L&M warns of heavy losses on mortgages

LONDON and Manchester, the life insurance group, has increased its interim dividend by 5 per cent to 4.65p, despite warning of a substantial loss on its residential mortgage lending business.

Tom Pyne, chief executive, said the loss this year on the pounds 535m loan book would run into millions after a pounds 250,000 loss last year. London and Manchester has ceased new lending but it has been hurt by falling house prices, moribund turnover and rising arrears.

However, the company added: 'Following the effective devaluation of sterling and a resultant greater potential readiness to stimulate the domestic economy by way of reductions in interest rates, the prospects for the housing market and associated businesses are now brighter than at any time during the year.'

London and Manchester's first-half new business figures showed a near-tripling of single premium sales to pounds 92.1m but an 8 per cent fall in annual premiums to pounds 23m. Annual premium business from its life broker division dropped by 30 per cent to pounds 8.6m, partly due to the group dropping many unproductive firms of salesmen that used to sell its products.

Single premium growth owed much to pensions, as corporate customers switched from final salary schemes to money purchase schemes offering fewer guarantees to members. Pensions single premiums more than doubled to pounds 21.9m.

The amount invested in managed funds leapt from pounds 5.3m to pounds 39.1m, 'reflecting the sustained excellent investment record', the company said.