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LONDON (Alliance News) - Life insurance and financial services company Legal & General Group PLC on Thursday reported a drop in interim profit as the company approached GBP1 trillion in assets and upped its dividend.
Shares in the FTSE 100-listed financial services company were down 0.9% at 262.10 pence each.
In the six months ended June, Legal & General's pretax profit decreased 19% to GBP942 million from GBP1.16 billion a year before.
Legal & General attributed the drop in reported profit to "lower positive investment variance" as a result of volatility in global financial markets to GBP33 million from GBP175 million a year before.
This includes a swing to a GBP90 million loss in the recent period from a GBP52 million gain a year before from the company's Legal & General Capital traded assets portfolio.
Legal & General's operating profit increased 7% to GBP1.06 billion from GBP994 million ayear before, as five out of six of its divisions' underlying earnings increased.
"L&G is making steady progress. Growth prospects for the second half look good too, with L&G currently negotiating billions of pounds worth of new business," commented Hargreaves Lansdown UK Income Shares fund manager Steve Clayton. "As always with L&G, the actual reported numbers reflect the impact of market returns on top of the underlying business performance. This year, market gains were less than the previous year, so reported earnings are actually down, but most investors will look through the noise to focus on a strong underlying performance."
Clayton continued: "Part of L&G's business is life assurance and in that line of business, good news for the company is bad news for the rest of us. The company expects to make a longevity reserves release of over GBP330 million later this year, reflecting the fact that we're not living as long as we were once expected to.
"We like the group's strategy of providing solutions for the changing risks that society faces. Governments want people to take more responsibility, employers want to cap their pension risks, whilst long term savers need predictable, attractive returns. With its low cost investment products and retirement and insurance offerings, L&G is well placed to capitalise by meeting these needs. It all underpins a very attractive dividend yield, approaching 6%, even before today's increased pay-out."
Legal & General Retirement grew its operating profit 9% to GBP480 million from GBP440 million. The division's backbook continued to perform "strongly", it said.
The division's growing annuity portfolio, up to GBP56.4 billion from GBP55.6 billion, was the main factor in the profit growth.
Within the Retirement division, Legal & General Institutional completed GBP735 million of pension scheme buy-ins and buy-outs. Legal & General Retail increased lifetime mortgages by 23% to GBP521 million from GBP424 million.
Legal & General's Investment Management division increased its operating profit by 5% to GBP203 million from GBP194 million.
Management fee revenue increased 4% to GBP396 million from GBP382 million, and assets under management increased 4% to GBP985 billion from GBP951 billion.
The Investment Management division's growth was due to positive flows from defined contributions - increasing to GBP3.5 billion from GBP1.7 billion - as well as its retail and international businesses growing.
Legal & General Capital increased its operating profit by 21% to GBP172 million from GBP142 million.
The division's GBP2.0 billion direct investments portfolio, up from GBP1.3 billion the year before, contributed 51% operating profit growth, to GBP104 million from GBP69 million.
This was driven by the acquisition of Cala Homes and the continued good performance of existing assets, the company said.
Legal & General Insurance increased operating profit 5% to GBP154 million from GBP147 million. The division increased its gross written premiums by 3% to GBP1.36 billion from GBP1.32 billion.
One-off model enhancement in UK Retail Protection and continued improvements in UK Group Protection were partially offset by the year-on-year US mortality variance, L&G said.
The company's solvency II operational surplus generation increased 11% to GBP700 million from GBP600 million.
Legal & General has an estimated solvency II surplus of GBP6.9 billion over its solvency capital requirement, leading to a coverage ratio of 193% at the end of the first half from 186% year-on-year and 189% at the end of 2017.
Legal & General's return on equity was 20.3% from 26.7% the previous year.
The company is proposing an interim dividend of 4.60 pence per share, a 7.0% increase from the 4.30p paid last year.
Looking head, Legal & General said is confident of maintaining momentum into the second half. The company believes it is on track to deliver a similar performance out to 2020 as that achieved in 2011 to 2015.
The FTSE 100-listed company believes its strategy is unaffected by the on-going political and economic uncertainty.
Chief Executive Nigel Wilson said: "We expect to have an exceptionally busy second half. We are currently actively quoting on over GBP20 billion of UK pension risk transfer deals, including over GBP7 billion of transactions in exclusive negotiations expected to close in the second half. We are reviewing our long term mortality assumptions and expect to make a full year release in the second half which will be larger than the GBP332 million released for full year 2017."
