L&G trounces Pru with 24% spike in divi despite fall in profit to £1bn

Published on Wednesday 16 March 2011 21:50

Life insurer Legal & General yesterday cheered investors with a better-than-expected dividend hike despite lower profits and said it was poised to cash in on cutbacks in state pensions and welfare payouts.

Britain's fourth-biggest life insurer by market value will pay a total dividend for 2010 of 4.75p per share, up 24 per cent, beating market expectations of 4.54p. It includes a recommended final dividend of 3.42p per share, a rise of 25 per cent.

The total payout trumped the 20 per cent rise in the annual dividend declared last week by rival Prudential.

The 175-year-old L&G blamed higher reserves to cover the cost of annuity customers living longer for a fall in operating profit to 1 billion from 1.1bn a year ago.

Analysts had expected a profit of 1.05bn.

L&G also attributed the decline to a reduced capital benefit as the price of bonds used to underpin annuities rose relative to 2009.

The group has strengthened its annuities, mortgage and insurance business by winning or extending deals with banks and building societies including Sainsbury's Bank.

Like its main rivals, it has also highlighted its ability to generate cash and streamlined financial statements to try to banish an impression among some investors that the industry is secretive and capital-hungry. It expects to generate net cash of 700m in 2011.

But the group has strengthened its annuities, mortgage and insurance business by winning or extending deals with banks and building societies including Sainsbury's Bank.

Chief executive Tim Breedon said UK customer demand was rising as the population aged and as government tries to make people support themselves rather than relying on state handouts.

"We are confident about the growth prospects for Legal & General," Breedon said. "We have the right business model and product mix. We see good growth opportunities for the group in 2011 and beyond."

Broker Killik & Co said the overall results were good and slightly above expectations, although it appeared fairly valued given relatively low growth. "Our preferred UK insurance stock is Prudential," it said.

In international, L&G delivered more cash through increased dividends and reducing its use of capital by implementing the first phase of its US capital management programme.

It said its joint venture in India was progressing well and there were opportunities to take its bancassurance-based, low-cost savings model into other emerging markets.

Legal benefited from a "transformation" in its savings business, as confidence returned to equity markets and the amounts that can be invested in tax-free ISA accounts rose to 10,200.

But operating profits in its risk business fell by nearly a quarter to 560m after the general insurance business made a loss.