L&G earnings down 92pc as bonds tumble
INSURANCE giant Legal & General (L&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.
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.
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.
The group said under the statutory method of insurance company reporting its profits were just £31m in the six months to the end of June, compared to £391m in the same period last year. Analysts had been expecting a profit of £248m on average.
L&G said the profit fall was driven by £359m in “negative investment variances”, including losses on the sale of some of its corporate bonds as well as a deficit of £206m after a foreign-exchange hedging programme went wrong.
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 £657m compared to the first half of last year, beating analyst expectations of £466m.
“These one-off effects obscure what was otherwise a very solid set of results,” said Nomura analyst Nick Holmes.
“In the short term the share price may suffer from the accounting opacity which affects the whole insurance sector.”
The group reassured on its capital buffers, after cutting the dividend to further hoard cash, stating its regulatory surplus has now risen to £2.2bn, up from £1.5bn in March.