Legal & General: Pensions Business Stands Out As New Accounting Rules Kick In

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  • Operating profit of £941m, down 2%
  • Dividend of 5.71p, up 5%
  • Stock of deferred profits up to £13.8bn

Legal & General’s Earnings

“Don’t be alarmed if numbers look a little different to usual. Today marks the first set of live results new accounting rules for insurance companies are showing up in Legal & General Group Plc (LON:LGEN)’s results. The main thing you’ll notice is a significant drop in operating profit compared to what used to be reported (last year’s numbers have been restated for these results so comparisons aren’t too alarming).

That’s because one of the key changes spreads profits from insurance contracts over their life, rather than recognising it all upfront. The key thing to remember is that this doesn’t impact total profit levels, nor things like cash generation or company strategy – these are accounting changes only.

Back to business, the 5% dividend hike was expected. Management had already pledged to a 5% hike to try and ease any reservations investors might have given the new accounting rules. The market for transferring pension risk remains a hot one, and L&G has executed £6.8bn of new business year-to-date, at decent rates.

Most of the work here is done in the UK where the market is huge, but there’s plenty of opportunity further afield in areas like the US and Canada where L&G is just a tiny player right now. International expansion remains a key future growth driver, across the different business units – but it’ll be a slow burner.”

Article by Matt Britzman, equity analyst at Hargreaves Lansdown