View more on these topics

Morgan critical of L&G reserves for defaults

JP Morgan claims that Legal & General is the UK insurer most likely to issue a profit warning and suggests it could be breaching FSA guidance by not increasing capital reserves despite poor market conditions.

In an investors’ note that was issued on Tuesday, JP Morgan says that Legal & General still assumes only 30 basis points for defaults while insurance competitors such as Prudential assume three times as much.

The company considers that Legal & General would need £864m to bring its reserves into line – £210m more than the firm’s 2007 operating profit.

The note states: “The FSA could still challenge Legal & General’s assumptions for the following reasons – they are unchanged since 1999 despite increasing credit risk in 2007 and the first half of 2008, market conditions are clearly worse and 21 per cent of bonds are asset-backed securities and a further 37 per cent is international financial debt.”

JP Morgan also issued an underweight rating on Legal & General last Friday, accusing the company of “destroying shareholder value by expanding the annuity business in a very benign credit environment”.

Hargreaves Lansdown pensions analyst Nigel Callaghan says: “If it has to up its default assumption rates it would have a serious impact on its profits and its pricing in future.”

Legal & General spokesman Richard King says: “We see annuity business as profitable and we are not running out of capacity. We decide capacity on a risk basis and we are happy with our para- meters.”


Asp bites back

With a general election due by June 2010, we are seeing the Opposition parties look to put a stake in the ground in what is sure to be an area where the Government will be attacked – pensions.

Welcome to The Brunner Investment Trust PLC

Welcome to the latest update for The Brunner Investment Trust PLC from the trust’s portfolio manager Lucy Macdonald. Market Review Global equities ratcheted higher throughout February, buoyed by optimism about global growth and corporate earnings. All regions advanced, although Japan tended to lag many other markets. In sector terms, healthcare, information technology, consumer staples and […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm