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L&G CEO defends company culture following complaints about asset management arm

Legal & General Group PLC CEO Nigel Wilson said his company's culture is "positive" and "supportive" after several employees complained to the U.K. Financial Conduct Authority about alleged compliance and risk failures at its asset management unit.

The Financial Times reported in July that employees accused Legal & General Investment Management, or LGIM, of failures that they said could have cost clients millions of pounds. The company said at the time it was conducting a full investigation with external advisers.

Responding to analysts' questions about the incident on a Aug. 9 first-half earnings conference call, Wilson said that the company actively encourages whistleblowers.

"It is unfortunate that these things have got in the media, relating to incidents that happened in 2017, but they have," he said. "Rest assured that we are totally convinced, and know, that we have a positive, supportive culture here."

LGIM CEO Mark Zinkula said his division's culture is "something we take pride in." The company's control framework acted the way it was supposed to, leading to an independent investigation into the alleged activities.

"Things can be alleged at any time and how the press chooses to portray it we can't control," Zinkula said, adding that analysts should "focus on the facts."

Bulk annuity pipeline

Legal & General's first-half 2018 profit attributable to equity holders fell to £771 million from the £946 million it reported a year ago.

The company revealed that it is expecting to close £7 billion worth of U.K. pension risk transfer deals, also known as bulk annuity deals, under which insurers assume liabilities for defined benefit pension schemes, in the second half, and is actively quoting on £20 billion of business. That is an increase from the £17 billion it said it was actively quoting on at its investor day in March.

Wilson said that the company was expecting to close a pension risk transfer deal "later this week or early next week" and that the company was expecting a "record year" for pension risk transfer deals.

Lifetime mortgage impact

CFO Jeff Davies said that Legal & General had increased prices for pension risk transfers in response to the U.K. Prudential Regulation Authority's consultation on lifetime mortgages, also known as equity release mortgages. Insurers write lifetime mortgages, which allow homeowners to borrow against the values of their houses, to back the liabilities they assume in pension risk transfer deals. The PRA is concerned that insurers are not holding enough capital against lifetime mortgages, and consultants had been expecting insurers to push up prices.

But Davies said that pension schemes had been "accepting and understanding" of the increases and the reasons behind them. "Given we have been winning [deals], we therefore assume our competition must be doing the same around that," he said.

Davies also said that although Legal & General was "the leader" in lifetime mortgages with a 28% market share, he expects the effect of the PRA consultation on the company's capital position to be immaterial.