Legal & General looks to profit as safety net shrinks

A revived L&G expects its UK business to flourish as we Brits are forced to save more to fund our dotage...

by James Taylor
Last Updated: 19 Aug 2013
It doesn't seem long since Legal & General was being talked about as an insurance industry laggard. But you'd never have guessed from its latest results: it chalked up over £1bn in profit last year, while sales jumped 28% to £1.8m. It's even hiked its dividend by a quarter, much to the delight of shareholders - and better still, chief exec Tim Breedon says there's plenty more to come. As the welfare state is trimmed back, and the UK's ageing population is forced to save more money, he reckons L&G's UK business is perfectly placed to cash in. So not everyone's upset about the Government's austerity measures...

It wasn't all good news for L&G: its Risk division saw operating profits fall from £735m to £560m, including an £8m loss in its general insurance business thanks to lots of bad weather related claims in December. But its life insurance business fared much better; its investment management division boosted profits by 20%; and its savings division was the real stand-out, seeing operating profits soar 130% to £115m. L&G reckons the 'transformation' of this business in the last couple of years leaves them well positioned to cash in on the 'changes to the savings landscape'.

So what does that actually mean in practice? Well, first of all we're starting to get the message that we need to start squirreling away more of our cash - particularly now the Government's austerity measures will result in the state providing less in the way of hand-outs. This should mean a growing market for savings and investment products. 'Legal & General will be a growing force as the welfare state retrenches and individuals increasingly look to high-quality, good value risk, savings and investment provision,' as Breedon puts it. And he may well be right.

L&G was keen to point out today that it hasn't neglected cash generation in pursuit of growth; in fact, it deposited an extra £728m in its coffers, up from £699m, which is why it can afford to pay out a bigger divi. And Breedon is expecting to generate another £700m in the coming year. We're sure those facing up to life with a reduced state pensions will be delighted to learn that at least there may be a financial upside for L&G shareholders...

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