Investment management was a driver of growth for Legal & General Group Plc in the first half, but the general insurance business lagged.
Operating profit for the U.K. general insurance business was down 13% year over year to £90 million, which was driven by a high rate of claims in a "relatively small" number of income protection schemes, CFO Jeff Davies told analysts during a first-half earnings call. The adverse impact on the group protection business totaled £26 million over the period.
"We continued to see poor experience in the group protection business," he said. "A range of actions have been taken, including pricing action, but the impact will take some time to be fully reflected. So, we expect some adverse experience to continue emerging, but at a reduced level, in the second half of 2017."
First-half operating profit for the general insurance business increased just slightly year over year to £147 million from £146 million.
Growth in defined contribution pension biz
However, Legal & General Investment Management saw a 13% increase in operating profit to £194 million. The insurer saw particular growth in its defined contribution pension business, with a 26% rise in AUM to £62.8 billion during the half, which Mark Zinkula, CEO of LGIM, said made it the largest manager of defined contribution assets in the U.K.
"The de-risking of [defined benefit] schemes and the growth of the defined contribution market are allowing us to increase assets across a range of solutions," he said during the call.
While the defined benefit business will remain important for LGIM, growing in the defined contribution market is the real focus, Zinkula added.
Expansion in the international business was also a major driver of growth for LGIM, he said. First-half net inflows in the segment rose 31% year over year to £17.9 billion.
Overall, LGIM's AUM was £951.5 billion at the end of the first half, up from £841.5 billion a year earlier.
The number of pension schemes supported by the LGIM defined contribution business grew 29% during the half, an increase that Zinkula said had been helped by L&G's 2016 acquisition of fintech company Smart Pension, an auto-enrollment platform that helps clients switch between defined benefit and defined contribution pensions.
At group level, L&G reported a first-half profit attributable to shareholders of £946 million, up from £668 million in 2016. The Solvency II coverage ratio was 186%, compared with 171% at the end of last year.
Commenting on the increase in profits, a team of analysts at Barclays said in an Aug. 9 note that a £126 million mortality release during the first half was an important driver.
"While this is a one-off, there is the potential for similar releases at both the second half] and into 2018," the note said.