Legal & General Group PLC (LON:LGEN) became the UK’s first £1trn investment manager in 2018 even as asset valuations and fee revenues were hit by market declines.
Assets under management rose by 3% to £1.02trn last year from £983mln in 2017, supported by external net inflows of £42.6bn.
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The company said positive flows from its defined contribution, retail, defined benefit solutions and international businesses mitigated the “structural shift” from its UK defined benefit index business as clients continued to de-risk and adapt their investment strategies amid Brexit uncertainty.
Profit before tax attributable to shareholders increased to £2.13bn from £2.09bn a year ago as growth in the retirement business offset losses in the capital division’s traded equities portfolio due to market volatility in global financial markets.
“2018 saw political uncertainty, asset market declines and slowing economic growth, but we are resilient and performed strongly,” said chief executive Nigel Wilson.
“We became the UK's first £1trn investment manager, executed a record £9bn of pension risk transfer deals and invested billions in the UK's future infrastructure and cities.”
Retirement business drives growth
Operating profit gained 10% to £1.9bn, led by a 22% rise in the retirement arm to £1.12bn on the back strong sales in pension risk transfers and annuities. That excludes the benefit of a £433mln mortality reserve release from a "heavier than expected mortality experience".
The investment management arm grew operating profit by 2% to £407mln as management fee revenues and AUM increased.
The capital business delivered an 18% rise in operating profit to £322mln, led by growth in the direct investment portfolio and a contribution from CALA Homes. L&G took full control of the UK housebuilder last March by buying the 52.1% that it did not already own.
The insurance division saw operating profit gain 2% to £308mln, despite a lower mortality rate in the US, as the performance of its UK protection business improved. New business premiums rose by 14% to £343mln.
Operating profit in general insurance, however, dropped to £0 from £37mln, hit by claims related to the so-called Beast from the East cold snap last February and March followed by prolonged dry weather over the summer.
The solvency II ratio, a measure of capital strength, was 188% at the end of the year, compared to 189% in 2017. The group generated an operational capital surplus of £1.4bn, up from £1.3bn the previous year.
Dividend raised as L&G issues confident note on outlook
The full-year dividend was lifted by 7% to 16.42p.
L&G said it remains confident it will continue its momentum into 2019.
“Between 2011 and 2015 we achieved an earnings per share compound annual growth rate of 10% per annum, and are on track to deliver a similar performance out to 2020," the company said.
Shares fell 4% to 274.5p in morning trading.
“A lower than hoped for Solvency ratio, and a miss on cash generation, hit Legal & General’s share price immediately after results were announced, but we think the underlying trends remain supportive of the long term investment case,” said Nicholas Hyett, equity analyst at Hargreaves Lansdown.
Hyett said positive highlights included the £1trn in AUM, the higher annuity reserve release as a result of life expectancy plateauing faster than expected and the company’s 38% share of the UK bulk annuity market.
“It's overused corporate jargon, but Legal & General can genuinely claim to have a “broad and fully integrated” offering, and in an increasingly complex pensions landscape, we think that will give it a meaningful advantage over the long term,” he added.