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Friends Provident Interim Results - Part 2

11th Aug 2009 07:04

RNS Number : 2206X

Friends Provident Group PLC

11 August 2009

Condensed consolidated income statement on an IFRS basis

For the half year ended 30 June 2009

			Half year ended
			30 June
			2009	2008
		Notes	£m	£m
Revenue
Gross earned premiums		3	451	492
Premiums ceded to reinsurers		3	(51)	(48)
Net earned premiums		3	400	444
Fee and commission income and income
	from service activities		384	388
Investment return			319	(3,440)
Total revenue			1,103	(2,608)
Claims, benefits and expenses
Gross claims and benefits paid			772	860
Amounts receivable from reinsurers			(95)	(58)
Net claims and benefits paid			677	802
Change in insurance contracts liabilities			(708)	(1,317)
Change in investment contracts liabilities			592	(2,391)
Transfer from fund for future appropriations			(77)	(50)
Movement in net assets attributable to
	unit holders		15	(128)
Movement in policyholder liabilities			(178)	(3,886)
Acquisition expenses			259	237
Administrative and other expenses			380	391
Finance costs			67	69
Total claims, benefits and expenses			1,205	(2,387)
Loss before tax from continuing
	operations		(102)	(221)
Policyholder tax			(14)	81
Loss before shareholder tax from
	continuing operations		(116)	(140)
Total tax (charge)/credit			(6)	137
Policyholder tax			14	(81)
Shareholder tax			8	56
Loss for the period		3	(108)	(84)
Attributable to:
Equity holders of the parent: (i)
Ordinary shareholders			(98)	(60)
Other equity holders			24	26
			(74)	(34)
Minority interest			(34)	(50)
Loss for the period			(108)	(84)

		2009	2008
Earnings per share		pence	pence

Basic loss per share	5(a)	(4.2)	(2.6)
Diluted loss per share	5(b)	(4.2)	(2.6)

(i) All profit attributable to equity holders of the parent is from continuing operations. As explained in the basis of preparation, F&C has been presented as a continuing operation.

Condensed consolidated statement of comprehensive income on an IFRS basis

For the half year ended 30 June 2009

			Equity
			holders of	Equity	Total
			the parent	holders of	equity
			(ordinary	the parent	holders of	Minority
			shares)	(STICS)	the parent	Interest	Total
			£m	£m	£m	£m	£m
(Loss)/profit for the period			(98)	24	(74)	(34)	(108)
Other comprehensive income:
	Actuarial losses on
		defined benefit schemes	(18)	-	(18)	(12)	(30)
	Tax credit		5	-	5	3	8
	Foreign exchange adjustments (i)		(90)	-	(90)	(17)	(107)
	Revaluation of owner
		occupied properties	(2)	-	(2)	-	(2)
	Shadow accounting (ii)		21	-	21	-	21
Other comprehensive
	loss, net of tax		(84)	-	(84)	(26)	(110)
Total comprehensive income/
	(loss) for the period		(182)	24	(158)	(60)	(218)

(i) Foreign exchange adjustments relate to the translation, net of tax, of overseas subsidiaries.

(ii) Shadow accounting includes £2m in respect of the revaluation of owner occupied properties and £19m in respect of foreign exchange adjustments on translation of overseas subsidiaries held by the With Profits Fund of Friends Provident Life & Pensions Limited (FPLP).

For the half year ended 30 June 2008

			Equity
			holders of	Equity	Total
			the parent	holders of	equity
			(ordinary	the parent	holders of	Minority
			shares)	(STICS)	the parent	interest	Total
			£m	£m	£m	£m	£m
(Loss)/profit for the period			(60)	26	(34)	(50)	(84)
Other comprehensive income:
	Actuarial gains/(losses)
		on defined benefit schemes	42	-	42	(3)	39
	Tax (charge)/credit		(12)	-	(12)	1	(11)
	Foreign exchange adjustments		39	-	39	6	45
Other comprehensive
	income, net of tax		69	-	69	4	73
Total comprehensive income/
	(loss) for the period		9	26	35	(46)	(11)

Condensed consolidated underlying profit on an IFRS basis

For the half year ended 30 June 2009

			Half year ended
			30 June
			2009	2008
		Notes	£m	£m
Loss before tax from continuing operations			(102)	(221)
Policyholder tax			(14)	81
Returns on Group-controlled funds
	attributable to third parties		30	52
Loss before tax excluding profit
	generated within policyholder funds		(86)	(88)
Non-recurring items		3	59	17
Amortisation of Asset Management
	acquired intangible assets		25	22
Amortisation of acquired present value
	of in-force business		12	13
Amortisation of acquired intangible assets			8	7
Interest payable on Step-up Tier one
	Insurance Capital Securities (STICS)		(24)	(26)
Short-term fluctuations in investment return			44	68
Underlying profit before tax			38	13
Tax on underlying profit			(27)	26
Minority interest in underlying profit			(4)	(10)
Underlying profit after tax attributable
	to ordinary shareholders of the parent		7	29

		2009	2008
Earnings per share		pence	pence
Underlying earnings per share	5(a)	0.3	1.2

IFRS underlying profit is based on longer-term investment return and excludes: (i) policyholder tax, (ii) returns attributable to minority interests in policyholder funds, (iii) non-recurring items, (iv) amortisation and impairment of acquired intangible assets and present value of acquired in-force business; and is stated after deducting interest payable on STICS. Management consider that underlying profit better reflects the performance of the Group and focus on this measure of profit in its internal monitoring of the Group's IFRS results.

Condensed consolidated statement of financial position on an IFRS basis

At 30 June 2009

			30 June	31 Dec
			2009	2008
		Notes	£m	£m
Assets
Intangible assets		6	1,228	1,358
Property and equipment			60	66
Investment properties			1,350	1,493
Investments in associates and joint venture			47	47
Deferred tax assets			13	15
Financial assets		7	42,587	44,372
Deferred acquisition costs			1,225	1,223
Reinsurance assets			1,930	1,964
Current tax assets			5	4
Insurance and other receivables			860	670
Cash and cash equivalents			4,647	5,183
Total assets			53,952	56,395
Liabilities
Insurance contracts			11,906	12,677
Fund for future appropriations			324	401
Financial liabilities
	- Investment contracts		34,264	35,275
	- Loans and borrowings		883	729
	- Amounts due to reinsurers		1,626	1,792
Net asset value attributable to unit holders			676	668
Provisions			160	108
Deferred tax liabilities			107	108
Current tax liabilities			84	90
Insurance payables, other payables and
	deferred income		852	1,003
Total liabilities			50,882	52,851
Equity attributable to equity holders
	of the parent
Attributable to ordinary shareholders:
Share capital		9	468	234
Share premium		9	-	2,372
Other reserves		9	1,830	(242)
			2,298	2,364
Attributable to other equity holders		8	475	810
			2,773	3,174
Minority interest			297	370
Total equity			3,070	3,544
Total equity and liabilities			53,952	56,395

