Early deaths boost Legal & General

L&G chief executive Nigel Wilson

A drop in life expectancy has enabled Legal & General to release reserves against mortality risk, driving first-half profits up by an above-forecast 27%.

The insurer and asset manager’s shares fell over 2%, however, as some analysts said the release flattered earnings.

Recent British mortality statistics suggest the trend for longer life expectancy has tapered off, allowing life insurers to set aside less cash for pension payments.

“People have been dying much quicker than anyone had expected which as a consequence...gives us extra cash,” L&G chief executive Nigel Wilson told a media call.

First-half operating profit rose to £988m (€1bn), with a £126m release against mortality.

One-off items including the mortality release “skew visibility” on the company, UBS analysts said, reiterating their “sell” rating on the stock. However, other analysts said such cash releases could continue, with Barclays pointing to “longevity trends not being as onerous as once expected”.

L&G said it would pay an interim dividend of 4.3 pence per share, up 7.5% and in line with forecasts.

The interim dividend is set at 30% of the prior year full-year dividend.

L&G has been growing in the bulk annuity market, which involves taking on the risk of company defined benefit, or final salary, pension schemes.

This is seen as an expanding market as many schemes are in deficit and companies want to offload them.

L&G said its new bulk annuity business more than doubled to £1.6bn in the first half and it was quoting on another £12bn of bulk annuity deals.

It said it was interested in further closed books of annuities, which pay a fixed income for life, after buying a £3bn book of UK policies closed to new customers last year from Dutch insurer Aegon.

Standard Life and Prudential both have large closed annuity books.

Legal & General Investment Management, one of the biggest investors in the UK stock market, is getting close to a £1 trillion unit after seeing funds under management rise 13%. The division focuses on passive funds.

Reuters


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