Fourth quarter 2009 - business update

11 February 2010

RESOLUTION LIMITED

Fourth quarter 2009 - business update

·; Resolution sets out in the attached Appendix the new business sales for the final quarter of 2009 for Friends Provident, its first acquisition in its UK Life and Asset Management restructuring project. Sales (measured on an annual premium equivalent basis) in the fourth quarter amounted to £368 million compared to £305 million for the same quarter of 2008 (an increase of 21%). Total sales for the year were £873 million compared to £1,005 million for the previous year (a decrease of 13%).

·; Friends Provident maintained an estimated IGD surplus of £0.9 billion at 31 December 2009 (30 September 2009: £0.9 billion).

·; Resolution completed the acquisition of Friends Provident on 4 November 2009. Resolution intends to acquire further life companies and to consolidate these with Friends Provident. The resulting company will be well placed to create value for investors in the post-growth phase of the UK life insurance market.

·; The full 2009 preliminary results for the Group will be announced on 24 March 2010 when Resolution will take the opportunity to update the market regarding :-

o The fair value of the assets acquired and liabilities assumed in purchasing Friends Provident;

o Our analysis of the cashflow from the Friends Provident UK business;

o Our initial assessment of the International businesses (Lombard and Friends Provident International);

o The prospects for and benefits from the consolidation of the UK Life and Asset Management industry;

o Transaction financing and structures available

John Tiner, CEO of Resolution Operations, commented:

"In the fourth quarter of 2009 Lombard and Friends Provident International reported strong performances. In the same period the UK business continued to reflect a market which we believe is ex-growth. This dynamic continues to demonstrate the need for consolidation of the UK life insurance industry and a necessary refocusing on value and transparency for investors."

Enquiries:

Michael Biggs, Resolution Limited +44 (0)1481 745 368John Tiner, Resolution Operations LLP +44 (0) 20 3372 2902

Investors / analysts Steve Riley, Resolution Operations LLP +44 (0)20 3372 2908

Media

Alex Child-Villiers, Temple Bar Advisory +44 (0)20 7002 1080

Forward-looking statements

This announcement contains certain forward-looking statements with respect to Resolution Limited and its outlook. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that may or may not occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this announcement should be construed as a profit forecast.

Media

There will be a conference call today for real-time media at 07:30 GMT, hosted by John Tiner, CEO of Resolution Operations and Trevor Matthews, CEO of Friends Provident (+44 (0) 1452 555566 quoting 54539125).

Analysts / Investors

There will be a conference call today for analysts and investors at 09:00 GMT hosted by John Tiner, CEO of Resolution Operations and Trevor Matthews, CEO of Friends Provident (+44 (0) 01452 555566 quoting 54519599). A recording of this call will be available for 7 days by dialling: +44 (0) 1452 550000 replay access number 54519599#.

Financial calendar

Preliminary results for 2009 24 March 2010

Interim management statement 6 May 2010

Interim results 2010 18 August 2010

Website

 www.resolution.gg

Resolution Limited - fourth quarter update

Resolution completed the acquisition of Friends Provident on 4 November 2009. This announcement sets out the fourth quarter 2009 new business update for Friends Provident in the Appendix.

Preliminary results 2009

The preliminary results will be presented on an IFRS basis and will therefore incorporate the results of Friends Provident for the period from 5 November 2009. An IFRS balance sheet will also be included as at the date of acquisition, which will reflect the Group's assessment of the fair value of the identifiable assets acquired and liabilities assumed at that date.

The fair value considerations will include an assessment of the value to be placed on the acquired in-force business (AVIF) and other intangible assets.

The embedded value of the business used to determine the AVIF will be calculated on a Market Consistent Embedded Value ("MCEV") basis in accordance with CFO Forum principles. These principles include the adoption of an illiquidity premium in respect of the annuity business.

As well as the IFRS statements, the Group will also publish supplementary information on an MCEV basis, in accordance with CFO Forum principles. This will include the results of the standalone Friends Provident business for the full twelve months in addition to the Group results which only incorporate the post acquisition results for the acquired business.

Appendix

Friends Provident - fourth quarter 2009 update

·; Sales (measured in APE) in the fourth quarter amounted to £368 million compared to £305 million for the same quarter of 2008 (an increase of 21%). Sales for the year were £873 million compared to £1,005 million for the previous year (a decrease of 13%).

·; Lombard sales reflected the seasonal profile of previous years at £199 million for the fourth quarter, bringing the total for 2009 to £273 million. 2008 sales for Lombard were £246 million.

·; New protection business partnerships with Tesco Bank and Virgin Money are now on stream following successful implementation.

·; 33% growth in funds under management on the New Generation Pensions (NGP) platform to £9.7 billion at 31 December 2009, compared to £7.3 billion at the end of 2008.

·; Estimated IGD surplus maintained at £0.9 billion at 31December 2009.

New business

Sales on an annual premium equivalent (APE) basis for the fourth quarter 2009 were £368 million. Sales in Q4 were boosted by the seasonal increase in Lombard sales, combined with the sustained improvements in sales for the UK and overseas businesses. For 2009 sales on the APE basis were £873 million, compared to £1,005 million for 2008. This reflects Friends Provident's decision in 2008 to withdraw from less profitable lines of business in the UK, the continuing difficult market conditions experienced by the life insurance industry in 2009 and an ongoing focus on the value and cashflow signature of new business.