Condensed consolidated statement of changes in equity

Half year ended 30 June 2009

		Equity attributable to equity holders of the parent
			Share	Share	Other			Minority
			capital	premium	reserves	STICS	Total	Interest	Total
			£m	£m	£m	£m	£m	£m	£m
At 1 January 2009			234	2,372	(242)	810	3,174	370	3,544
(Loss)/profit for
		the period	-	-	(98)	24	(74)	(34)	(108)
Other comprehensive
		loss	-	-	(84)	-	(84)	(26)	(110)
Total comprehensive
		(loss)/income	-	-	(182)	24	(158)	(60)	(218)
Dividends on equity
	shares		-	-	-	-	-	(20)	(20)
Interest paid on STICS			-	-	-	(40)	(40)	-	(40)
Appropriations of profit			-	-	-	(40)	(40)	(20)	(60)
Share based payments			-	-	3	-	3	3	6
Change in participation
		in subsidiary	-	-	-	-	-	4	4
STICS exchange (i)			-	-	113	(319)	(206)	-	(206)
Group
	reorganisation (ii)		234	(2,372)	2,138	-	-	-	-
At 30 June 2009			468	-	1,830	475	2,773	297	3,070

(i) See note 8

(ii) See notes 9 & 10

Half year ended 30 June 2008

		Equity attributable to equity holders of the parent
			Share	Share	Other			Minority
			capital	premium	reserves	STICS	Total	Interest	Total
			£m	£m	£m	£m	£m	£m	£m
At 1 January 2008			234	2,372	346	810	3,762	562	4,324
(Loss)/profit for
		the period	-	-	(60)	26	(34)	(50)	(84)
Other comprehensive
		income	-	-	69	-	69	4	73
Total comprehensive
		income /(loss)	-	-	9	26	35	(46)	(11)
Dividends on equity
	shares		-	-	(123)	-	(123)	(20)	(143)
Interest paid on STICS			-	-	-	(42)	(42)	-	(42)
Appropriations of profit			-	-	(123)	(42)	(165)	(20)	(185)
Share based payments			-	-	5	-	5	3	8
Change in participation
		in subsidiary	-	-	-	-	-	18	18
At 30 June 2008			234	2,372	237	794	3,637	517	4,154

Condensed consolidated statement of cash flows

For the half year ended 30 June 2009

		Half year ended
		30 June	30 June
		2009	2008
		£m	£m
Operating activities
Loss for the period		(108)	(84)
Adjusted for:
	Net realised and unrealised losses on assets at fair value	417	4,739
	Finance costs	67	69
	Amortisation and impairment of intangible assets	50	47
	Depreciation of property and equipment	5	5
	Movement in deferred acquisition costs	(24)	(124)
	Total tax charge/(credit)	6	(137)
	Net purchases and sales of investments	380	(429)
	Decrease in insurance contract liabilities	(771)	(1,374)
	Increase/(decrease) in investment contract liabilities	248	(1,981)
	Decrease in fund for future appropriations	(77)	(50)
	Increase/(decrease) in provisions	53	(8)
	Net decrease in receivables and payables	(559)	(410)
Pre-tax cash (outflow)/inflow from
	operating activities	(313)	263
Tax paid		(17)	(22)
Net cash (outflow)/inflow from operating activities		(330)	241
Investing activities
Acquisition of subsidiaries and investment vehicles, net
	of cash acquired	39	8
Reduction in participation in subsidiaries and
	investment vehicles, net of cash disposed	-	26
Additions to internally generated intangible assets		-	(5)
Purchase of property and equipment (net)		(1)	(3)
Net cash inflow from investing activities		38	26
Financing activities
Finance costs		(56)	(70)
STICS interest		(40)	(42)
Repayment of long term debt		-	(75)
Net movement in other borrowings, net of expenses		5	17
Dividends paid to equity holders of the parent		-	(123)
Dividends paid to minority interest		(20)	(20)
Net cash outflow from financing activities		(111)	(313)
Decrease in cash and cash equivalents		(403)	(46)
Balance at beginning of period		5,183	4,782
Exchange adjustments on the
	translation of foreign operations	(133)	82
Balance at end of period		4,647	4,818

The Group's consolidated statement of cash flows includes both shareholder and policyholder cash flows. Notes to the consolidated financial statements

1. Basis of preparation

Friends Provident Group plc (the Company) is a company domiciled in England and Wales. The condensed consolidated interim financial statements of the Company as at and for the six months ended 30 June 2009 comprise the Company and its subsidiaries (together referred to as the Group) and the Group's interests in associates and jointly controlled entities.

F&C has been included as a continuing operation for half year reporting, as under IFRS its demerger on 3 July 2009 is treated as a non-adjusting post balance sheet event.

The condensed consolidated interim financial statements for the half-year ended 30 June 2009 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34 Interim financial reporting as adopted by the European Union. The half-yearly condensed consolidated financial report should be read in conjunction with the annual financial statements for the year ended 31 December 2008, which have been prepared in accordance with IFRS's as adopted by the European Union.

The Company became the new top holding company of Friends Provident plc on 15 June 2009 following a court approved reorganisation. In accordance with IFRS 3 Business combinations, this group reorganisation has been accounted for as a reverse acquisition. Although the condensed consolidated interim financial statements have been prepared in the name of the legal parent, the Company, they are in substance a continuation of the condensed consolidated interim financial statements of the legal subsidiary, Friends Provident plc. The following accounting treatment has been applied in respect of the reverse acquisition:

(i) The assets and liabilities of Friends Provident plc are recognised and measured in the condensed consolidated interim financial statements at the pre-combination carrying amounts, without restatement to fair value.

(ii) The equity structure (share capital and premium) appearing in the condensed consolidated interim financial statements reflects the equity structure of the Company. However, the retained earnings and other equity balances recognised in the condensed consolidated interim financial statements reflect those of Friends Provident plc immediately before the business combination, and the results of the period from 1 January 2009 to 30 June 2009 are those of Friends Provident plc.

(iii) Comparative numbers presented in the condensed consolidated interim financial statements for the income statement are those reported in the condensed consolidated interim financial statements of Friends Provident plc for the six months ended 30 June 2008 and for the financial position are those reported in the consolidated financial statements of Friends Provident plc for the year ended 31 December 2008.

There has been no impact on profitability (apart from the costs of reorganisation) of the revised Group structure.

The comparative figures for the financial position at 31 December 2008 are not the Report & Accounts of Friends Provident plc and its subsidiaries for that financial year, but they are derived therefrom. Those accounts have been reported on by the Company's auditor and delivered to the Registrar of Companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying its report, and (iii) did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The Report & Accounts of the Group for the year ended 31 December 2008 is available upon request from the Company's registered office at Pixham End, Dorking, RH4 1QA, or at http://www.friendsprovident.co.uk/investor/

In considering whether the condensed consolidated interim financial statements should be prepared under the going concern basis, the directors have considered the information contained in the condensed consolidated interim financial statements, the latest business plan profit forecasts for the Group, the latest working capital forecasts for the Group and estimated forecast solvency. These forecasts have been subject to sensitivity tests given the current uncertain economic outlook and the directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the directors continue to adopt the going concern basis in preparing the condensed consolidated interim financial statements.

The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Friends Provident plc in its consolidated financial statements as at and for the year ended 31 December 2008, except for the adoption of new standards and amendments to existing standards as of 1 January 2009, as follows:

IFRS 2 Share based payment (amendments)

Amendments to IFRS 2 clarified the terms vesting conditions and cancellations. As a result of the amendments, cancellations by an individual are accounted for as an acceleration of the expense that would otherwise have been recognised over the remainder of the vesting period. The impact of adopting the amendments to IFRS 2 has £nil impact on 2009 loss before tax and shareholders' funds (June 2008: £nil impact on loss before tax or shareholders' funds).

