Legal & General today criticised the government's plans to inject cash into the economy by condemning moves which it claimed would cut bond yields and drive up pension fund deficits.

The insurer, which made a loss last year of almost £1.5bn, argued that the pensions industry would be a victim of the plan when other costs were rising and markets remained volatile.

Tim Breedon, its chief executive, said the Bank of England's policy of quantitative easing would make "a bad situation for pension funds that much worse". He said the central bank should rethink how it handles the new scheme to offset the worst effects. "The industry has been pressing for more long-dated government bonds and mortality bonds, but there has not been a meeting of minds on this subject."

Breedon said the government wanted to drive up demand for gilts, which would cut yields and increase the liabilities of pension funds. His criticism followed comments that the insurer was preparing for an even more severe downturn than the Great Depression, after heavy stockmarket losses sent it tumbling into the red. It made a pre-tax loss of £1.49bn last year, down from a profit of £883m in 2007. It is halving its final dividend in an effort to conserve cash.

L&G said the loss was primarily caused by the turmoil in the stockmarkets. It was forced to sell more than £1.1bn worth of equities in 2008 and the first quarter of 2009 – a time when the FTSE 100 index fell by over a third. But its capital position was also hit by its decision last month to double its provisions against losses on credit defaults to £1.2bn.

Some analysts fear that the life insurance industry could become the next victim of the financial crisis, if a sharp rise in bankruptcies leaves it holding worthless corporate debt. Breedon said that L&G was braced for a surge in bankruptcies.

Shares in L&G fell by 7.24% to 39.7p.