Legal & General profits dive despite surge in bulk annuity deals

Legal & General Group’s profits slumped last year, despite hitting new record volumes across all of its insurance divisions.

The financial services giant saw its profits fall 42 per cent to £457 million in 2023, due in part to costs related to its Modular Homes business and a write-down of its stake in electric vehicle subscription service Onto.

Profitability was further affected by rising interest rates, which weakened asset valuations in its investment management operations, which suffered a sharp decline in profits.

Legal & General Investment Management’s operating profit fell 19 per cent to £274m over the year, while its assets under management fell 3 per cent to £1.16bn on net client outflows of £38.4 billion.

The group’s operating profits fell short of forecasts at £1.67bn as the company’s retail segment was hit by the weakness in the mortgage market and a non-recurrence of valuation rises in its retail businesses. financial technology.

However, the London-listed company attracted record volumes of new business, including £15.1 billion in institutional or individual annuities.

Interest rate increases have reduced or eradicated deficits in defined benefit – or final salary – pension plans, encouraging more companies to pay a massive premium to get rid of their pension obligations.

Among the groups that agreed acquisitions with L&G last year were Deutsche Bank, United Utilities, British Steel and telecoms provider Cable & Wireless.

And in December, L&G secured a £4.8bn buyout of the Boots Pension Scheme, one of the largest deals of its kind in the UK.

Meanwhile, the company’s Solvency II coverage ratio, the amount of funds insurers must maintain to ensure they can meet their obligations to policyholders, rose to 224 percent.

Antonio Simoes, the company’s new CEO, said it was “the right time to adopt a new perspective, build on our track record and set a vision for profitable and sustainable growth.”

Simoes joined L&G in early January after a period running Santander’s Spanish and European regional offices and previously at HSBC, Goldman Sachs and management consultancy McKinsey.

He replaced his former boss Sir Nigel Wilson, whose tenure at L&G saw the business prosper financially, with a significant expansion in profits and shareholder returns amid a push into the housing and infrastructure sectors.

Portuguese-born Simoes over the past 12 months undertook L&G’s plan to raise between £8bn and £9bn in capital and pay dividends that would exceed £5.6bn to £5.9bn over the period 2020 to 2024.

L&G said it was confident of meeting those targets, having already achieved £6.8 billion of cumulative capital generation and announced £4.5 billion in dividends.

Richard Hunter, Head of Markets at Interactive Investor, said: “There is no doubt about the long-term potential of the savings and investment market, especially given the aging demographic and likely welfare reform.”

“For L&G, the ability to participate in this market on several fronts, particularly in annuities and internationally, should provide areas of continued growth.”

Legal and general group actions They were down 2.5 per cent to 237.1p on Wednesday morning, making them the biggest faller on the FTSE 100 index.