IFRS 8 Operating segments

IFRS 8 replaces IAS 14 Segment reporting and introduced new requirements for reporting segmental information. It requires information to be reported on the basis of internal financial information used by the Group to evaluate operating performance. The impact of adopting IFRS 8 is an increase in the number of reportable segments presented. The measures presented are unchanged from those presented under IAS 14. Comparative segment information has been re-presented in conformity with the transitional requirements of IFRS 8. Since the change in accounting policy only impacts presentation and disclosure aspects, there is no impact on profit.

IAS 1 Presentation of financial statements (revised)

The revised standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with non-owner changes in equity presented as a single line. In addition, the Standard introduces the statement of comprehensive income: it presents all items of recognised income and expense, either in one single statement, or in two linked statements. The Group has elected to present two statements.

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

The IFRS results were approved by the Board of Directors on 10 August 2009.

2. Changes in accounting estimates

There have been no significant changes in accounting estimates since 31 December 2008 or in those items subject to significant use of estimates, assumptions and judgements.

3. Segmental information

(a) Summary

The Group presents segmental information based on internal financial information used by the Group to evaluate operating performance, in accordance with new requirements introduced by IFRS 8. The impact of IFRS 8 is an increase in the number of reportable segments presented, based principally on an underlying measure of performance.

The Group's management and internal reporting structure is based on the following operating segments:

·; UK Life & Pensions

·; Friends Provident International (FPI)

·; Lombard

·; Asset Management (including F&C’s Managed Pension Fund business)

·; All other includes the IFA Groups Sesame and Pantheon Financial, and associate undertaking AmLife Berhad

Corporate functions are not an operating segment, but are reported to management, and are provided in the analysis below to reconcile the Group's reportable segments to total profit.

(b) Operating segment information

(i) Underlying profit

Half year ended 30 June 2009

			UK Life				Other
			&			Asset	All
			Pensions	FPI	Lombard	Management	other	Corporate	Total
			£m	£m	£m	£m	£m	£m	£m
Life result			23	(9)	6	-	-	-	20
Longer-term return on
		shareholder funds	13	1	(2)	-	-	-	12
Other income			-	-	-	9	-	(3)	6
Underlying profit/(loss)
		before tax	36	(8)	4	9	-	(3)	38
Tax on underlying profit									(27)
Minority interest									(4)
Underlying profit after
		tax attributable to
		ordinary
		shareholders
	of the parent								7
Earnings per share
Underlying earnings per
	share (pence)								0.3

Half year ended 30 June 2008

			UK Life				Other
			&			Asset	All
			Pensions	FPI	Lombard	Management	other	Corporate	Total
			£m	£m	£m	£m	£m	£m	£m
Life result			(47)	2	8	-	-	-	(37)
Longer-term return on
		shareholder funds	22	1	(1)	-	-	-	22
Other income			(1)	-	-	27	4	(2)	28
Underlying profit/(loss)
		before tax	(26)	3	7	27	4	(2)	13
Tax on underlying profit									26
Minority interest									(10)
Underlying profit after
		tax attributable to
		ordinary
		shareholders
	of the parent								29
Earnings per share
Underlying earnings per
	share (pence)								1.2

(ii) Reconciliation of underlying profit before tax to profit before tax

Half year ended 30 June 2009

			UK Life				Other
			&			Asset	All
			Pensions	FPI	Lombard	Management	other	Corporate	Total
			£m	£m	£m	£m	£m	£m	£m
Underlying profit/(loss)
	before tax		36	(8)	4	9	-	(3)	38
Non-recurring items (i)			(48)	-	-	4	-	(15)	(59)
Amortisation of acquired
	present value of
	in-force business		(4)	(3)	(5)	-	-	-	(12)
Amortisation of acquired
		intangible assets	-	-	(5)	(25)	(3)	-	(33)
Interest payable on STICS			16	-	-	-	-	8	24
Short-term fluctuations in
	investment return		(40)	(1)	2	-	-	(5)	(44)
Loss before tax
		excluding profit
		generated within
	Policyholder funds		(40)	(12)	(4)	(12)	(3)	(15)	(86)
Policyholder tax			14	-	-	-	-	-	14
Returns on Group-
	controlled funds
	attributable to
	third parties		(30)	-	-	-	-	-	(30)
Loss before tax			(56)	(12)	(4)	(12)	(3)	(15)	(102)

(i) Non recurring items

UK Life & Pensions items comprise £48m (2008: £15m) of strategic review costs, bringing the total cost of implementing the cost savings programme and securing the identified cost savings to £80m.

Asset Management items comprise £3m (2008: £2m) in respect of reorganisation costs, £10m gains (2008: £nil) on forward currency contracts, £2m (2008: £nil) further payments payable on the REIT acquisition and £1m (2008: £nil) of costs in respect of the demerger of F&C.

Other items comprise £14m (2008: £nil) of costs in respect of the Group reorganisation and demerger of F&C and £1m (2008: £nil) of other project costs.

Half year ended 30 June 2008

			UK Life				Other
			&			Asset	All
			Pensions	FPI	Lombard	Management	other	Corporate	Total
			£m	£m	£m	£m	£m	£m	£m
Underlying profit/(loss)
	before tax		(26)	3	7	27	4	(2)	13
Non-recurring items (i)			(15)	-	-	(2)	-	-	(17)
Amortisation of acquired
	present value of
	in-force business		(5)	(3)	(5)	-	-	-	(13)
Amortisation of acquired
		intangible assets	-	-	(4)	(22)	(3)	-	(29)
Interest payable on STICS			16	-	-	-	-	10	26
Short-term fluctuations in
	investment return		(67)	-	1	-	-	(2)	(68)
(Loss)/profit before tax
		excluding profit
		generated within
	Policyholder funds		(97)	-	(1)	3	1	6	(88)
Policyholder tax			(82)	-	-	1	-	-	(81)
Returns on Group-
	controlled funds
	attributable to
	third parties		(52)	-	-	-	-	-	(52)
(Loss)/profit before tax			(231)	-	(1)	4	1	6	(221)

(iii) Revenue and expenses

Half year ended 30 June 2009

								Inter-
						Other		segment
		UK			Asset	All		amounts
		L&P	FPI	Lombard	Mgt	other	Corporate	(ii)	Total
		£m	£m	£m	£m	£m	£m	£m	£m
Gross earned premiums
	on insurance and
	investment contracts	1,391	332	478	50	-	-	-	2,251
Investment contract
	premiums (i)	(947)	(325)	(478)	(50)	-	-	-	(1,800)
Gross earned premiums		444	7	-	-	-	-	-	451
Premiums ceded to
	reinsurers	(50)	(1)	-	-	-	-	-	(51)
Net earned premiums		394	6	-	-	-	-	-	400
All other revenue		74	(29)	471	126	82	10	(31)	703
Total revenue		468	(23)	471	126	82	10	(31)	1,103
Intersegment revenue		1	-	1	20	2	7	(31)	-
Total external
	revenue	467	(23)	470	106	80	3	-	1,103
Total claims, benefits
	and expenses	524	(11)	475	138	85	25	(31)	1,205
Intersegment expenses		29	1	-	-	-	1	(31)	-
Total external claims,
	benefits and
	expenses	495	(12)	475	138	85	24	-	1,205
Share of profits of
	associates and
	Joint venture	-	-	-	-	-	-	-	-
Loss before tax from
	continuing
	operations	(56)	(12)	(4)	(12)	(3)	(15)	-	(102)
Policyholder tax		(14)	-	-	-	-	-	-	(14)
Shareholder tax		1	-	2	3	1	1	-	8
Segmental result
	after tax	(69)	(12)	(2)	(9)	(2)	(14)	-	(108)

