Legal & General trebled sales at its booming pensions buyout business to a whopping £1.4 billion during the first half, helping the UK insurer to report better than expected operating profts and weather a downturn in the protection and investment markets.

A £180m buyout deal for M-real, a paper supplier, and a risk insurance agreement with Weir Group, the engineer, contributed to L&G's success in the bulk annuities market, which has taken off in the 18 months as companies have moved to offload their pension liabilities.

L&G is increasingly dominating buyout business, alongside Paternoster, a specialist insurer run by Mark Wood, the former UK chief executive at the Prudential.

It came as operating profits rose 6 per cent to £626 million for the six months to the end of June, despite flat sales of protection as the downturn in the housing market depressed sales of life insurance related to mortgages by 11 per cent.

Shares in the FTSE 100 insurer rose almost 9 per cent, up 8.6p at 105.2p, as investors breathed a sigh of relief that sales of savings and investment products held up well despite a fall in consumer confidence.

"Everything is pointing in the right direction, which is up," said Tim Breedon, the chief executive.

Legal & General Investment Management, which controls about 5 per cent of the UK stock market, pulled in more than £17 billion of net new funds to take its assets under management to £286 billion at the half year.

L&G, seen as a bellwether for the UK market because of its hefty exposure to retail markets, sparked a minor rally in the insurance secotor. Aviva, Britain's biggest insurer, jumped almost 6.5 per cent, while Prudential rose 4.6 per cent and Standard Life was 8.6 per cent higher.

Standard Life reports its results at the halfway stage tomorrow.

Eamonn Flanagan at Shore Capital said: "Legal's interim results should dispel any remaining doubts in the market over the financial strength of the group and its continuing ability to drive new business, in our view."

Mr Breedon, who ran the investments arm before taking charge as chief executive, said the pensions buyout market was on course to total £10 billion this year and every subsequent year "for many, many years".

He said such was the size of the market that L&G was currently seeking partners to help it take on risks as schemes above £1 billion begin to come to the buyout market.

"Going forward, I don't think this is a market share game; the issue will be about our appetite for this risk and our willingness to commit capital.

"The way forwards has got to be partnerships or syndications with people who share our view on pricing," Mr Breedon said.

Mr Breedon, who has divided L&G into three businesses - risk, savings and investments - said pension sales, with-profits policies and offshore investment trust sales all rose.

He said that sales of life policies not related to the housing market held up, but fierce competition had eroded profit margins, down from 9.1 per cent to 6.9 per cent over the period.

However, sales of investment bonds had halved year-on-year thanks to Alistair Darling, the Chancellor's decision to introduce a flat capital gains tax rate of 18 per cent, which made them less tax efficient.

He said sales of unit-linked bonds were unlikely to recover to previous levels. If L&G cannot make this currently loss-making practice profitable it will review whether to consider writing new business in the area, Mr Breedon said.

He said he was confident L&G could return it to profitability. The insurer would commit to turning things around over the long term, he said.

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