Good news, but uncertainties persist

LEGAL & GENERAL was in a bullish mood yesterday, charging back into the black with a £1.2bn pre-tax profit under IFRS standards thanks to a barnstorming performance at its UK risk business.
Worries over capital levels were also eased, after net cash generation rose 118 per cent to £699m, ahead of the £450m target announced at the start of 2009. The insurance giant also managed to bring in £69m of annualised cost savings, compared to expectations of £50m.

Having finished the year with a £3.1bn capital surplus, investors are now hoping for much faster hikes in the dividend. Unfortunately, those hopes are likely to remain just that. L&G will hoard capital as long as uncertainty over the new Solvency II standards remains.

And new business figures for 2009, which were released last month, were weak, with sales falling seven per cent to £1.4bn on an annual premium equivalent basis.

Yesterday’s better-than-expected figures are welcome. But with all the uncertainties, it is unclear that the insurer can keep busting expectations. Investors would be wise to use any meaningful strength in the share price as a selling opportunity.