15th Aug 2023 13:03
(Alliance News) - Legal & General Group PLC on Tuesday said it was on track to meet its financial targets, despite a hit from investment losses in the first half of the year.
"Life insurer Legal & General may be on track from its own perspective as it beat expectations but the reaction of the market suggests investors aren't fully on board," said Russ Mould, investment director at AJ Bell.
Shares in L&G fell 2.1% to 228.20 pence on Tuesday afternoon in London.
"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," Mould continued.
For the first half of 2023, the London-based financial services and asset management company's pretax profit was GBP324 million, down 53% from GBP697 million a year before.
This was largely due to around GBP617 million in investment losses, widened from GBP261 million, with operating profit only falling 1.8% to GBP941 million from GBP958 million.
"[Legal & General Retirement Institutional] and [Legal & General Capital] performed strongly, [Legal & General Investment Management] results stabilised, and Retail's performance - while impacted by competition in some areas - was bolstered by growing annuity sales and progress in US protection," L&G said.
L&G's asset under management fell 10% to GBP1.16 billion as at June 30 from GBP1.29 billion at the same time a year prior. The company said this reflected the impact of market conditions and external net outflows over the first half of the year GBP12.30 billion.
AJ Bell's Mould said rising interest rates in the UK were a "double-edged sword" for the firm.
"Higher rates have led to an improvement in the funding situation of final salary pension schemes and this has enabled them to offload their pension risk to insurers like Legal & General through what is known as a bulk annuity agreement more readily. This is helping to generate growth in this part of Legal & General's business," he explained.
Looking ahead, the firm said it was on track to achieve its five-year ambitions for the 2020 to 2024 period.
The goals are capital generation of GBP8.0 billion to GBP9.0 billion, earnings per share to grow faster than dividends, with dividend growth of 5% annually to 2024, and a net capital surplus generation that exceeds dividends.
L&G noted that Canada has a market potential where it has seen a growing acceleration of pension schemes looking to de-risk.
"The market is estimated to have CAD1.8 trillion (around USD1.338 trillion) of defined benefit liabilities with only around 10% of CAD0.5 trillion private sector DB liabilities having transacted to date," it explained.
Matt Britzman, equity analyst at Hargreaves Lansdown, said the market for transferring pension risk remains a "hot one".
"Most of the work here is done in the UK where the market is huge, but there's plenty of opportunity further afield in areas like the US and Canada where L&G is just a tiny player right now. International expansion remains a key future growth driver, across the different business units - but it'll be a slow burner," he said.
By Heather Rydings, Alliance News senior economics reporter
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