(i) Accounted for as deposits under IFRS

(ii) Intersegment amounts include the eliminations of fee income and loan interest

Half year ended 30 June 2008

								Inter-
						Other		segment
		UK			Asset	All		amounts
		L&P	FPI	Lombard	Mgt	other	Corporate	(ii)	Total
		£m	£m	£m	£m	£m	£m	£m	£m

Gross earned premiums
	on insurance and
	investment contracts	1,843	428	702	134	-	-	-	3,107
Investment contract
	premiums (i)	(1,359)	(420)	(702)	(134)	-	-	-	(2,615)
Gross earned premiums		484	8	-	-	-	-	-	492
Premiums ceded to
	reinsurers	(47)	(1)	-	-	-	-	-	(48)
Net earned premiums		437	7	-	-	-	-	-	444
All other revenue		(2,650)	(149)	(394)	38	117	18	(32)	(3,052)
Total revenue		(2,213)	(142)	(394)	38	117	18	(32)	(2,608)
Intersegment revenue		-	1	-	21	3	7	(32)	-
Total external
	revenue	(2,213)	(143)	(394)	17	114	11	-	(2,608)
Total claims, benefits
	and expenses	(1,982)	(142)	(393)	34	116	12	(32)	(2,387)
Intersegment expenses		31	-	1	-	-	-	(32)	-
Total external claims,
	benefits and
	expenses	(2,013)	(142)	(394)	34	116	12	-	(2,387)
Share of profits of
	associates and
	Joint venture	-	-	-	-	-	-	-	-
Loss before tax from
	continuing
	operations	(231)	-	(1)	4	1	6	-	(221)
Policyholder tax		82	-	-	(1)	-	-	-	81
Shareholder tax		50	-	-	1	(1)	6	-	56
Segmental result
	after tax	(99)	-	(1)	4	-	12	-	(84)

(i) Accounted for as deposits under IFRS

(ii) Intersegment amounts include the eliminations of fee income and loan interest

(iv) Assets and liabilities

At 30 June 2009

							Elimination
	UK Life				Other		of inter-
	&			Asset	All		segment
	Pensions	FPI	Lombard	Management	other	Corporate	amounts (i)	Total
	£m	£m	£m	£m	£m	£m	£m	£m
Total assets	35,236	4,784	12,058	1,436	184	645	(391)	53,952
Total liabilities	33,281	4,649	11,600	1,325	133	285	(391)	50,882

At 31 December 2008

							Elimination
	UK Life				Other		of inter-
	&			Asset	All		segment
	Pensions	FPI	Lombard	Management	other	Corporate	amounts (i)	Total
	£m	£m	£m	£m	£m	£m	£m	£m
Total assets	36,181	4,806	13,502	1,503	186	616	(399)	56,395
Total liabilities	34,104	4,663	12,989	1,326	133	35	(399)	52,851

(i) Eliminations include intersegment loans and outstanding fee income and loan interest balances

4. Appropriations of profit

(a) Dividends paid on ordinary shares

Dividends paid during the period and recognised in reserves

		Half year ended
		30 June
		2009	2008
		£m	£m
Final dividend in respect of 2007 and paid in May 2008
	of 5.3p per share	-	123
Total dividends paid		-	123

The following dividends are payable after the balance sheet date and in accordance with IAS 10 Events after the balance sheet date, these have not been provided as a liability at the balance sheet date:

		30 June	31 Dec
		2009	2008
		£m	£m
Dividend of 2.6p per share (in respect of 2008
	final dividend) paid 24 July 2009	61	-
Dividend of 1.3p per share (in respect of 2009
	interim dividend) payable October 2009	30	-

The dividend of £61m above is equivalent to the previously contemplated final

dividend of 2008 that was not recommended or declared by Friends Provident plc due to the need to complete the reorganisation to establish a new holding company for the Group. The distributable reserves of Friends Provident Group plc as at 30 June 2009 were £655m.

(b) STICS interest

STICS interest paid during the period and recognised in equity

		2009	2008
		£m	£m
Interest on 2003 STICS at 6.875%
	paid in May 2009 (May 2008)	10	11
Interest on 2005 STICS at 6.292%
	paid in May 2009(i) and June 2009 (June 2008)	30	31
Total STICS interest paid		40	42

(i) Holders of 2005 STICS who opted to exchange their holding for Subordinated Guaranteed Notes on 21 May 2009 (see note 8) were paid accrued interest on that date.

Interest on the 2003 STICS is paid half yearly in May and November each year. Interest on the 2005 STICS is paid annually in June each year.

5. Earnings per share

(a) Basic and underlying earnings per share from continuing operations

Earnings per share have been calculated based on the loss after tax and on the underlying profit after tax, attributable to ordinary shareholders of the parent. The directors consider that the underlying earnings per share figure gives a better indication of operating performance.

		Half year ended		Half year ended
		30 June 2009		30 June 2008
			Per		Per
		Earnings	share	Earnings	share
		£m	pence	£m	pence
Loss after tax attributable to ordinary
	shareholders of the parent	(98)	(4.2)	(60)	(2.6)
Short-term fluctuations in investment return		44	1.9	68	2.9
Non-recurring items		59	2.5	17	0.7
Amortisation and impairment of acquired
	intangible assets	45	1.9	42	1.8
Minority interest on items excluded from
	underlying profit	(8)	(0.3)	(8)	(0.3)
Tax credit on items excluded from underlying profit		(35)	(1.5)	(30)	(1.3)
Underlying profit after tax attributable to
	ordinary shareholders of the parent	7	0.3	29	1.2

(b) Diluted basic earnings per share from continuing operations

		Half year ended 30 June 2009			Half year ended 30 June 2008
			Weighted			Weighted
			average			average
			number			number
			of			of
			ordinary	Per		ordinary	Per
		Earnings	shares	share	Earnings	shares	share
		£m	millions	pence	£m	millions	pence
Loss after tax attributable to
	ordinary shareholders
	of the parent	(98)	2,325	(4.2)	(60)	2,325	(2.6)
Dilution (c)		-	-	-	-	-	-
Diluted loss after tax
	attributable to ordinary
	shareholders of the parent	(98)	2,325	(4.2)	(60)	2,325	(2.6)

The weighted average number of ordinary shares for the comparative period, previously 2,323m, has been recalculated as a result of the reverse acquisition of Friends Provident plc by Friends Provident Group plc (see note 10). The weighted average number of shares represents the number of shares issued by Friends Provident Group plc to the shareholders of Friends Provident plc, adjusted for changes to Friends Provident plc's share capital during the period to 30 June 2008. There is no impact on earnings per share.

