2015 Results: L&G operating profit up 14% to £1.47 billion

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Legal & General Group Plc reported a 14 percent increase in full-year profit that met analyst expectations as the U.K.’s largest manager of pension assets revealed its capital buffer under new regulations. The shares fell.

Operating profit rose to 1.46 billion pounds ($2.1 billion), according to a statement Tuesday, in line with the average estimate of 22 analysts surveyed by L&G. Its Solvency II capital ratio of 169 percent, based on a surplus of 5.5 billion pounds, met most forecasts. The stock dropped about 6 percent as the insurer adjusted the way it determines dividend payments to a “progressive” policy.

“We believe this suggests a lower dividend growth,” Farooq Hanif, an analyst at Citigroup Inc. who has a neutral rating on the shares, wrote in a note to clients. “The dividend will now grow in line with the business across a range of metrics.” He also said the Solvency II ratio came in lower than he anticipated.

Outgoing Chief Financial Officer Mark Gregory said the dividend policy change was overdue and had been well flagged to the market. Future payouts will be “strongly correlated” to business growth, he said. The full-year dividend was increased 19 percent to 13.4 pence a share.

Capital Model

L&G was among 19 firms to get its capital model approved by the Bank of England in December under new laws that cost U.K. insurers at least 3 billion pounds to be compliant. L&G’s Solvency II ratio compares to 193 percent at Prudential Plc and 180 percent at Aviva Plc. A ratio of 100 means a firm has sufficient capital to withstand the kind of shock that happens once in 200 years.

The shares dropped to 229.10 pence at 12:01 p.m. in London, extending this year’s loss to almost 15 percent. The stock climbed in each of the past four weeks.

L&G’s Retirement unit, which sells annuity products, reported a 49 percent jump in operating profit to 639 million pounds. New business dropped to 2.9 billion pounds in 2015 from 6.6 billion pounds as individual sales were hit by government changes to pensions.

The insurer has ramped up its corporate pension business in the U.K. and overseas to offset the sales slump. In contrast to Prudential, which said in January that it may pull back from annuities due to higher capital charges, Gregory said L&G remained “very positive” because companies are still seeking to remove pension liabilities from their balance sheets.

L&G’s investment unit reported an 8 percent increase in assets under management to 746.1 billion pounds.

“We have a robust business model which has proved to be adept and resilient in dealing with fiscal and regulatory changes in our sector,” Chief Executive Officer Nigel Wilson said in the statement. “We are planning for more global economic and market volatility and are well positioned for continued pressure.”

Source: Bloomberg