Surprise rise in earnings boosts L&G shares price

Aug 6 2008 by Iain Laing, The Journal

LEGAL & General has posted an unexpected 6% increase in half-year earnings as a booming pension buyout market helped the group weather wider economic and house price woes.

Britain’s third biggest insurer saw its shares price go up by 6% after it announced the half-year rise in operating profits, from £589m to £626m, based on a European embedded value (EEV) industry standard.

Most analysts had expected earnings to remain flat or dip.

The group said sales of bulk annuities, which provide a set income in retirement, more than tripled amid the trend for firms to offload their pension liabilities.

Bulk annuity sales rose from £400m in the first six months of 2007 to £1.4bn on an annual premium equivalent (APE) basis.

Sales of bulk annuities have traditionally been highly volatile, with performance often skewed by the loss or gain of major company contracts, but L&G suggested the market was set to remain buoyant.

It said an “explosion in demand” was expected to see £10bn of new business come to market in the industry this year.

Bulk annuity sales offset a 22% decline in sales of individual annuities, hit by increased competition and L&G’s pricing policy in the last three months.

But the downturn in the housing market impacted sales of insurance protection policies, many of which are linked to mortgages, down £1m at £110m.

Stock market turmoil also wiped 91% off EEV post-tax profits – to £56m – as the falls in equity values led to unrealised losses on investments.

Sales of unit-linked investment bonds fell by nearly half to £75m from £136m, although the declines were showing signs of stabilising, said L&G.

Pensions business rose 22% to £126m in APE sales, with sales of popular DIY pension products, self-invested personal pensions, up 96%, thanks largely to the inclusion of Legal & General’s recent acquisition Suffolk Life, bought last May.