Perspectives: U.K. Life Interim Results Reflect Economic Uncertainty

LONDON, Aug 18, 2008 (A. M. Best via COMTEX) -- SLFPF | Quote | Chart | News | PowerRating -- When U.K.-based life insurer Standard Life plc reported its 2008 interim results this month, it spoke of having had to endure ?more difficult market conditions.?

In reporting its interims, Legal & General Group plc pointed to the effect of ?weaker investment markets.?

Financial services group Prudential plc mentioned ?challenging conditions.? And Friends Provident plc said ?difficult trading conditions? had contributed to the sharp drop in its profits.

There would seem to be a pattern emerging here.

Life insurers, with their heavy emphasis on long-term savings plans, have been hit by an unsteadiness in the stock market that has undermined their own income and taken the shine off some of their products. Consumers may be more concerned with the immediacy of rising fuel costs than in planning for the long-term economic future. And sales of mortgage-related insurance have been affected by problems in the domestic housing market, which has felt the cold winds of the international global credit crunch.

Tim Breedon, group chief executive of Legal & General (LSE: LGEN), issued a statement in which he spoke of a savings market that had been affected by ?investment market volatility, adverse tax changes and a rising cost of living.?

Friends Provident (LSE: FP) reported that its underlying pretax profit fell to 13 million pounds (16.3 million euros) from 111 million pounds in the first half of 2007. Legal & General reported an after-tax interim loss of 27 million pounds, down from a profit of 329 million pounds for the same period last year.

Despite such hints of distress, the news -- or at least the presentation of it -- was not all negative. Standard Life (LSE: SL) reported an underlying interim pretax profit of 345 million pounds, up 58%. Prudential (LSE: PRU) posted a 13% increase in interim operating profit to 674 million pounds.

There were a number of forces at work during the first half of the year. Friends Provident, having been bruised by its unsuccessful attempt to merge with closed life fund operator Resolution plc last year, jettisoned its chief executive and launched a new corporate strategy. Legal & General was still digesting pensions provider Suffolk Life, which it acquired in May.

And, in a typically British fashion, life insurers continued to look overseas. Legal & General agreed to a joint venture in the Persian Gulf region and moved closer to a similar deal in India. Prudential touted its performance in Asia, which it clearly sees as the world?s coming market. ?We remain confident of doubling Asia?s 2005 new business profit by the end of 2008,? Mark Tucker, group chief executive, said in a statement, ?a year ahead of our previously stated target.?

Adrian Montague, chairman of Friends Provident, said the group?s new corporate strategy had enabled it to withstand ?the sharp economic downturn more favorably than otherwise would have been the case.?

Looking ahead, Legal & General sees good prospects in the U.K. pensions and investment management sectors. Standard Life expects to see further financial benefits from an extended cost-cutting campaign. And Prudential is banking on what Tucker described as a ?retirement-led strategy,? especially in Asia and the United States.

(By Robert O'Connor, London editor)

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