Legal & General sees general insurance arm report zero operating profit

Company did achieve record sales in other business units

Legal & General sees general insurance arm report zero operating profit

Insurance News

By Paul Lucas

We’re edging ever closer to the end of the insurance results season – but don’t run out of breath in this marathon just yet, because Legal & General has just tossed you a bottle of water to get over the finishing line. In fact, it’s thrown that water right over your head with an eye-catching figure that is sure to give you a wake-up call.

From its general insurance arm, which the company was rumoured to be willing to offload back in December, it reported operating profits in 2018 of… wait for it… zero.

Yes, that’s a real figure.

Its operating profit was zero, compared to £37 million last year, on the back of some adverse weather events – in particular the February/March freeze and a subsidence surge prompted by the prolonged period of bad weather. Without these variances to long-term weather its operating profit would have been around £26 million. Overall for the year, its combined operating ratio also went backwards – slipping from 93% in 2017 to 104% this time around.

There were some silver linings for the firm, however. Its gross premiums actually increased by 11% for the period, reaching £410 million compared to the prior year’s £369 million. This included a 9% increase in household premiums at £370 million, while pet premiums leapt a whopping 60% to £24 million thanks largely to the acquisition of the “Buddies” pet business. New business gross premiums increased 15% to £198 million, while the direct business saw 6% growth at £148 million.

The group at large shined in other aspects of its business too. Overall, operating profit was up 10% to £1,902 million and its full-year dividend is up 7% to 16.42p per share. It reported pension risk transfer sales of £9.1 billion compared to £3.9 billion a year earlier, while it also enjoyed gains in its investment management division.

“Legal & General’s consistent strategy, market leading businesses, balance sheet strength and high-quality people have enabled us to deliver eight years of compound annual profit growth of over 10%,” said group chief executive Nigel Wilson. “2018 saw political uncertainty, asset market declines and slowing economic growth, but we are resilient and performed strongly.

“We became the UK’s first £1 trillion investment manager, executed a record £9 billion of pension risk transfer deals and invested billions in the UK’s future infrastructure and cities. Abroad, we grew US protection new business annual premiums by 12% and increased international assets by 13% to £258bn. Excluding our £433 million positive mortality release, operating profit was up 10% to £1.9 billion and we had EPS growth of 7%, DPS growth of 7%, book value growth of 13% and an RoE of 23%. We are a globally trusted brand. Our strategy positions us well despite the broader environment, our current trading is strong and we expect this momentum to continue in 2019.”

Commenting on its insurance division specifically the firm outlined that technological innovation would be a core component of its strategy now and going forward.

“In both the UK and the US, LGI has implemented new technology to optimise its operations,” it stated. “This includes the use of robotics in our customer administration and enhanced sophistication in our medical underwriting processes. Our general insurance business has implemented new technology such as ‘SmartClaim’ and ‘SmartQuote’ delivering operational efficiency and an improved customer experience.”

It expects 2019 profitability “to return to levels consistent with previous years.”


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