Legal & General warns of difficult year

Legal & General has today warned that this year could be a difficult for the UK financial services industry as the group posted a decline in annual operating profits.

The insurer said operating profit on a European embedded value basis dropped from £1.23 billion to £912 million. The figures were hit by the group taking a more conservative view of life expectancy which cost it £269 million and contributed to a rapid decline in headline profit numbers.

Tim Breedon, L&G‘s chief executive said, however, that the figures were clouded by one-off items, which had added to 2006 profits, and the business had performed ‘consistently‘ on an underlying basis.

Looking ahead, Mr Breedon added that market conditions are becoming more challenging. It is not clear yet the full economic and financial impact of the credit crunch, which makes planning and forecasting particularly difficult for 2008. The macro-economic backdrop is not positive for the UK generally and for financial services.

A final dividend of 4.1p was proposed to take the total to 5.97p a rise of 7.6%. The group had raised its dividend every year for the last 4 decades.

The chief executive said that L&G had performed well in difficult times before. He forecasted that this year would be challenging for L&G’s savings business, however, he expected it to outperform the market.

Furthermore, Mr Breedon predicts L&G’s savings division to fare better than the industry as a whole, partially due to a new distribution agreement with Nationwide Building Society.

The protection division had done especially well as the pension buy-out market had resulted in record sales of bulk annuities, particularly in the final quarter of 2007. This market has the potential to double, double and double again, concluded Mr Breedon.

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