Legal & General profit smashes forecasts on bumper annuity sales

Legal & General Group has smashed first-half earnings forecasts thanks to rising annuity sales.

Britain’s largest life insurer reported operating profits of £941million for the opening six months of 2023, a 2 per cent decline on the previous year but far above analyst estimates of £834million.

Profits grew the most in its pension risk transfer arm, Legal & General Institutional Retirement, which benefited from writing £5billion of new corporate pension deals during the period.

The transactions include a £2.7billion buy-in with the British Steel Pension Scheme, meaning the firm has now insured £7.5billion of the scheme’s liabilities, and a £430million buy-in with the Tioxide Pension Fund.

Interest rate hikes have reduced or eliminated the deficits of defined-benefit, or final salary, pension schemes, leading more companies to pay a bulk premium to offload their pension liabilities.

On the downside, they caused a £132billion outflow in assets from Legal & General Investment Management, leading to the segment’s operating profits slumping by around a third to £131million.

Meanwhile, L&G’s post-tax profits plunged by 45 per cent to £316million due partly to costs from closing its Modular Homes business and writing off an investment in electric car subscription service Onto.

Legal & General Group shares were 2 per cent, or 4.6p, lower at 228.5p on early Tuesday afternoon and have slumped by around 20 per cent in the past 12 months.

Russ Mould, investment director at AJ Bell, said: ‘The company is one of the biggest investors in the UK stock market, and what may be creating disquiet is the material drop in assets under management.

‘This is a result of both market conditions but also net outflows. As a domestic facing stock, Legal & General could also be vulnerable thanks to the latest wage growth data suggesting inflation is becoming more entrenched.’

The London-based business said it was on course to achieve its five-year targets for £8billion to 9billion in capital generation and earnings per share to expand faster than dividends.

Its half-year results are the final to be published under the leadership of Sir Nigel Wilson, who is standing down as chief executive in January.

The City grandee initially joined L&G as its finance boss in 2009 before ascending to the top position in 2012.

During his tenure, he has spurred the firm’s move into the housing and infrastructure sectors, including the London Gateway project and Sky Studios Elstree.

He will be replaced by Antonio Simoes, who runs the European division of banking giant Santander, having previously worked at HSBC, Goldman Sachs, and McKinsey.

Just Group also released its half-year results on Tuesday, showing profits beating expectations amid a surge in sales of its retirement income products.