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Legal & General cash releases fall

The life assurer transacted less than half the bulk annuity deals it did a year earlier
August 9, 2018

Lumpy returns are an occupational hazard for the mammoth bulk annuity market, as Legal & General’s (LGEN) first-half figures highlighted. The life assurer completed £735m in these types of transactions, less than half the prior year’s amount, pushing down the net cash released by 2 per cent to £658m – 8 per cent below consensus expectations. However, management expects new business to be weighted to the second half and is quoting on £20bn in potential deals.

IC TIP: Buy at 261.7p

After excluding last year’s £126m release from changing mortality assumptions, operating profit at the retirement business rose 9 per cent to £480m. That's thanks to earnings from its growing annuity back book, with annuity assets rising marginally to £56.4bn. The retail-side of the business received a boost from lifetime mortgages, where advances were up almost a quarter.

The investment management arm LGIM gained £14.6bn in external net inflows, down around a third on the prior year, but average assets under management still rose 4 per cent to £985bn. However, the general insurance business suffered higher claims due to adverse weather conditions earlier this year, which pushed the combined ratio – of net claims to premiums – up to a lossmaking 107 per cent, from 95 per cent a year earlier.   

Analysts at Numis expect adjusted pre-tax profits of £1.7bn for the year to December 2018, giving EPS of 23.8p (from £2.1bn and 28.7p in 2017).

LEGAL & GENERAL (LGEN)   
ORD PRICE:261.7pMARKET VALUE:£15.6bn
TOUCH:261.7-261.8p12-MONTH HIGH:288pLOW: 249p
DIVIDEND YIELD:6.0%PE RATIO:10
NET ASSET VALUE: 129pSOLVENCY II RATIO:193%
Half-year to 30 JunGross written premiums (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
20173.681.1915.34.3
20182.760.9512.34.6
% change-25-21-20+7
Ex-div:16 Aug   
Payment:27 Sep