And the company warned the turbulent conditions and rising fuel and food costs were also denting the appetite for savings.

But chief executive Tim Breedon said the difficulties were creating lucrative possibilities in the equity, property and debt markets.

“The time to buy is when assets are cheap,” he said. “We are seeing attractive opportunities.”

The company’s pre-tax profits fell from £797million to £65million on the back of the paper investment losses. But underlying profits, stripping out investment returns, rose 6 per cent to £626million.

The shares rocketed 11.75p to 108bp.

Sales of mortgage protection insurance remained stable despite the house-market slump, and the group’s investment funds attracted £17.6billion in new business.

L&G increased its dividend by 7.5 per cent to 2.01p a share.

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