Legal & General CEO Plays Down Virus Risk After Profit Miss

(Bloomberg) -- Legal & General Group Plc’s chief executive officer played down the risks the insurer faces from coronavirus, saying any unexpected increase in death rates would “sadly” benefit the firm given the relative size of its pension business.

“We are more exposed to people living a lot longer than expected,” CEO Nigel Wilson said in an interview with Bloomberg Television. Life insurance risks were mostly reinsured, he said, and the firm’s pension risk transfer business was much bigger than the life insurance unit. “Rather sadly,” he said, the firm would benefit from any increase in deaths.

The U.K.’s biggest life insurer and investment manager said its annual profit missed estimates. Pretax profit dropped to 2.11 billion pounds ($2.7 billion), according to a statement on Wednesday. The average estimate from a group of seven analysts forecast pretax profit at 2.23 billion pounds.

The virus threatens a double blow against the sector as the bond yields and equity valuations that firms rely on for returns have fallen in response to the threat, while the likelihood of increased payouts in life and other insurance policies rises. The firm’s shares plunged 17% last week, more than the FTSE 100 benchmark, as investors worried about the cost of coronavirus claims.

“The outlook for the global economy, whilst showing tentative signs of improvement, continues to be that of relatively low growth,” the firm said in the statement. The virus outbreak could temporarily impact global growth rates as well as the value of investment assets, and had driven a return to more volatile markets in the current quarter, it said.

The virus, which originated in central China and has infected 90,000 people worldwide and left more than 3,000 people dead, is also threatening economic growth. The OECD on Monday cut its full-year global growth prediction to 2.4% from 2.9%, which would be the weakest since 2009. On Tuesday, the U.S. Federal Reserve delivered an emergency half-percentage point interest rate in a bid to shore up confidence in the economy.

More details on the results:

• Operating profit rose 12% for the year to 2.1 billion pounds, while net income was unchanged at 1.8 billion pounds
• The insurer’s asset management unit, Legal & General Investment Management, reported an 18% rise in assets to 1.2 trillion pounds
• Dividend payout to shareholders rose by 7% to 17.6 pence per share, in line with estimates from analysts surveyed by Bloomberg
• Operating profit at the firm’s retirement arm rose 27% to 1.4 billion pounds
• Solvency II coverage ratio fell 4 percentage points to 184% from 188% a year previously
• Earnings per share rose 16% to 28.7 pence

--With assistance from Lucca de Paoli.

To contact the reporter on this story: Benjamin Robertson in london at brobertson29@bloomberg.net

To contact the editors responsible for this story: Shelley Robinson at ssmith118@bloomberg.net, Patrick Henry

©2020 Bloomberg L.P.