Market Sell-Off Dents Legal & General Solvency

Market sell-off dents Legal & General solvency

LONDON, March 4 (Reuters) – The recent market sell-off due to the coronavirus has hit Legal & General’s solvency position, its chief financial officer said on Wednesday, as the British insurer reported a 12% rise in 2019 operating profit on record company pension deals.

Legal & General’s solvency ratio, a key measure of capital strength, has fallen 10 percentage points to 174% from the start of this year to Feb. 28, Jeff Davies told a media call.

A level above 100% indicates insurers have sufficient capital, though analysts say regulators usually seek a higher number.

Analysts have highlighted that insurers could face a double-hit from the coronavirus epidemic, due to increased payouts as well as investment losses, after markets suffered a correction last week.

Davies said L&G, which offers life insurance and pensions, had “very little” exposure to the virus.

“We prepare and plan for a whole range of different scenarios both in terms of mortality and the market, the market is the big focus.”

British general insurers RSA and Direct Line have also said they have seen a relatively low impact so far.

Operating profit at Britain’s third-largest insurer rose 12% to 2.1 billion pounds ($2.7 billion), beating a company-supplied consensus forecast of 2 billion pounds.

But analysts at JP Morgan pointed to a forecast miss in the insurer’s net release from operations – or net cash generation – reiterating their neutral rating on the stock.

L&G’s shares were up 0.5% to 266.1 pence at 0906 GMT, compared with a 1% rise in the FTSE 100.

Bulk annuity sales, including several jumbo transactions such as a 4.6 billion pound deal for Rolls-Royce, reached 11.4 billion pounds, up 25% from a year earlier.

L&G has increasingly focused on bulk annuities – insuring company final salary, or defined benefit, pension schemes.

Many schemes are in deficit and companies are looking to offload them to clean up their balance sheets.

Consultants have said the UK bulk annuity market, which totalled more than 40 billion pounds last year, was likely to be smaller this year as the pipeline contains fewer large deals.

But Davies said he saw similar volume for the overall market and for L&G.

L&G, one of the biggest investors in the UK stock market, said assets under management rose 18% last year to 1.2 trillion pounds.

The company said it would pay a dividend of 17.57 pence per share, up 7% and in line with forecasts.



* Operating profit beats forecast

* Bulk annuities total 11.4 bln stg, up 25%

* Similar bulk annuity volume seen this year – CFO

* Net release from operations misses forecast

($1 = 0.7806 pounds)

(Reporting by Carolyn Cohn, editing by Huw Jones and Mark Potter)

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