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L&G earnings down 92pc as bonds tumble

INSURANCE giant Legal &amp; General (L&amp;G) saw its shares plummet yesterday after it reported a 92 per cent slump in statutory profits, thanks to a one-off hit on the corporate bond portion of its investment portfolio.<br /><br />Shares of the firm fell by eight per cent after it issued the half-year results, before rallying slightly to a close of 62.15p, a 4.75 per cent fall on the day.<br /><br />The group also announced it was cutting its dividend by 45 per cent to 1.11p per share in a bid to conserve cash and boost its capital cushion. <br /><br />The group said under the statutory method of insurance company reporting its profits were just &pound;31m in the six months to the end of June, compared to &pound;391m in the same period last year. Analysts had been expecting a profit of &pound;248m on average.<br /><br />L&amp;G said the profit fall was driven by &pound;359m in &ldquo;negative investment variances&rdquo;, including losses on the sale of some of its corporate bonds as well as a deficit of &pound;206m after a foreign-exchange hedging programme went wrong.<br /><br />Under the European Embedded Value reporting method, which takes into account future returns from insurance underwriting, first-half underwriting profits rose by 12 per cent to &pound;657m compared to the first half of last year, beating analyst expectations of &pound;466m. <br /><br />&ldquo;These one-off effects obscure what was otherwise a very solid set of results,&rdquo; said Nomura analyst Nick Holmes. <br /><br />&ldquo;In the short term the share price may suffer from the accounting opacity which affects the whole insurance sector.&rdquo;<br /><br />The group reassured on its capital buffers, after cutting the dividend to further hoard cash, stating its regulatory surplus has now risen to &pound;2.2bn, up from &pound;1.5bn in March.