Share options outstanding under the Group's various option schemes as at 30 June 2008 and 2009 had no dilutive impact on EPS.

6. Intangible assets

					Investment
				Acquired	management
			Goodwill	PVIF	contracts		Other		Total
			£m	£m	£m		£m		£m
Cost
At 1 January 2008			733	499	585		267		2,084
Acquisition through
		business combinations	29	-	71		-		100
Other additions			-	-	-		8		8
Disposals			(16)	-	-		(1)		(17)
Adjustment to consideration			(6)	-	-		-		(6)
Foreign exchange adjustments			52	76	40		40		208
At 1 January 2009			792	575	696		314		2,377
Other additions			-	-	-		3		3
Disposals			-	-	-		(6)		(6)
Foreign exchange adjustments			(25)	(37)	(12)		(21)		(95)
At 30 June 2009			767	538	684		290		2,279

Amortisation and impairment
At 1 January 2008			-	169		331		128	628
Amortisation charge for year			-	26		49		23	98
Impairment charge			216	-		48		3	267
Foreign exchange adjustments			-	15		1		10	26
At 1 January 2009			216	210		429		164	1,019
Amortisation charge for period			-	13		25		12	50
Disposals			-	-		-		(3)	(3)
Foreign exchange adjustments			-	(8)		-		(7)	(15)
At 30 June 2009			216	215		454		166	1,051

Carrying amounts
At 1 January 2009			576	365		267		150	1,358
At 30 June 2009			551	323		230		124	1,228

Deferred tax relating to
	the above
At 1 January			-	88		74		37	199
At 30 June 2009			-	76		64		31	171

Goodwill is the only intangible asset which has an indefinite useful life. Acquired PVIF is amortised over the lifetime of the in-force policies. Investment management contracts and other intangible assets (mainly consisting of distribution channel relationships and software development) are amortised over their estimated useful lives. The average remaining useful lives for each category of asset are: acquired PVIF 14 years, investment management contracts 5 years and other intangibles 7 years.

All identifiable intangible assets are reviewed at each reporting date to assess whether there are any circumstances that might indicate that they are impaired. If such circumstances exist, the impairment testing is performed and any resulting impairment losses are charged to the income statement. Goodwill is tested annually at 31 December for impairment or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

There was no impairment charge for the half years ended 30 June 2009 or 30 June 2008. As a result of impairment testing undertaken in December 2008, an impairment charge of £267m was made in 2008 - mainly related to Asset Management. At 30 June 2009 there was no indication of further potential impairment of intangible assets.

An analysis of intangible assets by significant Cash Generating Units is set out below:

	30 June 2009			31 December 2008
		Amortisation	Net		Amortisation	Net
		and	book		and	book
	Cost	impairment	value	Cost	impairment	value
	£m	£m	£m	£m	£m	£m
UK Life and Pensions	462	208	254	466	204	262
Lombard	614	113	501	695	115	580
Asset Management	1,054	682	372	1,067	658	409
Other CGUs	149	48	101	149	42	107
Total	2,279	1,051	1,228	2,377	1,019	1,358

7. Financial assets

The Group's financial assets are summarised by measurement categories as follows:

	30 June	31 Dec
	2009	2008
	£m	£m
Fair value through the income statement	42,498	44,275
Loans at amortised cost*	89	97
Total financial assets	42,587	44,372

* Includes £82m (31 December 2008: £82m) due from the Friends Provident Pension Scheme.

(a) Financial assets at fair value through the income statement

		With	Unit
		Profits	Linked	Non-Linked		Share-
		(i)	(ii)	Annuities	Other	holder	Total
30 June 2009		£m	£m	£m	£m	£m	£m
Shares and other variable
	yield securities (iii)	2,519	23,111	-	81	4	25,715
Debt securities and other
	fixed-income securities:
	Government securities	3,415	1,912	402	266	96	6,091
	Corporate bonds (iv)	4,229	2,736	2,061	584	394	10,004
Derivative financial instruments		301	2	-	8	11	322
Deposits with credit institutions		-	366	-	-	-	366
		10,464	28,127	2,463	939	505	42,498

		With	Unit
		Profits	Linked	Non-Linked		Share-
		(i)	(ii)	Annuities	Other	holder	Total
31 December 2008		£m	£m	£m	£m	£m	£m
Shares and other variable
	yield securities (iii)	2,584	23,486	-	75	4	26,149
Debt securities and other
	fixed-income securities:
	Government securities	4,059	1,950	355	282	100	6,746
	Corporate bonds (iv)	4,077	3,005	2,187	613	421	10,303
Derivative financial instruments		549	9	-	8	10	576
Deposits with credit institutions		-	494	-	7	-	501
		11,269	28,944	2,542	985	535	44,275

(i) Includes the consolidation of OEICs funds in which the Group holding is 50% or greater and financial assets of With Profits held subsidiaries.

(ii) Includes the consolidation of OEICs funds in which the Group holding is 50% or greater.

(iii) Includes holdings in unit trusts and OEICs.

(iv) Includes Asset Backed Securities.

The table above analyses the Group's financial assets by principal fund type. Investment risk in the With Profits and Unit Linked funds is largely borne by policyholders.

Asset Backed Securities (ABS) directly held by the UK Life and Pensions business comprise approximately 3.25% (31 December 2008: 3.3%) of Group investments, virtually all of which are at investment grade.

The majority of financial assets held are readily realisable and have been valued based on quoted prices in an 'active market'.

8. Financial restructuring

On 21 May 2009, Friends Provident plc exchanged £90m of its £300m 6.875% Step-Up Tier one Insurance Capital Securities issued on 21 November 2003 (the 2003 STICS) and £232m of its £500m 6.292% Step-Up Tier one Insurance Capital Securities issued on 30 June 2005 (the 2005 STICS) for £162m 12% Sterling Denominated Fixed Rate Subordinated Guaranteed Notes due 2021, irrevocably guaranteed on a subordinated basis by Friends Provident Life and Pensions Limited.

The subordinated debt is carried at £159m, being £162m principal less capitalised issue costs of £3m.

The gain of £160m attributable to ordinary shareholders less previously capitalised issue costs in respect of the exchanged STICS of £3m have been recognised directly in equity.

The impact of the exchange is to increase equity attributable to ordinary shareholders by £113m (being STICS exchanged of £322m less debt issued of £162m, original issue costs on the STICS exchanged of £3m and tax of £44m), increase loans and borrowings by £159m and reduce equity attributable to other equity holders (STICS) by £319m (being STICS exchanged of £322m less original issue costs on the STICS exchanged of £3m).

9. Share capital, share premium and reserves

(a) Share capital

	30 June	31 Dec
	2009	2008*
	£m	£m
Authorised
2,500m ordinary shares of 20 pence	500	-
2,500m ordinary shares of 10 pence	-	250
Allotted, called up and fully paid
2,340m ordinary shares of 20 pence	468	-
2,341m ordinary shares of 10 pence	-	234

* comparative is in respect of Friends Provident plc which was the holding company at 31 December 2008.

As explained in note 10, the Friends Provident Group plc became the holding company on 15 June 2009 when it issued 2,340,000,000 ordinary shares of 48 pence each. As part of the reorganisation 1,118,083 treasury shares were cancelled.

