Legal & General Group Plc (LGEN) returned to a pre-budget high as the biggest manager of U.K. pension assets said sales of bulk annuities would offset an expected 50 percent drop in products sold to individual retirees.
Sales of annuities to company pension plans rose to a record 3 billion pounds ($5.1 billion) in the first quarter, helped by a deal with the ICI Pension Fund, L&G said in a statement today. The shares climbed 3 percent in London as the insurer said it expects this year’s sales of bulk annuities to exceed 2013’s 4.1 billion pounds.
“We have a strong pipeline, which is a good lead indicator on the bulk side of our business,” Chief Financial Officer Mark Gregory said on a conference call. The insurer expects “bulk purchase annuities to more than offset the individual market decline. We are very positive about life post the budget.”
The company had more than 1 billion pounds wiped off its market value after the U.K. Chancellor of the Exchequer George Osborne scrapped rules in his March budget that pushed retirees to buy an annuity and allowed them to withdraw pension savings without paying a 55 percent tax.
L&G’s shares rallied 6.5 pence to 220 pence in London trading, the highest since March 18, even as the company said annuity sales to individuals tumbled 40 percent to 244 million pounds. That included 15 million pounds of cancellations in the wake of the budget.
L&G joins Standard Life Plc in reporting a drop-off in annuity sales. Chief Executive Officer Nigel Wilson forecast in the statement today that the individual annuity market will contract by about 50 percent this year and by half again in 2015.
The company still expects to meet its target return on capital thanks to more than 1 trillion-pounds of direct benefit liabilities that sit on balance sheets in the private sector.
“There has been much discussion as to the fallout from the various regulatory and government interventions,” Matthew Preston, an analyst at Berenberg AG, wrote to clients today. “Management’s ability to transition its allocation of capital toward the bulk space shows the flexibility on offer at L&G.”
The company increased its operational cash generation, a measure of earnings before dividends and reinvestment, in the first quarter by 6 percent to 297 million pounds. It also increased assets at its investment-management division by 5 percent to 462.6 billion, boosted by a 21 percent increase at its international unit.
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