Wednesday 6 March 2019 11:19 am

Legal and General shares fall in wake of record £10bn annuities sales

City A.M’s industry and manufacturing correspondent. You can follow me on @alexmdaniel, or email:

City A.M’s industry and manufacturing correspondent. You can follow me on @alexmdaniel, or email:

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Legal and General shares fell four per cent this morning as the insurance group reported record sales of annuities in its full-year results.

But investors' confidence was knocked after analysts questioned whether the company could continue raising its dividend at the same time.

The figures

Profit after tax was down three per cent year-on-year for the 12 months ending 31 December to £1.82bn, while operating profit rose 10 per cent to £1.9bn, up from £1.7bn the year before.

Meanwhile the company said it sold £10bn of annuities, while earnings per share were 24.74p, up seven per cent on 23.1p in 2017.

The full-year dividend rose seven per cent to 16.42p per share.

Why it’s interesting

Legal and General sold most of its annuities through the bulk annuity market, in which companies offload the risk to insurers of their defined benefit, or final salary, pension schemes.

With the bulk annuity market expected to hit record levels of around £30bn this year, L&G’s chief financial officer Jeff Davies said it was actively quoting on around £20bn in bulk annuity deals.

Annuities are capital-intensive, leading some insurers, such as Prudential, to exit the market in recent years and Barclays analysts asked if the firm “can fund this level of annuity volumes and continue to grow the dividend”.

Analysts at Shore Capital Markets said: “The outlook remains very strong for a business that is well positioned to take advantage of demographic changes in a number of markets.”

What Legal and General said

Chief executive Nigel Wilson said: “Legal & General's consistent strategy, market leading businesses, balance sheet strength and high quality people have enabled us to deliver eight years of compound annual profit growth of over ten percent.

"2018 saw political uncertainty, asset market declines and slowing economic growth, but we are resilient and performed strongly. We became the UK's first £1 trillion investment manager, executed a record £9 billion of pension risk transfer deals and invested billions in the UK's future infrastructure and cities."