Prosser moves to assure investors of Legal & General's solvency

Legal & General's chief executive, David Prosser, yesterday moved to stem fears over its solvency and reassured investors the UK's third largest life assurer was strong enough to cope with the recent sharp falls in equity markets.

Mr Prosser said L&G was "relatively strong on capital" and the group had achieved solid growth in difficult conditions.

He remained optimistic about the future of the equity market and said he expected the FTSE 100 index to rally by the end of the year. He said L&G has many options for growing its capital base, including the capacity to raise capital that could boost solvency by 200 basis points. His comments, however, were undermined by the credit rating agency Standard & Poor's, which revised its outlook on L&G to negative from stable as it put the entire sector on a higher alert. The company's spare capital has fallen sharply in the past month to 5.5 per cent from 8.5 per cent – excluding allowances it made for future profits, but S&P has so far kept its rating on L&G at triple A, the strongest possible.

Aviva and Prudential were also moved from a stable outlook to negative by S&P, as the agency believes the three companies will be under pressure for the next three years. Paul Waterhouse at S&P said, however, a negative outlook was "not a precursor to a downgrade" and solvency fears have been over-exaggerated.

L&G's operating profits fell slightly to £365m from £369m in the six months to 30 June even though profits from life and pensions products in the UK grew by 5 per cent to £277m. Sales of these products rose mainly through the Barclays and Alliance & Leicester networks, through which L&G sells low-cost savings products.

The dividend was lifted 2.5 per cent to 1.67p, which satisfied the market, which had feared a cut.