UK insurance giant L&G's shares hit after dividend cut

British insurer Legal & General sent shares falling across the sector today after revealing a £351m (€414m) hit to investments and another dividend payout cut.

British insurer Legal & General sent shares falling across the sector today after revealing a £351m (€414m) hit to investments and another dividend payout cut.

L&G said “negative investment variances” left operating losses on an IFRS basis down by 92% to £31m (€36.5m) in the six months to June 30.

The UK’s third largest insurer slashed its interim dividend payout by 45% as it continues to hoard cash – a move which followed the first dividend cut in its history when it announced annual figures in March.

L&G shares slumped more than 8% at one stage, while rivals Aviva, Friends Provident and Standard Life also fell into the red.

News of the dividend reduction overshadowed better results elsewhere from L&G, which said earnings using the more closely watched European embedded value (EEV) basis rose 12% to £657m (€774m).

EEV operating profits aim to estimate the present value of future profits in the insurance industry.

L&G also said savings business had begun to “turn the corner” and the firm confirmed its capital buffer had improved by £300m (€353.6m) since the end of March.

It had surplus capital of £1.9bn (€2.2bn) as at the end of June.

Half-year UK sales fell 10% to £671m (€790.1m) on an annual premium equivalent as it continued to suffer from a recent decision to exit less profitable savings business and volatility from less large bulk annuity contracts.

At £338m (€398m) in the second quarter, this was an improvement on the previous three months, according to the group.

Tim Breedon, group chief executive of L&G, said: “We are very clear on the sort of business we want to be and we are making good progress in the markets that are important to us.

“The turnaround in savings is progressing well, but there is still a lot more to do.”

He added: “Current market conditions remain challenging, with weakness in the economy and volatility in investment markets putting pressure on consumer confidence.”

Barrie Cornes, insurance analyst at Panmure Gordon, described L&G’s results as “solid”, with the dividend cut in line with expectations.

He suggested L&G may too become the subject of takeover interest as consolidation picks up in the sector.

A recent approach for smaller rival Friends Provident from investment outfit Resolution has sparked speculation of mergers and acquisitions among life and pensions firms.

“If the share price does not recover in the short term, then L&G will increasingly become the subject of corporate activity,” said Mr Cornes.

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