By Paul Hoskins and Lorraine Turner
LONDON (Reuters) - Insurer Legal & General posted a surprise rise in first-quarter sales Wednesday helped by better pensions, savings and overseas sales but said its capital position had improved only slightly.
Britain's third-largest life insurer said the worst of the financial crisis appeared to be over but cautioned 2009 would still be a difficult year and that further improvement would be needed before reversing moves to bolster provisions for credit defaults.
"There is greater confidence in markets that the worst of the financial crisis is behind us," chief executive Tim Breedon told reporters during a conference call, adding that there had been "very large changes" in people's perceptions of risk in the last few weeks.
Breedon said the broader economic gloom and the deepening recession had a limited impact on business during the first three months of this year.
Legal & General said in a first-quarter trading update published Wednesday that worldwide sales rose 3 percent to 382 million pounds from 372 million a year ago.
Analysts surveyed by the company had on average expected worldwide sales to fall to 319 million pounds, with estimates ranging from 294-358 million.
The rise came as a 6 percent increase in sales of savings products at its UK business and a 32 percent jump in overseas sales, largely due to exchange rates, helped offset a 10 percent drop in new business at its UK Risk business.
The company said that at its risk business it continued to diversify its product range and sales efforts to reduce mortgage-related exposure to Britain's moribund housing market.
"Our sales figures for Q1 demonstrate that Legal & General has made a good start to the year," Breedon said. "This reflects the diversity of our product and distribution model."
Shares in Legal & General initially jumped as much as 5.3 percent on the news before reversing to trade 4.3 percent down by 11:15 a.m. at 62.7 pence.
The stock has more than trebled in value since falling below 21 pence in early March although it is still well short of levels above 160 pence reached in early 2007.
CAPITAL CONCERNS
Panmure Gordon analyst Barrie Cornes said the recent share price recovery was probably justified and described the sales performance as good but said he remained cautious about its capital position and retained a "hold" rating on the stock.
"We view the capital position as relatively weak and prefer Prudential within the sector," he wrote in a note to clients.
The company said it believed its capital surplus had improved modestly, rising to about 1.6 billion pounds from the 1.5 billion pounds reported in March.
In March Legal & General more than doubled provisioning for credit defaults, setting aside 1.2 billion pounds in reserves and Breedon said Wednesday that he would need to see a clear indication that recovery was under way before relaxing that.
The company predicted 2009 would continue to be a tough year for the industry although cost-cutting and the sale of less risky products should result in "significantly higher" cash generation in 2009, particularly in the second half.
Having announced Tuesday that the company was in talks with unions to make up to 560 staff redundant, Breedon said he saw no reason to change previous guidance that the company planned to cut headcount by 10 percent or so.
($1=0.6591 pounds)
(Editing by Dan Lalor and Mike Nesbit)