L&G foresees savings boom as austerity bites

By This Is Money
Updated: 10:06 EDT, 17 March 2011

Legal & General has issued a confident growth forecast, predicting more people will develop a savings habit in reaction to Government austerity.

Trend: More Brits are expected to put something aside for a rainy day

The insurer delivered a 2% rise in group pre-tax profits to £1.1bn in 2010, while sales rocketed 28% to £1.8bn.

It shared the spoils with shareholders, hiking its annual dividend by a better than expected 24% to 4.75p per share.

The insurer benefited from a strong performance in its savings business, as confidence returned to equity markets and the amounts that can be invested in tax-free Isas rose to £10,200.

Operating profits from savings products increased 130% to £115m on increased demand for private pensions and as customers invested money to escape low bank interest rates.

But the insurer's UK general insurance business made a loss of £8m after December's snow caused a spike in household claims.

Looking ahead, the company said: 'We see good growth opportunities for the group in 2011 and beyond.

'In the UK, a combination of state retrenchment, an ageing population, increased household savings and continued de-risking activity by pension trustees will drive growth across protection, annuities, savings and Legal & General Investment Management. '

L&G also plans to expand its low-cost savings model in emerging markets overseas.

Shares in the company - the UK's fourth-biggest life insurer by market value - dropped 2.3p to 108.8p in trading today.

Broker Panmure Gordon commented: 'The shares have been impacted by the recent market uncertainties but, in our view, this has created an excellent buying opportunity.'

Nick Raynor of online broker said L&G's 28% increase in sales demonstrated how people have been forced to take matters in to their own hands regarding pensions and saving plans.

'It is L&G's exposure to emerging markets that is its strength. The company's Indian joint venture is doing well, as in the first full year of trading it has sold over 130,000 policies,' he said.

'Our preferred pick in the insurance sector is Aviva due to its more established international presence and stronger dividend policy. We suggest investors who already hold L&G continue to do so but new investors should look elsewhere.'