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LONDON (Alliance News) - Life insurance and financial services company Legal & General Group PLC on Wednesday reported a rise in operating profit but missed market consensus as the company topped GBP1 trillion in assets and upped its dividend.
Shares in the FTSE 100-listed financial services company were down 3.8% in early morning trade at 275.20 pence each.
The company is proposing a final dividend of 11.82 pence, a 7.0% increase on last year, leading to a total dividend of 16.42p, also 7.0% higher than the 15.35p distributed in 2017.
In 2018, Legal & General's pretax profit increased 1.9% to GBP2.13 billion from GBP2.09 billion the year before.
Legal & General said its profit was hurt by "negative investment variance" of GBP33 million, as a result of volatility in global financial markets. In 2017, Legal & General reported an investment gain of GBP175 million.
Pretax profit was primarily affected by losses from the Legal & General Capital unit's traded equities portfolio, which underperformed in the year.
Legal & General's operating profit increased 10% to GBP1.90 billion from GBP1.72 billion a year before, in line with consensus, as its four main divisions' underlying earnings increased.
"Legal & General's consistent strategy, market leading businesses, balance sheet strength and high-quality people have enabled us to deliver eight years of compound annual profit growth of over ten percent. 2018 saw political uncertainty, asset market declines and slowing economic growth, but we are resilient and performed strongly. We became the UK's first GBP1 trillion investment manager, executed a record GBP9 billion of pension risk transfer deals and invested billions in the UK's future infrastructure and cities. Abroad, we grew US protection new business annual premiums by 12% and increased international assets by 13% to GBP258 billion," said Chief Executive Nigel Wilson.
Legal & General Retirement grew its operating profit 22% to GBP1.12 billion, driven by "significant" pension risk transfer volumes.
The division's growing annuity portfolio, up to GBP63.0 billion from GBP58.2 billion, was the main factor in the profit growth.
Within the Retirement division, Legal & General Institutional completed GBP9.14 billion of pension scheme buy-ins and buy-outs compared to GBP3.95 billion in 2017. Legal & General Retail increased lifetime mortgages by 19% to GBP1.20 billion.
Legal & General's Investment Management division reported assets under management at the end of the year just over GBP1 trillion, up 3% on GBP983 billion in 2017. The unit reported external net flows of GBP42.6 billion, versus GBP43.5 billion last year.
Legal & General's Investment Management division increased its operating profit by 1.8% to GBP407 million. Management fee revenue increased 4.2% to GBP813 million.
Legal & General Capital increased its operating profit by 18% to GBP322 million.
The division's GBP2.36 billion direct investments portfolio, up from GBP1.45 billion the year before, contributed to the "strong" operating profit growth. 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 1.7% to GBP308 million. The division increased its gross written premiums by 3% to GBP2.62 billion. Within the unit, Legal & General's General Insurance business reported zero operating profit, however.
The drop was attributed to the "adverse claims experience" caused by the extreme cold weather in the UK at the start of 2018, then the prolonged dry weather over the summer. General Insurance reported a combined operating ratio of 104%, which being about 100% indicates an underwriting loss.
The company's solvency II operational surplus generation increased 14% to GBP1.4 billion.
Legal & General has an estimated solvency II surplus of GBP6.9 billion over its solvency capital requirement, leading to a coverage ratio of 188% at the end of 2018 from 189% the year before.
Consensus forecast Legal & General ending 2018 with a solvency II coverage ratio of 194%.
Legal & General's return on equity was 22.7% from 25.6% the previous year.