On 16 June 2009, a reduction in the nominal values of each ordinary share from 48 pence to 20 pence was confirmed by the Court. The relevant Court order was registered and the reduction in capital became effective on 17 June 2009 and distributable reserves of £655m were created.

(b) Share premium

	30 June	31 Dec
	2009	2008*
	£m	£m
Share premium account	-	2,372

* comparative is in respect of Friends Provident plc which was the holding company at 31 December 2008.

There is no share premium account as the shares issued on 15 June 2009 by Friends Provident Group plc were issued at par value of 48 pence.

	30 June	31 Dec
	2009	2008
	£m	£m
Retained earnings	(413)	(417)
Reverse acquisition reserve	2,138	-
Foreign currency translation reserve	105	175
Total	1,830	(242)

The reverse acquisition reserve represents the difference between the share capital and share premium of Friends Provident plc of £2,606m and the share capital of the new holding company, Friends Provident Group plc, of £468m.

10. Group reorganisation

The objective of the reorganisation was to impose a new holding company on top of the Group with increased share capital to allow a capital reduction to create distributable reserves and to provide flexibility to effect other corporate transactions including the demerger of the Group's stake in F&C. As a result of the reorganisation, Friends Provident Group plc (the Company) became the ultimate holding company of the Friends Provident group of companies. Shares in Friends Provident plc ceased to be listed and Friends Provident Group plc was admitted to listing on the Official List of the UKLA and to trading on the London Stock Exchange.

The reorganisation became effective on 15 June 2009, when the Company issued 2,340,000,000 new ordinary shares of 48p each with shareholders in Friends Provident plc receiving one new ordinary share in Friends Provident Group plc for every one share held in Friends Provident plc. On 16 June 2009, a Court hearing confirmed a reduction in the nominal value of each Friends Provident Group plc share from 48p to 20p. The relevant Court order was registered and the reduction of share capital became effective on 17 June 2009 and distributable reserves of £655,200,000 were created.

The reorganisation has been accounted for as a reverse acquisition under IFRS 3 Business combinations, as detailed in note 1. The reorganisation has had no material impact on the Group's results.

11. Contingent liabilities

In the normal course of its business, the Group is subject to matters of litigation or dispute. Whilst there can be no assurances, at this time the Directors believe, based on the information currently available to them, that it is not probable that the ultimate outcome of any of these matters will have a material adverse effect on the financial condition of the Group.

12. Related party transactions

Transactions made between the Group and related parties were made in the normal course of business. Loans to related parties are made on normal arm's length commercial terms.

Detailed below are the significant related party transactions during the period:

Services provided to related parties

	2009		2008
	Income	Receivable	Income	Receivable
	earned	at	earned	at
	to 30 June	at 30 June	to 30 June	31 Dec
	£m	£m	£m	£m
Employee pension schemes	-	-	-	4
Other related parties	17	8	17	10
Total	17	8	17	14

Services provided by related parties

	2009		2008
	Income	Receivable	Income	Receivable
	earned	at	earned	at
	to 30 June	at 30 June	to 30 June	31 Dec
	£m	£m	£m	£m
Joint venture	5	-	9	-
Other related parties	2	2	2	8
Total	7	2	11	8

Other related parties include Eureko BV which holds in excess of 10% of the ordinary share capital of F&C and is entitled to F&C board representation.

A Group company made a loan of £160m to the Friends Provident Pension Scheme during 2008 of which £82m is outstanding at 30 June 2009.

13. Post Balance sheet events

Following on from the reorganisation (see note 10), the Group demerged its stake in F&C on 3 July 2009 by means of a return of capital by the Company. Shareholder approval for this proposal was received on 12 June 2009 and on 2 July 2009, a Court hearing confirmed a reduction in the nominal value of each Friends Provident Group plc share from 20p to 5p resulting in a reduction of capital of £351m which facilitated the demerger of F&C by way of a return of capital. The reduction of capital from 20p to 5p per share reflected the return of capital of the Group's holding in F&C that was demerged (a number of shares in F&C were held back and sold to recover costs) at market value, which was £158m, together with some additional capital being reduced to create £193m of additional distributable reserves. The relevant Court order was registered and the demerger and capital reduction became effective on 3 July 2009.

On 6 July 2009 the external STICS, external loan notes, internal preference shares, internal STICS and bank facility were all transferred from Friends Provident plc to Friends Provident Group plc so that the new holding company is in the same position as the previous holding company.

The net asset value of F&C, attributable to the Group on 30 June 2009 was £111m, which has been recognised in the Group's consolidated financial statements. In the 2009 year-end financial statements, the demerger will be accounted for as an equity distribution to shareholders, reducing equity attributable to ordinary shareholders in the Company's books by £158m.

Summary consolidated income statement on an EEV basis

For the half year ended 30 June 2009

			Half year ended
			30 June	30 June
			2009	2008
		Notes	£m	£m
Life & Pensions
Contribution from new business		2(b), 3(a)	30	67
Contribution from existing business:
	Expected return		114	99
	Experience variances		(31)	9
	Operating assumption changes		-	-
Development costs			(4)	(7)
Expected return on shareholders' net assets
	within the Life & Pensions business		12	21
Other income			-	(7)
Life & Pensions underlying profit		2(a)	121	182
Asset Management underlying profit			9	27
Expected return on net pension liability			4	2
Expected return on corporate net assets			(1)	4
Other net income			4	4
Corporate costs			(6)	(8)
Operating assumption changes for
	corporate costs		-	-
Underlying profit before tax			131	211
Investment return variances			(102)	(289)
Effect of economic assumption changes		2(a)	(34)	115
Non-recurring items		4	(59)	(17)
Amortisation of non-covered business
	acquired intangible assets		(27)	(25)
Loss before tax			(91)	(5)
Attributed tax			20	10
(Loss)/profit after tax			(71)	5
Attributable to:
	Ordinary shareholders of the parent		(67)	(24)
	Minority interest		(4)	29
(Loss)/profit after tax		8	(71)	5

		2009	2008
Earnings per share		Pence	Pence
Basic loss per share	5	(2.9)	(1.0)
Diluted basic loss per share	5	(2.9)	(1.0)
Underlying earnings per share	5	3.7	6.5

EEV underlying profit is based on expected investment return and excludes: (i) amortisation and impairment of non-covered business acquired intangible assets (ii) effect of economic assumption changes (iii) non-recurring items; and is stated after deducting interest payable on STICS. Management consider that underlying profit better reflects the performance of the Group and focus on this measure of profit in its internal monitoring of the Group's EEV results.

