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Legal and General interims - growth in bulk annuities and equity release

Legal & General Retirements (LGR) saw annuity assets up 18% at £51bn, as well as rapid growth in the lifetime mortgage product with advances of £231m compared to £37m in H115. Annuity sales improved markedly to £3.8bn (H115: £1.3bn) boosted by bulk annuity sales of £3.6bn after a £2.9bn back book transaction with Aegon. Operating profits improved 44% to £406m.

Nicholas Hyett, Equity Analyst, Hargreaves Lansdown;

“Volatile financial markets can be tricky for banks and insurers in the short term, since many of their assets are linked to market investments. Legal & General appear well set with their focus on long term structural growth opportunities. However today’s mix of earnings will be a little disappointing for investors. The LGIM business, which saw revenues decline, is capital light and generates welcome recurring income, whereas annuity revenues have become lumpier as the group increasingly relies on blockbuster bulk annuity deals.

Demand for L&G's bulk annuity schemes and liability-driven investment products should remain strong, as more companies seek to de-risk their defined benefit (DB) pension schemes. The UK DB market alone is worth an estimated £2,000 billion.

The new equity release product is proving very successful as people increasingly turn to housing value to supplement retirement income.

Legal & General is a market leader in the provision of low cost investment products and services, having been an early entrant into the tracker funds market. It has subsequently built up a substantial passive investments business.

L&G serves markets with a lot of inherent growth potential. They have a 20% share of the auto-enrolment pensions market, and by 2018 the vast majority of employees will have to have been signed up, by law. Contributions from its auto-enrolment pension scheme members should rise strongly over the next few years. It has plenty of scope to sign up new schemes too, with the number of people auto-enrolled expected to treble by 2030.

International expansion should open up further opportunities for the group. Last October, L&G signed its first bulk annuity contract in the US. The US defined benefit market is four times larger than the UK, and demand for de-risking solutions is growing rapidly. The deal gives L&G an important foothold in this market, and the opportunity to build its market share.”


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