Legal & General profits dive despite surge in bulk annuity deals

Legal & General Group earnings slumped last year despite achieving record new volumes across its insurance divisions. 

The financial services giant saw its profits plummet by 42 per cent to £457million in 2023, due partly to costs related to its Modular Homes business and a write-down on a stake in electric vehicle subscription service Onto. 

Profitability was further impacted by higher interest rates weakening asset valuations in its investment management operations, which suffered a sharp drop in profits.

Bad result: Legal & General saw its profits plummet by 42 per cent to £457million in 2023

Legal & General Investment Management's operating profit dropped by 19 per cent to £274million for the year, as its assets under management fell by 3 per cent to £1.16trillion on net client outflows of £38.4billion.

Total operating profits came in below forecasts at £1.67billion as the firm's retail segment was affected by mortgage market weakness and the non-repeat of valuation uplifts in its fintech businesses.

Yet the London-listed company attracted record new business volumes, including £15.1billion of institutional or individual annuities.

Interest rate hikes have lowered or eradicated the deficits of defined-benefit - or final salary - pension schemes, encouraging more companies to pay a bulk premium to offload their pension liabilities. 

Among the groups that agreed buy-ins with L&G last year were Deutsche Bank, United Utilities, British Steel and telecommunications provider Cable & Wireless. 

And in December, L&G struck a £4.8billion full buy-in of the Boots Pension Scheme, one of the largest deals of its kind in the UK.

Meanwhile, the firm's Solvency II coverage ratio, the amount of funds insurers are required to hold to ensure they can meet obligations to policyholders, totalled 224 per cent.

Antonio Simoes, the company's new chief executive, said it was 'the right moment to take a fresh perspective, build on our track record and set out a vision for profitable and sustainable growth.'

Simoes joined L&G at the start of January following a spell running Santander's Spanish and European regional offices and stints before then at HSBC, Goldman Sachs and management consultancy McKinsey.

He replaced longtime boss Sir Nigel Wilson, whose tenure at L&G saw the business thrive financially, with a major expansion in profits and shareholder returns amid a push into the housing and infrastructure sectors.

Portuguese-born Simoes took over in the final 12 months of L&G's plan to generate £8billion-£9billion in capital and pay dividends surpassing £5.6billion-£5.9billion over the 2020 to 2024 period.

L&G said it was confident of meeting those targets, having already achieved £6.8billion of cumulative capital generation and announced £4.5billion in dividends.

Richard Hunter, head of markets at Interactive Investor, said: 'There is no doubting the longer-term potential for the savings and investment market, especially given ageing demographics and likely welfare reform.

'For L&G, an ability to participate in this market on a number of fronts, particularly the annuity and international angles, should provide ongoing areas of growth.'

Legal & General Group shares were 2.5 per cent lower at 237.1p on Wednesday morning, making them the FTSE 100 Index's biggest faller.