Dividends will be in the air as Legal & General Group PLC (LSE:LGEN) and Admiral Group Plc (LSE:ADM) both report final results tomorrow, among several insurers during the week as new accounting rules for the industry force changes to reported incomes.
“These could be a complex set of numbers,” said Steve Clayton at Hargreaves Lansdown of Legal & General's finals.
Changes to reported incomes could result in firms facing cuts of as much as 25%, though he said this is “accounting shenanigans” and the cash flows of the businesses are unchanged.
L&G has said it intends to grow the dividend out to 2024.
Accounting aside, the increase in bond yields in past months is “creating an unprecedented opportunity for insurers to grow their pension risk transfer operations and we expect L&G to paint a confident picture here”, Clayton said.
“The macro outlook matters. L&G has big holdings of corporate bonds on its books and it owns CALA Homes, where asset values could be shaky. But it starts from a position of capital strength and we do not expect any significant changes in the group’s messaging to investors.”
Analysts at UBS said investment management arm LGIM will be in focus, particularly market impacts and net flows.
The pipeline for bulk-purchase annuities will also be "key" with L&G the largest pension scheme to insurer deal ever having already transacted in 2023 and also has one the highest expected solvency ratio in the UK life subsector, having previously had the lowest subsector ratios.
"We expect the excess solvency to be deployed in the bumper BPA market, however, we also anticipate questions on capital returns at FY22 results."
Over at Admiral, which is a motor and home insurer, its shares have diverged from L&G's in the month leading up to results, down 7% compared to the life company's near 5% gain.
The share price weakness for Admiral reflects profit warnings from sector rivals Sabre and especially Direct Line as much as anything else, say analysts at AJ Bell, “although Admiral’s own first-half results in the summer revealed a halving of profits, thanks to increased claims and inflation jacking up the cost of car repairs.”
The dividend cut by rival Direct Line and the abrupt departure of its chief executive in January may not have helped sentiment either.
“Although Admiral’s shares barely flickered, shareholders could be forgiven for approaching these results with a degree of trepidation and they will quickly look for comments on competition, pricing, claims price inflation and customer numbers and accident frequency.”
The consensus forecast is for a dividend of 161p a share, including 56p a share in special payments already distributed during 2022.
For pre-tax profit the expectation is £492mln compared to £714mln in 2021.