The Investment Column: Legal & General

LEGAL & GENERAL, the bellwether of the insurance sector, sent a tremor through the market in February when it warned about pressure on its margins.

Six months on and its chief executive, David Prosser, can report that margins have actually risen in its latest half-year period.

L&G yesterday said pre-tax operating profits for the first six months of the year rose 12.8 per cent to pounds 194m, at the bottom end of forecasts of pounds 192m to pounds 215m.

Analysts concentrated on the issue of margins and how L&G would cope in the new era of increased regulation, and the Government's new investment ideas - Individual Savings Accounts (ISAs) and the stakeholder pension.

L&G maintains it was simply pointing out that in a low-inflation environment, companies would have to aim for higher volume on a lower margins.

The latest figures show new business rose an impressive 20 per cent with overseas business growing by 66 per cent. By being the first to commit itself to working in that environment L&G has shown it is ready to deal with the Government's 1 per cent charging regime for stakeholder pensions. The company has also made clear its plans to concentrate on its renowned skill in sales and distribution to harvest the benefits.

The stock has underperformed the life sector by 20 per cent over the last six months and at 153p is well below the February peak of 234p.

There is little takeover premium in the share price and Williams de Broe says that in a rapidly consolidating market an pounds 8bn company with a positive outlook looks like a sound bet.