L&G sees risks on road to recovery as profits rise

However, the firm said it had turned in a strong performance during the first two months of the year and said shareholders were in line for a 22 per cent hike in dividends.

Chief executive Nigel Wilson, pictured below, said the firm, which bought a stake in Edinburgh-based builder Cala Homes last year, was “actively seeking” to invest its share of a £25 billion warchest that the insurance industry has pledged for infrastructure and housing projects.

L&G more than doubled its spending on direct investments last year to £2.9bn, up from £1.4bn in 2012, putting cash into projects such as the development of the new Royal Liverpool University Hospital and the purchase of a 46.5 per cent stake in Cala that valued the housebuilder at £210 million.

However, concerns over the withdrawal of stimulus measures such as the Federal Reserve’s money-printing programme could dent confidence among companies, Wilson said.

The US central bank’s move to start “tapering” the amount of cash it pumps into the economy, from $75bn (£45bn) in January to $65bn last month, sent a series of shockwaves through emerging markets.

Wilson said: “There is inherent uncertainty as the ‘monetary methadone’ of quantitative easing is withdrawn, and the possibility of further ‘butterfly-wing’ effects for emerging markets and the ­Eurozone.

“The single largest risk to economic progress remains the persistent backdrop of political and regulatory uncertainty, which could undermine the confidence of businesses to invest for long-term growth in the UK.”

Wilson’s comments came as L&G reported a 7 per cent increase in operating profits to almost £1.16bn for 2013, ahead of City hopes, with net cash generation rising 16 per cent to £1bn.

Assets under management at its fund management arm, Legal & General Investment Management, rose 11 per cent to £450bn.

Yesterday’s results showed the group has been reaping the rewards of the auto-enrolment programme, with workplace pensions assets surging 45 per cent to £8.7bn as the number of people enrolled into company pension schemes more than doubled to 903,000.

Eamonn Flanagan, analyst at Shore Capital, said: “We reiterate our ‘buy’ recommendation on this well-positioned business.”

L&G also revealed a £12m hit from the extreme wet weather and recent flooding across parts of the UK, but the bill is far lower than its larger home insurance rivals – Direct Line last week said it was expecting a hit of up to £90m from the storms and floods since the start of the year.

L&G’s board proposed a final dividend of 6.9p a share, to be paid on 4 June, lifting the full-year payout by 22 per cent to 9.3p.