UK sales

UK corporate sales mainly relate to pensions business which was £91 million for the quarter on an APE basis, up £12 million on the third quarter of 2009, but down £12 million compared to the fourth quarter of 2008. Q4 2008 included £14 million from a large one-off increment to an existing scheme. The significant majority of group pensions new business represents increments to existing schemes, these were depressed in 2009 due to economic conditions.

Sales in Q4 were boosted by a number of scheme wins, including some large schemes. In the period following the announcement of the proposed acquisition by Resolution, a number of consultants removed Friends Provident from their panels. Friends Provident has now been reinstated on all the major target panels, but this temporary removal in the last quarter of the year reduced the pipeline for new schemes. This is likely to be reflected in reduced new business from new schemes in the first quarter of 2010. The latest market share data available shows Friends Provident's share of the group pensions market at 8.8% for Q3 2009 compared to 6.7% for Q3 2008.

Funds under management for unit-linked group and individual pensions on the New Generation Pensions platform increased from £7.3 billion at the end of 2008 to £9.7 billion at 31 December 2009.

UK individual business at £18 million for the quarter on an APE basis is down £6 million on the preceding quarter, reflecting difficult market conditions and Friends Provident's maintenance of pricing discipline. Whilst we expect market conditions in the UK to remain challenging in 2010, Friends Provident has continued to add new distribution arrangements, such as those implemented recently with Tesco Bank and Virgin Money, and Friends Provident increased its share of the IFA individual protection market to 7.8% based on market data for the third quarter of 2009 (Q3 2008: 7.1%).

International sales

International sales of £465 million for the year were up 2% on 2008, with Friends Provident International (FPI) reporting sales of £183 million, Lombard £273 million and AmLife £9 million. These businesses accounted for over half of group new business sales for the year.

FPI has achieved quarter on quarter growth throughout 2009. Although demand in Hong Kong remains well below the peak level of early 2008, there are signs of improvement. FPI has significantly increased its share of linked business in this market from 6.0% for the full year 2008 to 11.2% for the first nine months of 2009.

Lombard, the international estate planning life assurer, where business is traditionally weighted towards the fourth quarter, achieved record sales, both for the quarter (£199 million) and the year (£273 million). Lombard had particularly strong Quarter 4 sales in the Italian market and its Swiss operations also contributed significantly as a result of relationships built up over the years. This, together with a strong contribution from Belgium, more than offset less positive results in Spain and Germany, although the recent legal and fiscal uncertainty in these markets has now been largely clarified.

AmLife, Friends Provident's Malaysian Life Insurance joint venture with AmBank Group, performed strongly throughout 2009. 30% of full year APE (reflecting Friends Provident's share of the joint venture) was £9.1 million (first half 2009: £3.1 million). The business has achieved strong growth in both its agency sales force and bancassurance distribution.

Capital

As at 31 December 2009, Friends Provident maintained a strong IGD surplus estimated

at £0.9 billion (30 September 2009: £0.9 billion). The surplus was not affected by the strong performance of equities through the later part of the year, as shareholder funds have limited exposure to movements in equity markets. Insurer financial strength ratings from each of the three rating agencies, Moody's, Standard & Poor's and Fitch remain in the A range.

Analysis of life and pensions new business

In classifying new business premiums the following basis of recognition is adopted:

·; single new business premiums consist of those contracts under which there is no expectation of continuing premiums being paid at regular intervals;

·; regular new business premiums consist of those contracts under which there is an expectation of continuing premiums being paid at regular intervals, including repeated or recurrent single premiums where the level of premiums is defined, or where a regular pattern in the receipt of premiums has been established;

·; non-contractual increments under existing group pensions schemes are classified as new business premiums;

·; transfers between products where open market options are available are included as new business; and

·; regular new business premiums are included on an annualised basis.

Life & Pensions New Business - Regular and Single Premiums

New Business - Annual Premium Equivalent

Annualised Premium Equivalent represents annualised new regular premiums plus 10% of single premiums.

New Business - Annual Premium Equivalent

 Friends Provident International

Lombard

New business APE at constant exchange rates

All amounts in currency in the tables above other than Sterling are translated into Sterling at a monthly average exchange rate. The estimated new business assuming constant currency rates would be as follows:

New Business - Present Value of New Business Premiums (PVNBP)

PVNBP equals new single premiums plus the expected present value of new regular premiums. Premium values are calculated on a consistent basis with the EV contribution to profits from new business. Start of period assumptions are used for the economic basis and end of period assumptions are used for the operating basis. A risk free rate is used to discount expected premiums in future years. The impact of operating assumption changes across a whole reporting period will normally be reflected in the PVNBP figures for the final quarter of the period that the basis changes relate to. No change in operating assumptions will be reflected in the PVNBP for the first and third quarters, when the contribution to profits from new business is not published. All amounts in currency other than Sterling are translated into Sterling at a monthly average exchange rate.