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LONDON (Alliance News) - Legal & General Group PLC Tuesday reported a jump in net cash generation in the first nine months of the year, boosted by cash generation at the operating level, and said it had more than offset a drop in individual annuity sales since recent rule changes with higher sales of bulk annuity deals.
In a statement, the savings and investments business reported that it generated GBP844 million of cash at operating level in the first nine months of the year, an increase of 8% on the corresponding period last year, while new business strain, the impact of writing new business, fell to GBP17 million from GBP40 million, a positive development that helped to bring about a a 12% increase in net cash generation to GBP827 million.
"We are growing our revenues, operating profit, customers and net cash and are continuing to deliver strong return on equity," Chief Executive Nigel Wilson said in a statement.
Along with the rest of the pensions industry, Legal & General has been adjusting to changes made in the UK budget in March, under which Chancellor of the Exchequer George Osborne removed the effective requirement on individuals to use their pension pots to buy products that provided guaranteed income in retirement. Known as annuities, the products have seen a sharp decline in sales across the industry ahead of the reforms coming into force in April 2015.
However, Legal & General has highlighted bulk annuities, under which the group accepts the assets and liabilities of a company pension scheme or a life fund, as an area which can make up for the hit to the individual annuities market.
Overall, Legal & General's annuity sales increased by 5% to GBP3.9 billion in the nine-month period, despite a fall in individual annuity sales to GBP508 million from GBP1.08 billion in the corresponding nine-month period last year. The increase was driven by a rise in bulk annuity sales, which improved to GBP3.37 billion from GBP2.61 billion.
In addition to the completion of the internal transfer of GBP1.95 billion of annuities from with-profits to Legal & General's shareholder fund in July, the total volume of annuity business to shareholders rose to GBP5.83 billion in the period.
Legal & General said the sales were made while maintaining "strong pricing discipline" across all its annuity products.
To date in the fourth quarter, Legal & General's retirement division has secured a further GBP800 million of bulk premium, according to Wilson, who added that the "immediate pipeline gives us high confidence" in writing around GBP8 billion in total annuity transactions for the full year, double its total annuity premium for 2013.
In a conference call with journalists, Chief Financial Officer Mark Gregory said that the bulk annuity market will be "lumpy" from one quarter to the next, but he is optimistic on the outlook for the market. He said that Legal & General has little in the way of competition in the bulk annuity market because only the biggest companies can offer the deals.
Legal & General is also looking at bulks outside the UK, highlighting the US, Canada and the Netherlands in order to grow.
Legal & General Investment Management's assets under management rose by 14% to GBP676.3 billion over the nine-month period, due to net inflows of GBP8.0 billion and positive market movements, despite net outflows of GBP2.4 billion in the third quarter amid market volatility.
Legal & General shares were up 1.7% at 234.40 pence on Tuesday.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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