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18 Mar, 2008

By Chris Marshall | 08:47:11 | 18 March 2008

Legal & General has reported a 26% decline in profits, down to £912 million last year on a European embedded value basis, after taking a £269 million hit in anticipation of people's increasing longevity.

The picture painted by measuring its profits on an International Financial Reporting Standards basis looked even worse, with profits down by 56% to £718 million, but the group said that 2007 was being compared to a previous year in which there had been a number of one-off positives.

The group put the results partly down to the impact of strengthened longevity assumptions which cost an additional £269 million. Group chief executive Tim Breedon said this reflected thinking in official circles such as the FSA and Pensions Regulator, as well the insurer's own figures.

L&G was also hit by losses to the tune of £76 million due to the flooding last year. Persistency experience also weighed down on the group, costing it £66 million in 2007, mostly due to pensions term assurance.

Breedon painted a gloomy picture for many of the products offered by insurance companies. He said that equity market volatility coupled with capital gains tax uncertainty surrounding investment bonds may dampen short-term market growth in a year that is likely to be more testing than the last for savings market conditions.

'In bonds we suffered in the second half due to volatility and uncertainty,' Breedon told a conference call. 'That was really a poorly thought through exercise by the Treasury. It will end up reducing choice for savers and potentially savings overall.'

Breedon predicted that the investment bond market would decline by 20% over the next six months. He also said that protection sales would be hit by the housing market downturn.

Continuing L&G's 40-plus years of dividend increases, the recommended full-year dividend rose 7.6% to 5.79p.

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