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Legal & General Group PLC on Wednesday reported a double-digit rise in operating profit, matching its own guidance, with the firm attributing its ‘resilient’ performance to its ‘diversified’ business.
‘This marks a return to our long-term rate of growth, having been resilient through the pandemic. Our diversified business model benefitted from the post pandemic economic recovery and easing of restrictions over 2021 to deliver strong earnings. All five businesses are well positioned to execute on compelling structural market opportunities to deliver further profitable growth,’ L&G said.
Shares in the FTSE 100-listed life insurance and financial services company were 4.4% higher in London on Wednesday morning at 255.90 pence each.
For 2021, pretax profit attributable to shareholders increased to £2.49 billion from £1.43 billion, attributed primarily to L&G's investment return of £233 million versus a £394 million loss the year prior.
‘The positive investment variance in L&G Insurance is from the formulaic impact of rising interest rates on LGI reserves. However, the negative investment variance of 2020 has not been fully reversed as longer-duration interest rates have not moved meaningfully in 2021. We have also seen strong portfolio performance in the annuity portfolio,’ L&G explained.
Operating profit was up 2% to £2.26 billion from £2.22 billion in 2020. Excluding mortality releases, operating profit rose 11%, which was in line with company guidance issued with its interim results.
Gross written premiums dropped to £10.38 billion from £12.55 billion, with led to net premiums earned falling to £6.97 billion from £9.37 billion.
Total income fell to £45.45 billion from £50.23 billion.
L&G declared a full-year dividend of 18.45 pence, rising from 17.57p in 2020.
Solvency II coverage ratio rose to 187% from 175% at the end of 2020. L&G ‘estimated’ its coverage ratio had risen to 198% by the start of this week.
Chief Executive Nigel Wilson said: ‘In 2021, cash and capital generation and book value per share were all up over 10% year on year, and we delivered EPS of 34.19p, DPS of 18.45p and a return on equity of 20.5%. We have a track record of value creation and a longstanding commitment to Inclusive Capitalism and ESHG.
‘The expected reform of Solvency II, the roll-out of the UK government's levelling up programme, and our growing international businesses underscore our confidence in our ability to continue delivering on a broad range of profitable growth opportunities.’
Legal & General Retirement - the firm's largest unit - saw operating profit fall to £1.15 billion from £1.33 billion in 2020. New business premiums dropped to £7.18 billion from £8.84 billion. Its UK pension risk transfers fell to £5.32 billion from £7.20 billion.
Despite the drop in new business, L&G said the unit's performance was ‘underpinned’ by its annuity portfolio. LGRI's annuity portfolio rose to £89.9 billion from £87.0 billion.
LGR Retail increased individual annuity sales increased to £957 million from £910 million, and lifetime mortgage advances rose to £848 million from £791 million. As a result, total new business increased to £1.81 billion from £1.70 billion, leading to operating profit rising to £352 million from £322 million.
Legal & General's Investment Management division reported assets under management at December 31 of £1.421 trillion, up from £1.279 trillion at the same point the year prior. The unit recorded £32.5 billion in net inflows.
The Investment Management division increased its operating profit to £422 million from £407 million. Management fee revenue increased to £980 million from £929 million.
Legal & General Capital increased its operating profit to £461 million from £275 million.
L&G said: ‘This growth principally reflects increased profits from our alternative asset portfolio as a result of a bounce-back in the housebuilding market and the continued maturing of the underlying investments in our clean energy and venture capital portfolios.’
Legal & General Insurance recorded a profit of £379 million from a £270 million loss in 2020. Total gross premiums increased to £2.90 billion from £2.85 billion.
The unit attributed the profit rise to a ‘formulaic change’ in LGI's discount rates.
L&G added: ‘We remain confident in our strategy and in our ability to deliver resilient, organic growth, supported by our strong competitive positioning in attractive and growing markets.
‘Our confidence in our dividend paying capacity is underpinned by the group's strong balance sheet, which has a £3.4 billion IFRS credit default reserve and Solvency II surplus regulatory capital of £8.2 billion, in addition to significant buffers to absorb a market downturn. We have a proven operating model which is reinforced by robust risk management practices.’
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