L&G hits back with divi boost

LEGAL & General has gone on the offensive, confounding talk of a dividend cut by raising its payout and signalling that nervy investors look ready to save once more.

Chief executive David Prosser said that with confidence finally beginning to return to the stock market, demand for the group's life and pensions products would improve 'over the rest of the year'.

Sales of life and protection products have nudged into positive territory this month and Prosser said: 'We do think that the market has stabilised.'

The shares, which hit a 60p low in March, surged 4 1/4p or 5% to 92 1/2p.

Falling demand cut new business sales 9% to £453m in the six months to 30 June. But operating profits rose 1% to £365m.

UK life and pension new business sales slipped to £283m from £318m a year ago as L&G continued to battle a 'subdued' market for savings products.

The fall was widely expected in the City, and is still likely to be less than the decline suffered by larger rivals Aviva and Prudential, who report next week.

Shareholders will collect an interim dividend of 1.57p a share for the half year, a 2.6% increase. That came just days after JP Morgan fuelled speculation that the insurer would make its first cut for half a century to preserve cash.

The stock broker said that despite L&G's £788m rights issue at the end of last year, it was facing a cash squeeze given the battering its with profits fund has taken from the stock market.

'The board believes in a progressive dividend-policy,' Prosser said. 'They look at our internal profit forecasts...and then take the decision in light of that information.'

He added that the group was selling more higher-margin products such as annuities.

The contribution from new business sales in the first half - a measure of anticipated profit on the policies - was up 34% at £150m.

L&G's distribution deals with Barclays, Alliance & Leicester and Northern Rock were also continuing to bear fruit. The tie-ups give the insurer access to an extra 15m customers.

Rivals tighten belts
AS the interim results season swings into action for the cash-strapped insurance sector, investors can expect a lot more belt-tightening and dividend cuts.

Prudential, Britain's second-largest insurer, has already flagged its intention to slash its dividend when it unveils interim results on 30 July. That will be the first time it has reduced its payout to shareholders since 1914.

Aviva, Britain's largest life company, earlier this year announced a 40% cut in its dividend from 38p to 23p. Rival insurer Friends Provident, which promised at its 2001 demutualisation to lift its dividend above inflation, appears likely to break its pledge.