Big changes to life expectancy have boosted profits at Legal & General, the life insurer, which says people in the UK are dying earlier than it had expected.
The long-term trend of rising lifespans in Britain has ground almost to a halt in recent years. The reasons are not clear, but experts blame everything from obesity to dementia and a lack of available care for the very elderly.
According to RBC Capital Markets, the rate of improvement in life expectancy has dropped from 3.5 per cent a decade ago to 0.5 per cent now.
Jeff Davies, L&G’s finance director, said: “People have been dying much quicker than anticipated.”
The result is that the company has been able to release £126m of reserves that it had previously held back to pay to customers. And there may be more to come as the company makes more changes to adjust to long-term trends.
The release helped to push up first-half profits by more than a quarter to £988m, about 20 per cent ahead of analysts’ forecasts.
Earnings per share rose 41 per cent to 15.9p.
Eamonn Flanagan, analyst at Shore Capital, described it as “a strong set of results”.
L&G was bullish about the bulk annuity market, which involves buying pension promises from corporate schemes or from other insurance companies.
It said it had written £1.7bn of bulk annuity business in the first half, more than double the amount in the same period last year, and was quoting on another £12bn of business with corporate clients.
Nigel Wilson, chief executive, was also confident about the potential to buy books of annuities from other insurers, saying that up to £140bn of business could come to the market.
Last year L&G bought £3bn of annuities from Aegon. Prudential has put a £10bn block of annuities on the market, and there is speculation that Standard Life may look to sell its annuity business once it has completed its merger with Aberdeen Asset Management.
Mr Davies said: “We know the books pretty well. We are ready to pull the trigger . . . people know that we are very interested.”
Analysts say that capital rules make it easier for companies such as L&G to buy large books of business from other insurers than to do a string of smaller deals with corporate clients.
Mr Davies added that the company had the balance sheet strength to consider large annuity deals.
The solvency ratio — a measure of capital available as a proportion of the minimum required — improved from 171 per cent to 186 per cent in the first half. The company also announced an 8 per cent increase in the dividend to 4.3p per share.
Shares in L&G, which have risen by 28 per cent during the past year, slipped 2 per cent on Wednesday morning.