Shorter life expectancies aren’t usually cause for celebration, but there was one morbid benefit for Legal & General (LGEN) shareholders last year. Lower longevity assumptions meant the life assurer released an additional £206m of prudence from its reserves during the second half, taking the total mortality releases to £332m. However, even without this cash, its businesses put in a solid performance, with underlying operating profit up 12 per cent.
The retirement business led the way, growing underlying operating profit 13 per cent. The larger institutional operations completed £3.9bn in pension scheme buy-ins and buy-outs – insuring against and fully taking on the liabilities of the schemes – up from £3.7bn a year earlier. That was in addition to an £800m insurance transaction. The business also made good inroads overseas, particularly in the US, where it completed 15 bulk deals totalling $713m (£514m) in premiums, up more than half on the previous year.
On the retail side, individual annuities continued to rebound after the introduction of pensions freedom changes, with sales up more than three-quarters at £671m, underpinned by the highest volumes since 2014. The investment management arm gained £43.5bn in external net inflows, primarily into the ‘Solutions’ products, driven by strengthening demand from defined benefit/contribution schemes for liability-driven investment and multi-asset strategies. As autoenrolment continued to bed-in, workplace savings also increased a third to £27.7bn.
Recycling its more mature assets helped lift the investment portfolio at the group's direct investment business by more than a quarter, with all the disposals executed at or above its internal rate of return. L&G also topped up its housing assets beyond the £0.5bn mark, completing its first investment in the later living sector and new build-to-rent sites via its joint venture. However, the general insurance business was the weak spot, with increased costs from non-weather related household claims pushing up the combined ratio – of claims to premiums – to 93 per cent, from 89 per cent.
Bloomberg analysts forecast a consensus adjusted EPS of 25.7p during the year to December 2018, down from 25.7p the previous year.
LEGAL & GENERAL (LGEN) | ||||
ORD PRICE: | 257.8p | MARKET VALUE: | £15.4bn | |
TOUCH: | 257.5-257.9p | 12-MONTH HIGH: | 280p | LOW: 242p |
DIVIDEND YIELD: | 6% | PE RATIO: | 8 | |
NET ASSET VALUE: | 132p | SOLVENCY II RATIO: | 180% |
Year to 31 Dec | Gross written premiums (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p)* |
2013 | 6.16 | 1.33 | 15.2 | 9.3 |
2014 | 10.20 | 1.41 | 16.7 | 11.25 |
2015 | 6.32 | 1.41 | 18.2 | 13.4 |
2016 | 10.25 | 1.52 | 19.7 | 14.35 |
2017 | 7.93 | 2.06 | 30.5 | 15.35 |
% change | -23 | +36 | +55 | +7 |
Ex-div: | 26 Apr | |||
Payment: | 7 Jun | |||