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L&G buyout business hits £1.4bn in six months

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  • L&G buyout business hits £1.4bn in six months

UK - Legal & General has completed pension buyout business valued at £1.4bn (€1.8bn) in the first half of 2008 compared to £382m for the same period in 2007.

Half-year figures from the UK insurance company showed on a single premium basis, the value of new pension buyout business trebled to £1.4bn, as it wrote 140 policies in the first six months of the year.

However, L&G admitted buyout deals "were again dominated by shorter duration, large pension in payment contracts" rather than transactions relating to deferred pension liabilities.

As a result, the firm revealed, the trend for companies to agree partial buyouts and rid themselves of existing pensioner liabilities shortens the average duration of new business for insurers by around three years, which under the European Embedded Value (EEV) accounting methods reduces the reported new business margin.

That said, L&G claimed there is a continuing demand for buyouts, and despite the number of entrants in the market it revealed the quotation activity for possible bulk annuity buyout business "is strong".

The report added "employers are continuing to support employee benefits such as pensions", while "conditions stimulating the pension buyout market remain" - a trend demonstrated by L&G's recent deal withteh Telegraph pension scheme. (See earlier IPE article: Telegraph opts for bulk buyout as prices begin to rise)

Elsewhere, the insurer revealed new inflows into its institutional investment management business reached £17.6bn in the first half of 2008, slightly higher than the £17bn reported in the same period in 2007.

Figures from the interim report showed 78% of L&G's new managed pension fund business during the first half came from existing pension fund clients, a trend which it claimed is "likely to continue given our very large growth in funds over recent years".

L&G revealed because of the "strong client retention" combined with new business the total UK institutional funds under management was £286bn, only 4% lower than the previous year, "despite significant drops in global markets".

Overall, the institutional investment arm reported £93m in operating profit, on an International Financial Reporting Standard (IFRS), of which £63m came from managed pension funds compared to £51m in the first half of 2007, while operating profit on property investments dropped from £5m to £4m.

Of the £17.6bn of new business, L&G received £13.9bn from managed pension funds, the majority of which was placed in pooled funds - £13.6bn compared to the restated figure of £15.6bn in 2007 - while £364m was in segregated funds.

The figures also showed the almost half (46.6%) of L&G's institutional business in the first half was in indexed equities, compared to 67.2% in 2007, while the proportion of business allocated to indexed bonds increased from 24.9% to 39.2%.

The firm's structured solutions propositions also appeared to be more popular in the first half of the year, as the percentage of new business increased from 2.4% to 7.4%, while active bonds increased to 6.7% and property fell from 0.5% to just 0.1% of new business.

Tim Breedon, group chief executive at L&G, claimed annuities, both in the individual and bulk markets, "are continuing to see a surge in new business" and argued L&G is "more than twice the size of our nearest competitor at the end of last year".

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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