UK insurer Legal & General receives earnings boost from corporate pension deals

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A buoyant annuities market helped Legal & General beat analyst expectations in interim results and boosted smaller rival Just Group, which said it was “highly confident of comfortably exceeding” its full-year profit guidance.

L&G, the FTSE 100 insurance and asset management group, posted first-half operating profit of £941mn, down 2 per cent year on year but beating consensus analyst expectations of £834mn.

Presenting his final set of results after more than a decade at the helm, which included better than expected solvency, Sir Nigel Wilson said L&G was on track to meet its five-year targets and had been “bolstered” by growing annuity sales.

In the period, the group did £4.9bn of UK corporate pension deals in which companies pay a bulk premium to offload their pension liabilities. In the second half, L&G has so far written £1.8bn and has agreed a similar amount of deals in the US since the end of June.

Analysts said the company had put up less capital against these deals than expected. “We have scope to write up to £11bn of UK [bulk annuity] volumes and for the UK annuity portfolio to be self-sustaining again in 2023, as it has been for the last three years,” L&G said.

Rising interest rates have lifted the funding levels of pension funds across the country and put many more in a position where they can do a deal with an insurer. The surge in market activity has raised questions about the insurance sector’s capacity to swallow all these schemes, and the regulator has called for insurers to exercise moderation in how much new business they take on.

However, rising interest rates also sapped L&G’s fund management arm, pulling the value of its assets under management down from £1.29tn in June 2022 to £1.16tn.

And the insurer fared less well in its UK protection business, with new business annual premiums falling from £85mn to £76mn in what it described as an “increasingly competitive market”. But its retail business was also “bolstered” by rising individual annuity sales.

Rival Just Group, the FTSE 250 life insurer, said in its interim results it was “highly confident of comfortably exceeding” its full-year operating profit target due to a buoyant market for individual and bulk annuity sales, both boosted by higher interest rates.

Just Group’s shares were modestly higher in early trading, while L&G’s were down by just over 3 per cent, amid a broader decline in UK blue-chip stocks.