The news saw the firm’s share price drop 11 per cent by 11.45am to 38p.
The loss compares to a profit of £718m on the same basis in 2007, and has been blamed largely on losses on investments as a result of the fall in equities.
Pre-tax international financial reporting standards losses were £1.49bn, but on a european embedded value basis, L&G made an operating profit of £870m.
It cut its dividend by 50 per cent to 2.05p from 4.1p in 2007, arguing that confidence in its capital strength was a priority.
The insurer has also revealed it is introducing cost cutting measures including reducing head count in UK core business areas by 10 per cent this year, following a reduction of the same amount in 2008.
It says job cuts of between 250 and 450 would be likely this year in divisions such as life and pensions and support services, as well as a further reduction in head count through natural attrition.
The insurer also said it would work to make its new business generation more capital efficient, by altering its mix of business, noting that self-invested personal pensions was a particularly efficient area for the group following the acquisition of specialist Suffolk Life.
Breedon said it was in the interests of the whole industry for retail distribution review changes to IFA remuneration and professional standards to be implemented as soon as possible, but he said he had “no issue with a delay” if it was considered to be too much of a threat to businesses battling with the ongoing financial crisis.
Group chief executive Tim Breedon said in a briefing this morning that he did not expect the FSA’s review of Sipp sales to have a damaging effect on business.
The insurer’s surplus capital position was better than it had forecast at £1.5bn following payment of the dividend, as at the end of March.
Breedon said the group’s £1.2bn of credit default reserving had been stress-tested against an average year in the 1930s occurring every year for the lifetime of the portfolio.
He said: “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.
“We will be selective about sales growth and are reducing new business capital strain through product design and pricing action.
“Today’s dividend decision 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 and emerge stronger after the recession.”