Legal & General Group (LSE: LGEN) had a strong first half of the year, with operating profits up in all but one of its divisions, which resulted in earnings per share growing 13% to 7.82p and net cash generation was up 23% to £500m. This performance gave the board the confidence to boost the interim dividend 22%.
While the gains were felt nearly across the board, improved profitability in the UK insurance operations and strong growth in international assets in the investment management division (referred to by its acronym LGIM) played the big roles.
Better underwriting and some good luck with weather helped the UK insurance operations turn in a combined operating ratio of 81% versus 99% a year ago (the combined ratio measures operating costs against premiums, so a lower number is better). This helped the division increase net cash generation by £44m to £126m.
LGIM reported net fund inflows (new-money clients want L&G to invest for them less money clients take back) up £8bn with £7.5bn of that coming from overseas. International expansion is one of management’s stated growth drivers, so the first-half performance is encouraging, as is the announcement that L&G received approval in July from the regulators in Hong Kong to sell products in the country.
Legal & General’s shares have appreciated 50% in the past year, keeping pace with competitors Standard Life and Prudential. As management thinks the strong first-half growth will continue into the second half of the year, there could be more to come.
As an added bonus, rising interest rates could increase demand for the company’s annuity and savings products, but it could be some time before we see meaningful increases there.
Investors in Legal & General haven’t been disappointed from a growth or income standpoint, as the shares still yield 4% even after the strong rise in share price over the past year.
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> Neither Nate nor The Motley Fool own shares of Legal & General Group.