Legal & General delivers early

In 2019, L&G grew operating profits in each of its continuing divisions, resulting in a 20.4 per cent return on equity. The group’s alternative investment arm posted a 13 per cent rise in operating profits, after the direct investment portfolio grew more than a fifth to £2.9bn, edging towards a target of holding £5bn in assets under management over the next three to five years. Meanwhile, big passive mandate wins in the investment management division resulted in £86bn of external net inflows and helped boost operating profit by 4 per cent to £423m. 

Yet the biggest boon to underlying earnings came from the retirement division, which benefited from a 22 per cent rise in individual annuity sales and a surge in pension risk transfer sales to institutional clients. The latter leapt a quarter to £11.4bn, after the group completed 42 deals including its first transaction in Canada and record years in the UK and US.  

That rise in new business partly explains the 400 basis-point year-on-year dip in the group’s solvency II coverage ratio – which reflects the buffers European insurers need to hold to withstand shocks – though a capital surplus of £7.3bn shows the business remains well-insulated.

Such a stance also explains why profits were not higher, after a more conservative assessment of the retirement division’s actuarial tables resulted in a mortality reserve release of just £155m, down 64 per cent on 2018. Exclude this line and earnings per share would have been 16 per cent up on the prior period.

Analysts at Panmure Gordon forecast adjusted operating EPS of 31.8p for 2020, falling to 31.4p the following year.