Proactive Investors - Legal & General Group PLC (LON:LGEN) beat profit expectations for the first half of the year but analysts said overall the numbers may disappoint some due to a large negative investment variance and low new business margins.
Operating metrics, including profit were better than the City's consensus forecasts, however, investment variances were a "large negative", said UBS, with £417 million within the core businesses and £187 million in non-core.
The former was mainly driven by mark-to-market impacts on the annuity business due to rising interest rates and movements in inflation, while non-core was primarily due to a write-down in L&G's salary finance business.
Jefferies said the profit beat was “largely driven by better-than-expected results in Institutional Retirement and Retail,” with both divisions benefiting from a growing contractual service margin, with retail insurance benefitting from a “positive claims experience in the UK”.
L&G sold £1.2 billion of individual annuities, more than double the prior year, which “represents a positive read-across to Just Group (LON:JUSTJ) in particular in our view”.
The Solvency II ratio “remains very strong in our view”, Jefferies said, in line with the wider City consensus.
At first glance, agreed analysts at Keefe, Bruyette & Woods, the operating numbers seem in line and capital generation is a small beat to consensus, with the overall strategic commentary seeming "reassuringly in-line".
"But net profits have been hit again by negative investment variances and equity is a large miss," they countered.
The share price has been weak against the Stoxx 600 insurance sector so far this year, since the business plan update and in the run-up to results during recent capital market volatility, the KBW team noted.
"We expect a good news message from the company today but see nothing yet that will change a narrative that we think remains challenging in terms of capital market leverage and constraints to financial flexibility."
Having upgraded the stock last month, UBS reiterated its 'buy' rating, while Jefferies remained at 'hold' and KBW at 'underperform'.