Insurance firm Legal & General Group PLC's (LSE:LGEN) annual results narrowly missed the mark, according to City analysts, but the absence of a share buyback was expected to more perturb investors.
However, that may be resolved later this year, they sugessted.
L&G’s financial results for fiscal year 2023 unveiled an operating profit of £1,67 billion, which fell short of the consensus estimate by approximately 5%.
Bulk annuity volumes were slightly above consensus after being largely flagged previously, while flat operating profit of £1.67 billion were a 5% miss versus the average forecast, said Panmure Gordon.
Looking at the divisional mix, Panmure analysts said the miss was driven by the LGIM investment arm, where profits were down 19% as net flows remain negative, while bulk annuity earnings were up year on year but short of expectations.
Analysts at Jefferies traced the shortfall in profits back to the retail and alternative assets segments, also noting Retail Fintech's reduced contributions and a decrease in US mortality improvements.
L&G also faced significant below-the-line expenses amounting to £1.6 billion due to unrealised mark-to-market impact of higher rates, the closure of Modular Homes, and the write-down of its investment in Onto.
However, Jefferies was impressed that L&G’s Solvency II ratio was a robust 224% surpassing the consensus estimate of 217%.
On the lack of buybacks, Jefferies said: “Before the turn of the year, some investors we had spoken to expected L&G to announce a buyback today, however expectations of this had reduced heading into results in our view.”
Where do pensions go from here?
Although the Jefferies analysts were mixed on L&G’s results, pension de-risking was an undeniable bright spot.
Pension-based operating profits by 10% in 2023 to generate £886 million in a year that saw record appetite for de-risking among legacy pension providers.
Some £50 billion in PRTs was transacted in the UK, with L&G leading on some of the landmark deals, including the British Steel Pension Scheme and Boots Pension Scheme transfers.
There are only so many defined benefit plans that can be de-risked, though L&G’s outlook remains strong in the mid term.
The company aims to write approximately £8-10 billion per annum in the UK under typical market volumes and anticipates heightened market volumes due to an increase in large transactions.