Legal & General bucks trend with dividend rise despite fall in sales

David Prosser, chief executive of Legal & General scored another coup yesterday against his insurance rivals by announcing a 2.6 per cent dividend hike despite a 9 per cent slump in six months sales.

His decision to raise the dividend to 1.57p a share comes in the midst of anticipation that Prudential will cut its dividend by as much as 40 per cent next week. Aviva, the UK's largest insurer, cut its dividend last year, as did Royal & Sun Alliance, and Friends Provident has also signalled that the pace of its dividend growth may have to slow.

"It is much more evident that Pru should cut its dividend," Mr Prosser said yesterday. "Based on our projections of growth, the board is very comfortable with the dividend and believes it is sustainable." Mr Prosser got one up on his competitors with a £786m rights issue in November last year, jumping in to tap investor funds when a number of companies were lining up to raise capital themselves. He said this rights issue had provided all the capital the company needs to grow. Shares in Legal & General soared nearly 6 per cent to 92.75p.

Consumers, however, have steered clear of savings and investment products so far this year. Sales across the group were down 9 per cent to £453m in the first half of the year, while sales to private customers in the UK were down 14 per cent. Sales of with-profits bonds, which have stung investors with bonus cuts, fell by 34 per cent. Operating profits were flat in the first six months at £365m.

But Mr Prosser said the fall in sales volumes had been matched by an improvement in profitability. New sales contributed £150m to profits, up 34 per cent on last year.

"Given that there now appears to be reasonable stability in the markets, we expect sales to be better in the second half of the year," Mr Prosser said.

After three years of falling stock markets that have ravaged insurers' funds, Mr Prosser said the ratio of its free assets to its liabilities was steady since the year end at 8.9 per cent.

"Mr Prosser did get to the cash machine early, before things turned really nasty," Ned Cazalet, the independent insurance analyst said yesterday. "[L&G] has a diversified strategy for distributing its products. But you have to ask how it will profit from new low margin savings products."

Dismissing takeover speculation, Mr Prosser yesterday said the US insurer AIG was the only company that could afford to make an acquisition in the UK, but said he had not been contacted by the group.

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