L&G posts below-forecast operating profits

6th Mar 2024 07:25

(Sharecast News) - UK insurer Legal & General posted lower-than-expected operating profits last year amid tough market conditions.

Operating profit came in at a flat £1.67bn against company-compiled forecasts of £1.75bn.

L&G's general investment management arm business saw a profits slump to £274m from £340, reflecting the impact of higher interest rates on the value of assets under management with average assets under management 12% lower year-on-year.

New chief executive Antonio Simoes said the company would be outlining a new strategy in June, which would involve "taking a fresh perspective" on operations and "a simpler investment case".

Assets under management fell 3% to £1.16trln with net client outflows of £38.4bn as investors chased better returns amid surging inflation and interest rates.

Retail operating profit was down 2% to £408m, with lower contributions from fintech businesses as valuations from 2022 were not repeated.

However, there was a boost from its bulk annuities business, where new business volumes hit a record £13.7bn, as companies sought to offload the risks on pension liabilities.

Matt Britzman, equity analyst at Hargreaves Lansdown said this helped to offset any hits to operating profit.

"It's one of the world's leading bulk annuity providers and is benefitting from a resurgence in the market. Companies with pension plans can pay L&G a lump sum to take the liabilities off their hands. As rates have moved off the lows seen in recent history, it's become a more attractive market for both those looking to de-risk and those like L&G in the business of taking on these liabilities," he said.

"The UK is the most mature global market, but L&G has its eyes set further afield. Activity in overseas markets like the US, Canada and the Netherlands is increasing. Including the UK, there's around $6trn of pensions liabilities floating about, with the percentage transferred to insurers barely touching double digits. That gives plenty of scope for L&G to keep growing."

Reporting by Frank Prenesti for Sharecast.com