(Alliance News) - Legal & General Group PLC on Wednesday reported a double-digit rise in operating profit, matching its own guidance, with the firm attributing its "resilient" performance to its "diversified" business.
"This marks a return to our long-term rate of growth, having been resilient through the pandemic. Our diversified business model benefitted from the post pandemic economic recovery and easing of restrictions over 2021 to deliver strong earnings. All five businesses are well positioned to execute on compelling structural market opportunities to deliver further profitable growth," L&G said.
Shares in the FTSE 100-listed life insurance and financial services company were 4.4% higher in London on Wednesday morning at 255.90 pence each.
For 2021, pretax profit attributable to shareholders increased to GBP2.49 billion from GBP1.43 billion, attributed primarily to L&G's investment return of GBP233 million versus a GBP394 million loss the year prior.
"The positive investment variance in L&G Insurance is from the formulaic impact of rising interest rates on LGI reserves. However, the negative investment variance of 2020 has not been fully reversed as longer-duration interest rates have not moved meaningfully in 2021. We have also seen strong portfolio performance in the annuity portfolio," L&G explained.
Operating profit was up 2% to GBP2.26 billion from GBP2.22 billion in 2020. Excluding mortality releases, operating profit rose 11%, which was in line with company guidance issued with its interim results.
Gross written premiums dropped to GBP10.38 billion from GBP12.55 billion, with led to net premiums earned falling to GBP6.97 billion from GBP9.37 billion.
Total income fell to GBP45.45 billion from GBP50.23 billion.
L&G declared a full-year dividend of 18.45 pence, rising from 17.57p in 2020.
Solvency II coverage ratio rose to 187% from 175% at the end of 2020. L&G "estimated" its coverage ratio had risen to 198% by the start of this week.
Chief Executive Nigel Wilson said: "In 2021, cash and capital generation and book value per share were all up over 10% year on year, and we delivered EPS of 34.19p, DPS of 18.45p and a return on equity of 20.5%. We have a track record of value creation and a longstanding commitment to Inclusive Capitalism and ESHG.
"The expected reform of Solvency II, the roll-out of the UK government's levelling up programme, and our growing international businesses underscore our confidence in our ability to continue delivering on a broad range of profitable growth opportunities."
Legal & General Retirement - the firm's largest unit - saw operating profit fall to GBP1.15 billion from GBP1.33 billion in 2020. New business premiums dropped to GBP7.18 billion from GBP8.84 billion. Its UK pension risk transfers fell to GBP5.32 billion from GBP7.20 billion.
Despite the drop in new business, L&G said the unit's performance was "underpinned" by its annuity portfolio. LGRI's annuity portfolio rose to GBP89.9 billion from GBP87.0 billion.
LGR Retail increased individual annuity sales increased to GBP957 million from GBP910 million, and lifetime mortgage advances rose to GBP848 million from GBP791 million. As a result, total new business increased to GBP1.81 billion from GBP1.70 billion, leading to operating profit rising to GBP352 million from GBP322 million.
Legal & General's Investment Management division reported assets under management at December 31 of GBP1.421 trillion, up from GBP1.279 trillion at the same point the year prior. The unit recorded GBP32.5 billion in net inflows.
The Investment Management division increased its operating profit to GBP422 million from GBP407 million. Management fee revenue increased to GBP980 million from GBP929 million.
Legal & General Capital increased its operating profit to GBP461 million from GBP275 million.
L&G said: "This growth principally reflects increased profits from our alternative asset portfolio as a result of a bounce-back in the housebuilding market and the continued maturing of the underlying investments in our clean energy and venture capital portfolios."
Legal & General Insurance recorded a profit of GBP379 million from a GBP270 million loss in 2020. Total gross premiums increased to GBP2.90 billion from GBP2.85 billion.
The unit attributed the profit rise to a "formulaic change" in LGI's discount rates.
L&G added: "We remain confident in our strategy and in our ability to deliver resilient, organic growth, supported by our strong competitive positioning in attractive and growing markets.
"Our confidence in our dividend paying capacity is underpinned by the group's strong balance sheet, which has a GBP3.4 billion IFRS credit default reserve and Solvency II surplus regulatory capital of GBP8.2 billion, in addition to significant buffers to absorb a market downturn. We have a proven operating model which is reinforced by robust risk management practices."
By Paul McGowan; paulmcgowan@alliancenews.com
Copyright 2022 Alliance News Limited. All Rights Reserved.
