View more on these topics

L&G doubles credit default reserves

Legal & General has more than doubled its credit default reserves to £1.2bn and claims its surplus capital stood in excess of £1.6bn at the end of last year, quashing reports about its weak capital position.

L&G’s share price plunged 10 per cent on Monday after newspaper reports claimed the firm might have to make a cash call or cut dividends to plug a gap in its solvency.

The Financial Times reported concern that L&G may struggle to meet solvency requirements if it was forced to stress-test its assets against a further 20 per cent fall in equity and bond markets, as the FSA is believed to have asked insurers to do. This was based on the fact L&G assumed a lower default risk than other insurers such as Prudential and Friends Provident.

But L&G announced this morning that despite increasing its default assumptions for the next four years from 30bps per annum for corporate bonds to around 130bps per annum, at December 31 its surplus capital stood in excess of £1.6bn.

Chief executive Tim Breedon also quashed the possibility of an imminent cash call, claiming during a conference call: “We have no plans whatsoever at this stage to raise capital”.

But a cut to dividends was not ruled out. Breedon said: “The board has not met to discuss the dividend at this stage. We are not making a dividend forecast in any way.”

The stockmarket responded positively to L&G’s boost to capital reserves, with shares up 2.48 per cent to 45.4p by 12.30pm.

Recommended

The Asian experience

Robert Lloyd George founded his eponymous firm in 1991 based on his fundamental belief in the power of the Asia and emerging market investment story.

Bankers brought to account

Last week, the banking industry faced the music before Parliamentary select committees, producing some startling admissions and political fireworks.

India: too big to ignore?

By Kunal Desai, head of Indian Equities, Neptune  India is officially the world’s fastest-growing major economy and remains firmly on track to become the third-largest economy by 2030, overtaking Japan and Germany. As an accelerating labour force combines with increasing labour productivity, is India getting too big to ignore? Click here for full article   […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment