UPDATE 1-L&G brushes off fears of hit from UK pension reform

Wed May 7, 2014 3:52am EDT

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(Adds detail, management and analyst comment)

By Chris Vellacott

LONDON May 7 (Reuters) - British insurer Legal & General saw net cash rise by more than a fifth in the first quarter of 2014 on demand for its retirement products - easing fears the company would be hit by reforms to the UK pensions system.

The reforms, due to be implemented next April, effectively scrap a system that forced most retirees to swap their pension savings for an annuity that pays out an income for life. Instead, they get a choice in how they invest.

That had raised fears that insurers such as L&G that sell the products would suffer by losing one of their most lucrative business lines.

But in a trading statement on Wednesday, the company said its sales of bulk annuities to company pension schemes, which are not affected by the reforms, were easily offsetting a decline in sales of the products to individuals.

The group's Retirement arm saw new business premiums quadruple to 3.3 billion pounds following the signing of a 3 billion-pound bulk annuity contract with the ICI pension fund in March.

L&G's individual annuity sales dropped 40 percent in the quarter. Cancellations of newly bought annuities after the UK government announced the reforms in March had a 15 million- pound impact, the company said.

Net cash in the quarter was up 21 percent to 301 million pounds ($511.47 million). Operational cash generation rose 6 percent to 297 million pounds, which the company attributed to demand for its pension products.

L&G said it supports the reforms as part of a "clear pro-choice, pro-consumer agenda to modernise pensions". The company said it stood to benefit even though individual annuity sales would suffer, because other businesses such as fund management should gain by offering an alternative use of pensions savings.

Its fund management business, Legal & General Investment Management, saw net flows of new money from clients reach 3.8 billion pounds in the quarter, to bring assets to 463 billion pounds.

"We already benefit from favourable demographic trends; we have economically and socially useful products for customers... We are excited about the prospects for our business," said Chief Executive Nigel Wilson.

L&G shares were trading more than 2 percent higher on Wednesday morning after the earnings statement, which Shore Capital's Eamonn Flanagan called "a robust rebuttal to those who feared for the group's future following the Budget changes to the annuity market". ($1 = 0.5885 British Pounds) (Reporting by Chris Vellacott. Editing by Clare Hutchison, Larry King)

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