisation. That has now slipped to three of the top 20.

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Mr Wilson says L&G is approaching the market cautiously. “We have taken a softly, softly strategy in the US, which is a market where so many British companies have failed. We are modest in the US, but we are growing quickly.”

L&G’s US strategy is based on using its two big existing businesses as a foundation for developing a third.

The first is Legal & General Investment Management, which has been in the US since 2009 and manages £127bn of US assets for more than 300 clients. It is carving out a niche in helping corporate pension schemes to match their assets with their liabilities.

“If LGIM didn’t exist it would be a lot harder for Legal & General to grow in the US,” says Abid Hussain, analyst at Credit Suisse. “LGIM is quite big and well known there and already has relationships with corporate pension schemes. It provides Legal & General with a natural flow of information.”

Mr Wilson has big plans for LGIM. “We want to be top 10 in the US, just as we are top 10 in the world,” he says, adding: “BlackRock and Vanguard are too big, but the others are within reach.”

The second is a Maryland-based life insurance business. The unit, which L&G has owned for the past 30 years, made profits of £85m last year.

Gordon Aitken, analyst at RBC Capital Markets, says: “Legal & General . . . has had mortality risk in the US for a long time. Also, life expectancy trends are the same in the US as they are in the UK.”

By combining its expertise in investment management and its knowledge of life expectancy, L&G is hoping to develop a third business in corporate risk transfer — taking on liabilities from company pension schemes.

This is an area L&G knows well, having taken on more than £6bn of liabilities in 2016 alone via deals known as bulk annuities. A lot of its long-term UK infrastructure investments are used to back the pension promises it takes on in bulk annuity deals.

L&G thinks it can replicate the model in the US. “It is a $3tn market opportunity,” says Bernie Hickman, chief executive of Legal & General Insurance. “The pension risk transfer market started late in the US but it is likely to overtake the UK.”

Ari Jacobs, a senior partner at advisory firm Aon Hewitt, says US companies are increasingly looking to offload their pension promises to insurance companies. In 2015 and 2016 about $15bn of liabilities were transferred, he says, but this year the number has jumped to $20bn.

For L&G, the US deals may be even more profitable than the bulk annuities in the UK. “Margins will be better because [Legal & General] retains the longevity risk in the US,” says Mr Aitken.

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In Europe, the Solvency II capital rules make it difficult for insurers to keep hold of longevity risk, so they pass it on to reinsurance companies. In the US, where capital rules are different, it is easier for them to keep that part of the risk and the profit that goes along with it.

But L&G is not the only company interested in US pension transfers. Some of the biggest US life insurers are also active in the market, including Prudential Financial, MetLife, MassMutual and AIG.

If L&G is to make its presence felt, says Mr Hussain, it will need to find a competitive edge. And although it has some longevity data in its US life insurance business, that may not be enough. “Previously, Legal & General has partnered with other insurers in the US. If they are now going it alone,” he says, “it will take time to build up the data and build up the brand.”

Despite those challenges, Mr Hickman is confident that L&G can make a go of it in the US. “We’ve got the benefit of having people who have worked for the business for 30 years. We are not taking on lots of different risks and we really understand the products that we are selling in the US because we have similar ones in the UK.”

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