UK insurer Legal & General missed forecasts with a 26 per cent drop in last year's profit, hit by a £269 million charge as British life expectancies increase faster than expected.

L&G, the most domestic-focused of Britain's top insurers, also warned of a tough year ahead for UK savings, buffetted by market volatility and capital gains tax changes, but said its key protection business would outperform, as a new distribution deal with building society Nationwide offset a weaker housing market.

Britain's third-largest life insurer said its last year operating profit, on a European embedded value (EEV) basis, was £912 billion. That was below an average forecast, according to Reuters Estimates, of 1.1 billion and below the lower end of forecasts ranging from £941 million to £1.24 billion.

The operating number was hit by a higher than expected longevity charge, as the insurer followed peers including Prudential and Aviva, who in past weeks have also raised their assumptions of how quickly the average British age expectancy will rise, and took a 269 million provision to account for the extra cost.

L&G is one of the largest UK providers of annuities, contracts which provide customers an income in retirement that continues until they die.

"We have always expected them to live longer, but it is the rate of improvement which we are changing," chief executive officer Tim Breedon told reporters.

On a statutory basis, operating profit more than halved to £658 million, again hit by longevity changes but also by £84 million of weather-related losses in its general insurance arm after last year's storms and floods which dented an increased contribution from the investment management arm.

Despite the drop in the operating line, L&G said the value of new business came in at £359 million - below £418 million a year ago but at the high end of expectations.