Legal & General, one of the UK's largest insurers, yesterday signalled its intention to enter the race for savers' cash by announcing it was preparing to set up a deposit-taking operation
The company's move follows similar announcements by other insurers, including Prudential, which is planning to set up a telephone-based banking service in October.
David Prosser, group chief executive at L&G, said, however, that his company's plans would not involve a wide-scale banking operation along the same lines. No firm date has been set for a launch of the operation.
"We are not considering something like First Direct," Mr Prosser said. L&G was more interested in providing a haven for its policyholders' money when their investments mature. The company would be offering one or two simple savings plans.
Mr Prosser's comments came as the company announced record pre-tax profits, up from pounds 168m in 1994 to more than pounds 271m last year.
The result included a 38 per cent increase in profits from UK operations, which rose from pounds 131m to more than pounds 181. The increased returns were due both to improved investment performance throughout 1995 and the impact of a pounds 160m bonus paid last November to with-profits policyholders as part of the distribution of surplus funds identified in talks with the Department of Trade and Industry.
Total UK premiums fell slightly to pounds 1.54bn, compared with pounds 1.66bn in 1994, reflecting a reduction in single premium income. Mr Prosser said the new annual premium business received represented an increase in market share for L&G. In the second half of 1995 premium income was well above that recorded over the same period a year earlier.
Mr Prosser said: "[This] has been a year of many significant achievements at L&G despite it being a difficult year for the UK life and pensions industry.
"Improved market share has been achieved through L&G's commitment to a successful strategy of multi-channel distribution and competitively- priced and innovative products."
He ruled out the likelihood of potential takeover bids of other mutual insurers in order to build market share, claiming that the prices now being asked for potential bid targets were too big. Instead, L&G plans to continue to expand the company through its own resources.
L&G's general insurance operation in the UK contributed more than pounds 47m to group profits, including realised and unrealised gains and losses on investments, which contributed pounds 41.9m. The underwriting profit was pounds 5.4m.
Property insurance, the largest part of L&G's profits, dropped slightly to pounds 30m because of an increase in weather-related claims in 1995. Subsidence claims cost pounds 23m and the December freeze has so far cost pounds 15m. Mr Prosser pointed to a successful joint general insurance venture with Woolwich Building Society, which started operations in late September, as an example of how the company is expanding its business in this area.
The company's mortgage lending arm increased its profits marginally to pounds 1.7m during 1995. But its estate agency business reported only slightly reduced losses at pounds 4m for the year.
Despite this, Mr Prosser stressed his conviction that the housing market was on the verge of a revival.
"Customers and advisers are placing increased emphasis on financial strength and will continue to do so," he said. "Our announcement to policyholders and shareholders in November gave clear emphasis of the financial strength of [our] UK long-term fund, which resulted in a special bonus to policyholders."
Last year, L&G announced that it had identified an excess of more than pounds 1.5bn in its pounds 13.4bn fund even after all liabilities had been calculated. Some pounds 160m has been handed to policyholders.Reuse content