Legal & General's record annuity sales raises dividend doubts

By Carolyn Cohn

LONDON (Reuters) - Legal & General said it had made record sales of annuities in 2018, although some analysts questioned whether Britain's third-largest insurer could continue to raise its dividend at the same time, knocking its shares on Wednesday.

The insurer said it had sold 10 billion pounds of annuities, most of them through the bulk annuity market, in which companies offload the risk to insurers of their defined benefit, or final salary, pension schemes.

With the bulk annuity market expected to hit record levels of around 30 billion pounds this year, L&G's chief financial officer Jeff Davies said it was actively quoting on around 20 billion pounds in bulk annuity deals.

British life expectancy improvements are falling, enabling life insurers to release cash set aside to pay pensions and Phoenix delivered above-consensus profits on Tuesday, helped in part by a release of longevity reserves.

But annuities are capital-intensive, leading some insurers, such as Prudential, to exit the market in recent years and Barclays analysts asked if L&G "can fund this level of annuity volumes and continue to grow the dividend".

L&G said it would pay a total dividend of 16.42 pence for 2018, up seven percent and in line with forecasts.

Barclays reiterated an overweight rating on L&G's shares, which dropped 3.7 percent to 275.5 pence at 0907 GMT, at the bottom of the FTSE 100 index. The stock has risen 25 percent this year and one trader said there was profit taking.

"We have a good outlook for 2019 across annuities and asset management," Davies told a media call after L&G said that full-year operating profit rose 10 percent to 1.9 billion pounds, in line with consensus forecasts supplied by the insurer.

This profit figure excluded the release of longevity reserves, which would have boosted profits further, L&G said.

Legal & General Investment Management, one of the biggest investors in the UK stock market, saw a three percent rise in assets under management to 1 trillion pounds.

(Additional reporting by Helen Reid, editing by Sinead Cruise and Alexander Smith)