L&G beefs reserves as profits treble: Insurer acts to protect itself against losses on repossessed homes

SHARES in Legal & General, the insurer, climbed 16p to 481p yesterday after the group beefed up its reserves against losses on home repossessions in its troubled mortgage indemnity arm and announced a threefold increase in pre-tax profits.

L&G is a leading provider of mortgage indemnity insurance to banks and building societies, protecting them against losses on selling repossessed homes.

The increase in 1992 profits to pounds 116m from pounds 39m in 1991 was driven by a partial recovery in general insurance businesses.

This division, which includes mortgage indemnity, catastrophe and property insurance, trimmed its losses to pounds 61m last year from pounds 157m in 1991. The losses in mortgage indemnity were pared from pounds 106m to pounds 75m.

The second-half dividend rises to a higher-than-expected 12.9p, bringing the total to 19.1p. The shares rose 16p to 481p.

David Prosser, chief executive, said: 'We have increased our reserves to provide a reasonable possibility of insurance break-even in future on the run- off of the business already on the book.'

The group disclosed that 'embedded value' - the shareholders' interest in the group's core life fund - grew to pounds 1.84bn net of tax from pounds 1.71bn in 1991, also above City expectations.

Trevor May, insurance analyst with BZW, said the shares advanced because L&G's larger- than-expected reserves against anticipated repossessions to 1997 suggested that its mortgage indemnity insurance problems were nearly behind it.

Profits from L&G's main life and pensions business were pounds 109m compared with pounds 103m in 1991. Total premiums received rose by 14 per cent to pounds 1.5bn.

Mr Prosser said the increase in new annual premium business reflected recession pressures, with customers preferring single-premium business. Sales of executive and group pensions have declined.

In the US, Australia and most of Europe profits advanced overall, but the Netherlands made a small loss and the estate agency business made a pounds 6.6m loss after losing pounds 6.3m in 1991.