Consolidated statement of comprehensive income on an EEV basis

		Half year ended
		30 June	30 June
		2009	2008
		£m	£m
(Loss)/profit for the period		(71)	5
Actuarial (losses)/gains on defined benefit
	schemes	(30)	39
Tax credit/(charge)		8	(11)
Foreign exchange adjustments		(68)	39
Other comprehensive (loss)/income, net of tax		(90)	67
Total comprehensive (loss)/income, net of tax		(161)	72
Attributable to:
	Ordinary shareholders of the parent	(138)	39
	Minority interest	(23)	33
Total comprehensive (loss)/income
	for the period	(161)	72

Consolidated statement of changes in ordinary shareholders' equity on an EEV basis

		Half year ended
		30 June	30 June
		2009	2008
		£m	£m
At beginning of period		2,965	3,647
Total comprehensive (loss)/income
	for the period attributable to ordinary shareholders of
	the parent	(138)	39
Dividends on equity shares		-	(123)
Share based payments (impact on EEV reserves)		3	5
Decrease in EEV reserves for the period		(135)	(79)
At end of period		2,830	3,568

Consolidated statement of financial position on an EEV basis

			30 June	31 Dec
			2009	2008
		Notes	£m	£m
Assets
Value of in-force Life & Pensions business		10	1,652	1,731
Intangible assets		6	438	484
Property and equipment			60	66
Investment properties			1,350	1,493
Investment in associates and joint venture			30	26
Deferred tax assets			13	15
Financial assets			42,587	44,372
Deferred acquisition costs		7	10	12
Reinsurance assets			1,930	1,964
Current tax assets			5	4
Insurance and other receivables			912	722
Cash and cash equivalents			4,647	5,183
Total assets			53,634	56,072

Liabilities
Insurance contracts			11,906	12,677
Fund for future appropriations			309	385
Financial liabilities
	- Investment contracts		33,676	34,695
	- Loans and borrowings		1,124	1,189
	- Amounts due to reinsurers		1,626	1,792
Net asset value attributable to unit holders			676	668
Provisions			257	205
Deferred tax liabilities			94	128
Current tax liabilities			84	90
Insurance payables, other payables
	and deferred income		755	908
Total liabilities			50,507	52,737
Equity attributable to:
Ordinary shareholders of the parent		2(d)	2,830	2,965
Minority interest			297	370
Total equity			3,127	3,335
Total equity and liabilities			53,634	56,072

Notes to the EEV results

1. Methodology

1.1 Basis of preparation

The EEV results presented in this document have been prepared in accordance with the European Insurers' Chief Financial Officers Forum's EEV Principles issued in May 2004 and the Additional Guidance issued in 2005. They provide supplementary information for the period ended 30 June 2009. As explained in the Financial Review, Friends Provident has not adopted the June 2008 CFO Forum MCEV Principles whilst some doubt remains over their final form. The market-consistent approach we have used incorporates gilt returns to represent risk-free rates.

The EEV basis of reporting is designed to recognise profit as it is earned over the term of the policy. The total profit recognised over the lifetime of the policy is the same as that recognised under the IFRS basis of reporting, but the timing of recognition is different.

The reported embedded value provides an estimate of the value of shareholders' interest in the covered business, excluding any value that may be generated from future new business. This value comprises the sum of the shareholders' net worth, the provision for future corporate costs and the value of existing business. The shareholders' net worth is the net assets attributable to shareholders, and is represented by the sum of required capital and free surplus. The value of existing business is the present value of the projected stream of future distributable profits available to shareholders from the existing business at the valuation date, on a best estimate basis allowing for risk, adjusted for the cost of holding required capital.

A significant number of assumptions are made, including: the behaviour of customers (for example, persistency); mortality; the level of expenses required to maintain the book of business; tax and regulatory environment and the future economic environment. The assumptions are a reflection of our best estimate of the likely behaviours, outcomes, or circumstances in the future. The estimate is made, typically, on an annual basis following experience investigations based on the data available at the time both from our own book of business and externally sourced information. No change has been made to the expense basis in respect of impacts from the de-merger of F&C, this will be considered at the year-end along with other expense basis items.

The supplementary information should be read in conjunction with the Group's condensed IFRS results.

The Group's Report & Accounts for the year ended 31 December 2008 contain further information on the methodologies applied in preparing the EEV result. There have been no significant changes to the methodologies used to prepare these interim results from those used to prepare the Group's Report & Accounts for the year ended 31 December 2008.

The results for covered business as reported under EEV principles are combined with the results for the remainder of the business reported in accordance with IFRS, except where EEV principles dictate otherwise. In particular the EEV principles have been applied to reflect Step-up Tier one Insurance Capital Securities (STICS) as debt rather than equity.

In addition, a pro forma embedded value is reported showing ordinary shareholders' funds on an EEV basis adjusted to include the F&C listed subsidiary at market value.

Shareholders' net assets on an EEV basis for the Group consist of the following:

·; Life & Pensions net assets

·; the Group’s share of its investment in the Asset Management business (including the net pension liability) on an IFRS basis

·; other net assets

·; the net pension asset of FPPS on an IAS 19 basis

·; the provision for future corporate costs

·; the present value of future profits attributable to shareholders from existing policies of the Life & Pensions business.

The shareholders' net worth includes the corporate debt of the Group. This debt is valued at market value, consistent with the EEV guidance.

EEV and other balance sheet items denominated in foreign currencies have been translated to Sterling using the appropriate closing exchange rate. The new business contribution and other income statement items have been translated using an average exchange rate for the relevant period.

The EEV results were approved by the Board of Directors on 10 August 2009.

1.2 Covered business

The covered business incorporates the UK Life & Pensions business, FPI and Lombard.

The Asset Management business, IFA distribution businesses and AmLife are excluded from the definition of covered business, and are included in the Corporate and Other segment in line with IFRS reporting.

Following the write-down of F&C to market value under IFRS and EEV at 31 December 2008 (as a result of the proposed demerger), the movement in the market value of the debt held by F&C has not been reflected in the Group EEV for the half year to 30 June 2009. Had this adjustment been made, there would have been a gain in the EEV of £18m gross of tax.

1.3 Allowance for risk

The allowance for risk in the shareholder cash flows is a key feature of the EEV Principles. The EEV guidance sets out three main areas available to allow for risk in an embedded value:

• the risk discount rate

• the allowance for the cost of financial options and guarantees

• the cost of holding both prudential reserves and any additional required capital.

The market-consistent approach has been used to allow for risk in all three areas.

1.4 Deriving risk discount rates

A market-consistent embedded value has been calculated for each product line by valuing the cash flows in line with the prices of similar cash flows traded on the open market.

In principle, each cash flow is valued using the discount rate consistent with that applied to such a cash flow in the capital markets. For example, an equity cash flow is valued using an equity risk discount rate, and a bond cash flow is valued using a bond risk discount rate. If a higher return is assumed for equities, the equity cash flow is discounted at this higher rate.

In practice, for liabilities where the payouts are either independent or move linearly with market movements, a method known as the 'certainty equivalent approach' has been applied whereby all assumed assets earn the risk-free rate and all cash flows are discounted using the risk-free rate. This gives the same result as applying the method in the previous paragraph.

A market-consistent cost of financial options and guarantees and a market-consistent cost of holding required capital have also been calculated. The cost of financial options and guarantees includes additional allowance for non-market risk within FPLP's With Profits Fund. An additional provision has been made for operational risks. These are described in more detail below.

For presentational purposes, a set of risk discount rates has been derived for each product line, and for in-force and new business, by calculating the risk discount rate under a traditional embedded value approach that gives the same value as that from the market-consistent embedded value determined above. These derived risk discount rates are a function of the assumptions used (eg equity risk premium and credit spreads). However, as the market-consistent approach is used, these assumptions do not impact the level of embedded value: a higher equity risk premium results in an exactly compensating higher risk discount rate.

1.5 Financial options and guarantees

The material financial options and guarantees are those in the FPLP With Profits Fund, in the form of the benefits guaranteed to policyholders and the guaranteed annuity rates associated with certain policies.

