Legal & General has worked hard in the first half to generate cash, delivering £358m of a £600m target for the full year. Growth in annuity sales and savings helped to boost operating profits a third to £542m on an IFRS basis, while worldwide new business rose 18 per cent to £881m on an annual premium equivalent basis. What's more the level of cash held in excess of regulatory capital requirements rose from £1.9bn a year earlier to £3.3bn.
The life insurer also benefited from a much better investment performance and the £527m negative return recorded in the first half of last year narrowed to just £4m. And funds under management rose from £271bn to £320bn year-on-year with particular demand seen for fixed income and liability driven investment funds. Operating profits from fund management increased a third to £98m and the savings business also put in a strong performance, with operating profits up sharply from £17m to £54m.
On the annuity side, attractive pricing conditions helped to reduce new business strain (the upfront cost of writing new business) from £71m to £35m, and Legal & General's focus on core individual and small bulk schemes is paying off, with new annuity business written nearly doubling from the second half of last year to over £1bn.
International operating profits were broadly flat at £65m after adding back £4m invested in emerging markets, but this investment is starting to pay off, with the bancassurance joint venture in India selling 80,000 policies across the 4500 branches of its partner banks.
Around 30 per cent of the group's cash generation came from L&G's housing and protection policy which has benefited from higher gross premiums and lower costs, although mortgage protection sales remained depressed. And shareholders will be cheered by the 20 per cent hike in the dividend, having seen the payout cut last year. Management is seeking to generate more cash for dividends by paying lower commission to sales advisers and steering clear of more capital-intensive products - which require much greater levels of upfront costs.
| LEGAL & GENERAL(LGEN) | ||||
|---|---|---|---|---|
| ORD PRICE: | 89p | MARKET VALUE: | £5.2bn | |
| TOUCH: | 88.9-89p | 12-MONTH HIGH: | 95p | LOW: 57p |
| DIVIDEND YIELD: | 4.6% | PE RATIO: | 4 | |
| NET ASSET VALUE: | 76p | EMBEDDED VALUE: | 119p | |
| Half-year to 30 Jun | Gross life premiums (£bn) | Pretax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 3.11 | -143 | -1.22 | 1.11 |
| 2010 | 2.77 | 537 | 6.90 | 1.33 |
| % change | -11 | - | - | +20 |
Ex-div:01 Sep Payment:01 Oct | ||||
