Legal & General yesterday said it had boosted its reserves by £240m as it will have to increase its total annuity pay-outs to customers because they are living longer.
L&G put an extra £240m into its life and pensions business in the UK following a warning from the Institute of Actuaries that longer life expectancy meant insurers had to reassess their liabilities on annuities.
The extra cost dented earnings, with operating profits falling from £365m to £292m in the six months to 30 June. L&G, which has grown rapidly in the past few years, did, however, manage another strong rise in new business in its core UK market, with sales increasing 27 per cent in the second quarter of the year compared with the same period in 2003.
L&G reiterated concerns voiced by Prudential over accounting changes. It supports the new "realistic" rules, which involve regularly revaluing investments to take account of market fluctuations, but said insurers would meet difficulties in the new year due to the timetable.
David Prosser, the chief executive of L&G, said: "We'll have to delay publication of our prelims by probably a month. If there had been a more orderly start we would not have had to do that."
The insurer benefited from an apparent resurgence of confidence among private investors, with twice as much money flowing into individual savings accounts and unit trusts, which are invested in shares, in the second quarter as in the first. L&G shares rose 1.5p to 98.25p.
Mr Prosser also attacked the findings of the Treasury Select Committee over directors' pay in the financial services industry. "We do link pay to performance. We grow our business because people like our products. If that didn't happen, I wouldn't get paid," Mr Prosser, who took home £1.2m last year, said.
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