L&G to hold back growth of dividends

Legal & General, Britain's third largest insurer after Prudential and CGNU, reported a 10 per cent increase in full-year operating profits to £751m yesterday but warned of lower dividend growth in the future.

Following the decision by its rival CGNU to cut its dividend by 40 per cent to boost capital reserves, L&G reported an 8 per cent increase in its dividend to 5.1p per share. But the group signalled that it would be lowering its future target increase in dividend from 10 per cent to 7 per cent a year.

L&G's profits were boosted by strong sales of life and pension products, which soared 32 per cent to £584m. Sales were helped by distribution deals with Barclays and Alliance & Leicester under which L&G products are sold through the banks' branches. L&G said its share of the life insurance market has grown to more than 7 per cent in the fourth quarter, making seven years of growth. Contributions from new business rose 35 per cent to £217m.

However, pre-tax profits sank from £392m to just £62m after an exceptional charge of £688m to reflect weaker stock market returns. The company said it was the biggest market-related charge it had ever taken.

However, David Prosser, chief executive, remained upbeat about prospects for UK stock markets. He said: "There is scope for equity market recovery in the second half and we think that a 7-8 per cent total return on equities is a reasonable expectation going forward."

He added that L&G was well placed to perform strongly under changes to the distribution of personal finance products being considered by the Financial Services Authority. The number of financial advisers selling L&G products rose from 2,000 to 5,000 in the year.

L&G's shares rose 2.25p to end at 150p.