Credit Reserving Pushes Legal & General Into 2008 Pretax Loss

The profit was calculated on the basis of International Financial Reporting Standards.

The group had an Insurance Groups Directive surplus of 1.9 billion pounds at the end of 2008 and an estimated surplus of 1.5 billion pounds on March 23, 2009. Legal & General (LSE: LGEN) committed itself to bolstering its financial position this year through cost controls and the reduction of investment risk.

?Balance sheet strength remains our priority in 2009 and will be underpinned by further improvement in the cash profile of our businesses and management of costs,? Group Chief Executive Tim Breedon said in a statement. ?We will be selective about sales growth and are reducing new business capital strain through product design and pricing action.?

Breedon said weakness in the investment markets reduce the group?s profits and its surplus. Legal & General, he said, has ?responded robustly to the changing economic and market environment by de-risking across the balance sheet.?

Its lower dividend, Breedon said, ?reflects our realism about the current environment, but also our confidence in the business model and underlying strength of the company to trade through current economic uncertainty.? The company reduced its recommended full-year dividend to 4.06 pence from 5.97 pence in 2007.

Shareholders, Breedon argued, benefit from moves to ensure ?the future prosperity of the group.?

Breedon said Legal & General has a ?solid capital base for a business of our size, and with our risk profile.?

Over the past year, Breedon said, the group has moved away from equities, selling more than 1 billion pounds of its share holdings and investing in cash and other liquid assets. Equities within the group?s with-profits fund have been subject to hedging, he said.

Legal & General?s bond portfolio is both strong and diversified, Breedon said. Increased short-term risk has caused the group to make 1.2 billion pounds in provision for annuity credit defaults, which, Breedon said, are at their worst levels since the 1930s.

Legal & General has lessened its activity in mortgage-related insurance, Breedon said, while building its presence in protection products. ?We are performing very strongly in group protection,? he said.

Annuity prices have been pegged more closely to perceived risk, Breedon said. The group?s savings business has showed gains, albeit at a lesser rate than had been anticipated, he said. Investment management did well in 2008, Breedon added.

Legal & General Assurance Society Ltd. has a current Best?s Financial Strength Rating of A+ (Superior).

(By Robert O'Connor, London editor: Robert.OConnor@ambest.com)

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