L&G beats forecasts with profit rise, shares jump

LONDON (Reuters) - Britain's Legal & General (LGEN.L) topped forecasts with a 6 percent rise in first-half operating profit on Tuesday, as annuity sales more than offset the impact of a weakening economy and turbulent markets.

Analysts had expected flat profits or a slight dip for the most UK-focused of the country's major insurers, and news of the results boosted L&G's shares more than 7 percent.

L&G said its interim operating profit, on a European embedded value (EEV) basis, was 626 million pounds ($1.2 billion), above an average forecast of 587 million pounds, according to a Reuters poll and at the top end of estimates.

Statutory operating profit ticked 1 percent higher.

The insurer also confirmed it was pressing ahead with a 1 billion pound share buyback programme, due to complete later this year, and confirmed its 7.5 percent dividend growth rate.

At 0824 GMT, L&G shares were up 6.4 percent at 102.8 pence, one of the top gainers in the FTSE bluechip index .FTSE. So far this year, L&G has seen its shares fall more than 20 percent, broadly in line with the wider UK sector.

"It's a beat across all numbers and a good performance," said analyst Raghu Hariharan at Fox-Pitt, Kelton.

New business profit for the insurer grew 8 percent to 806 million pounds on stable margins, boosted by continued strength in pension buyouts, a distribution deal with building society Nationwide and a stable overall result for its protection business, despite the effect of a weakening UK housing market.

ANNUITY BOOST

The group said annuity sales doubled from last year, and demand for the buyouts continued to surge following a trend that began late last year, showing no signs of being curbed by turbulent equity markets. L&G, which expects sales to jump to 10 billion pounds across the market in 2008, said it wrote 1.4 billion pounds in policies in the first half, up from 400 million.

Margins, however, dipped, as pension buyout business was of shorter duration as the insurer took on older pensioners. Annuity margins fell to 7.6 percent from 9.8 percent a year ago. Adjusted for duration, margins were broadly flat.

L&G's protection business -- closely watched by analysts fearing the impact of a slowing housing market on insurance typically taken out alongside a mortgage -- was in line with last year's levels. Group sales offset an 11 percent drop in individual protection, well above an almost 30 percent drop in UK mortgage approvals in the period.

Chief Executive Tim Breedon said protection margins were likely to remain weak through 2008.

"We are certainly not pessimistic on protection margins going into the second half, but we are unlikely to see a recovery back to the level we enjoyed in 2007," he told reporters on a conference call.

The insurer's savings business, however, saw sales fall more than 14 percent on last year, despite growth in retail investments and the impact of its Nationwide deal. Unit-linked bonds, which made up more than a third of overall savings sales last year, fell 45 percent, battered by tax changes and volatile investment markets.

L&G's solvency levels remained at the high end of the sector, with an Insurance Group Directive surplus of 3.4 billion pounds, down from 4.1 billion at the end of 2007. But Breedon said it was too soon to say whether the group would press ahead with a fresh buyback programme.

(Editing by David Cowell and Andy Bruce)