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Rising interest rates boost Legal & General-CEO
Global Banking & Finance Review®
Company
By Carolyn Cohn
LONDON (Reuters) -Rising interest rates are helping Legal & General’s business, its chief executive said on Tuesday as the British life insurer recorded an above-forecast 8% rise in first-half operating profit and said it was on track to meet or beat its financial goals.
Markets have fallen this year as central banks have raised rates aggressively to tame inflation.
But life insurers tend to gain from higher interest rates, as it means they have to set aside less capital now to make future pension payments.
“We are beneficiaries of rates rising across the world,” CEO Nigel Wilson told Reuters, adding that inflation was being driven by energy prices, which were likely to ease.
“We’ll see inflation expectations come down from where they are now.”
L&G’s said its performance was boosted by bulk annuities – insurance of company defined benefit pension schemes – and its housing businesses.
Legal & General Investment Management, one of the biggest investors in the UK stock market, saw a large jump in third-party inflows to 65.6 billion pounds ($79.25 billion), more than double the flows seen in the first half of 2021.
L&G was attracting greater volumes of investment compared to smaller peers, Wilson said, as savers and investors turned towards bigger players to help them navigate challenging economic conditions.
But assets under management dropped 3% from a year earlier to 1.29 trillion pounds. The unit’s operating profit fell 2%.
Rival asset manager abrdn posted a 6% drop in assets under management and administration in the first half on Tuesday. But Schroders last month posted a 1% rise over the same period, helped by a strong performance in alternative assets.
L&G’s operating profit of 1.16 billion pounds topped a consensus of 1.12 billion in a company-supplied poll.
L&G shares were down 0.5% at 0729 GMT versus a steady FTSE 100. KBW analysts described the results as “solid”, reiterating their “market perform” rating on the stock.
L&G said it would pay an interim dividend of 5.44 pence per share, up 5%.
($1 = 0.8275 pounds)
($1 = 0.8277 pounds)
(Reporting by Carolyn Cohn, editing by Sinead Cruise)
Operating profit is the profit a company makes from its core business operations, excluding deductions of interest and taxes. It reflects the efficiency of a company in managing its operational costs.
Bulk annuities are insurance products that provide a stream of income to pension schemes, allowing companies to transfer their pension liabilities to an insurance company.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is often measured by the Consumer Price Index (CPI).
Assets under management (AUM) refers to the total market value of assets that an investment company or financial institution manages on behalf of clients.
A dividend is a portion of a company's earnings distributed to shareholders, typically in the form of cash or additional shares, reflecting the company's profitability.
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