The risk to shareholders is that the assets of the With Profits Fund are insufficient to meet these guarantees. While shareholders are entitled to only a small share of profits in the With Profits Fund (via one ninth of the cost of bonus), they can potentially be exposed to the full cost if fund assets are insufficient to meet policyholder guarantees. The time value cost of this asymmetry, known as the burnthrough cost, is modelled stochastically, as it will only occur in some adverse scenarios. The burnthrough time value cost is calculated as the difference between the average value of shareholder cash flows under a number of market-consistent scenarios, and the intrinsic shareholder value using risk-free assumptions included within the deterministic model.

The burnthrough cost has been assessed using a stochastic model derived from the current Realistic Balance Sheet (RBS) model. This model has been calibrated to market conditions at the valuation date. Allowance has been made under the different scenarios for management actions, such as altered investment strategy, consistent with the RBS model. The burnthrough cost would be markedly higher without the hedging activities currently undertaken.

The burnthrough cost at 30 June 2009 of £81m (31 December 2008: £72m), is split between £28m (31 December 2008: £30m) market risk and £53m (31 December 2008: £42m) non-market risk. The non-market risks include lapses, annuitant longevity, and operational risk within the With Profits Fund. The allowance for non-market risks is made by consideration of the impact of extreme scenarios from our economic capital model.

Significant amounts of new with profits business are no longer written and the guarantee levels offered are lower, hence there is no material impact of the burnthrough cost in the contribution to profits of new business.

1.6 Required capital and the cost of capital

Required capital is set at the greater of regulatory capital and requirements arising from internal capital management policies, which include economic risk capital objectives. The economic risk capital is determined from internal models, based on the Company's risk appetite.

In aggregate, required capital is higher than regulatory requirements by approximately £400m (31 December 2008: £400m). Capital requirements under EEV amounted to £897m (31 December 2008: £908m).

The EEV includes a deduction for the cost of holding the required capital. Frictional costs, being the tangible costs of holding capital, have been allowed for on a market-consistent basis. These consist of the total taxation and investment expenses incurred on locked-in shareholder capital and reflect the cost to an investor of holding an asset through investment in a life company, rather than investing in the asset directly.

No adjustment has been made for any agency cost; this represents the potential markdown to value that investors will apply because they do not have direct control over their capital. Any adjustment would be subjective and different investors will have their own views of what adjustment, if any, should be made.

1.7 Non-market risk

A provision of £85m (31 December 2008: £86m) has been set up for operational risks in the shareholders' funds. This provision has been calculated by comparing the mean impact of variations in operational risk, as modelled in the economic capital calculations, with the existing allowance for operational risk in specific accounting provisions and embedded value projection assumptions.

This provision of £85m is equivalent to a 0.4% pa (31 December 2008: 0.4% pa) increase in the risk discount rate for UK Life & Pensions business and 0.8% pa (31 December 2008: 0.8% pa) for International Life & Pensions business. This impacts both embedded value and the contribution from new business.

1.8 EEV tax assets and taxation of foreign profits

The Finance Act 2009 was enacted on 21 July 2009 and this changed the UK taxation basis of foreign profits remitted to the UK. As a consequence of this change we would consider releasing the provision in the EEV in respect of tax on the International Business profits at the end of 2009. This, however, is subject to potential changes emerging from the Controlled Foreign Companies Consultation by HM Treasury. In addition, we will review the value of tax assets in the EEV at year end, in light of market conditions and expected future levels of life business investment income in the UK. The outcome of that review is uncertain and, therefore, there is a possibility of a reduction in the current EEV deferred tax values at the end of 2009. Consequently, we have not reflected any adjustments to the current value of tax assets in the first half of 2009.

1.9 Expenses

The EEV guidance requires companies to actively review expense assumptions, and include an allowance for holding company (corporate) costs and service company costs.

(a) Corporate costs

Corporate costs relate to those costs incurred at the corporate level that are not directly attributable to the Life & Pensions or the Asset Management businesses.

Under EEV methodology, corporate costs are classified as either ongoing costs or development and one-off costs. At 30 June 2009 £6m (30 June 2008: £6m) of corporate costs were regular ongoing costs and there were no one-off corporate costs (30 June 2008: £2m). For 30 June 2009, £12m (31 December 2008: £12m) of annual regular ongoing corporate costs were capitalised and deducted from the embedded value, resulting in a provision of £97m (31 December 2008: £97m).

(b) Service costs

Service company costs are included in the EEV expense assumption calculations. Included within these are the fees charged by F&C for investment management services to the covered Life & Pensions business.

F&C service fee profits in respect of covered Life & Pensions business are not capitalised under the EEV methodology, as F&C is a separate business segment within the Group and the arrangement between F&C and the Life & Pensions business is on an arm's length basis. Instead these profits, approximately £3m (30 June 2008: £4m), are brought into the consolidated income statement on an IFRS basis, and F&C is brought into the pro forma embedded value at market value.

Productivity gains have been assumed within the EEV in respect of International business in anticipation of future business growth. The Lombard EEV has been reduced by £12m (31 December 2008: £15m) for a projected expense overrun for the period to 2013.

Development costs include costs related to developing wholly new products or entering wholly new markets.

1.10 New business

New business within the covered business includes:

premiums from the sale of new contracts

payments on recurring single premium contracts, including Department for Work and Pensions rebate premiums, except existing stakeholder-style pensions business where, if a regular pattern in the receipt of premiums for individuals has been established, the regular payment is treated as a renewal of an existing contract and not new business

non-contractual increments on existing policies, and

new entrants in the group pensions business.

The EEV new business definition is consistent with the quarterly New Business disclosure.

2. Segmental analysis

(a) Life & Pensions EEV Profit


			Half year ended 30 June 2009				Half year ended 30 June 2008
		Notes	UK	FPI	Lombard	Total	UK	FPI	Lombard	Total
			£m	£m	£m	£m	£m	£m	£m	£m
Contribution from new business		2(b),3(a)	3	18	9	30	27	22	18	67
Contribution from existing
	business:
	Expected return		87	10	17	114	73	8	18	99
	Experience variances (i)		(25)	(2)	(4)	(31)	7	1	1	9
	Operating assumption
	changes		-	-	-	-	-	-	-	-
Development costs			(1)	(2)	(1)	(4)	-	(6)	(1)	(7)
Expected return on shareholders'
	net assets within the
	Life & Pensions business		13	-	(1)	12	21	1	(1)	21
Other income			-	-	-	-	(7)	-	-	(7)
Life & Pensions EEV
	underlying profit before tax		77	24	20	121	121	26	35	182
Investment return variances		3(e)	(90)	(52)	3	(139)	(427)	(18)	(66)	(511)
Effect of economic
	assumption changes		(27)	(15)	8	(34)	104	-	9	113
Non-recurring items		4	(48)	-	-	(48)	(15)	-	-	(15)
Life & Pensions EEV (loss)/
	profit before tax		(88)	(43)	31	(100)	(217)	8	(22)	(231)
Attributed tax		3(f)	22	12	(9)	25	60	(2)	6	64
Life & Pensions EEV
	(loss)/profit after tax		(66)	(31)	22	(75)	(157)	6	(16)	(167)

(i) The UK experience variances for 2009 mainly reflect an adverse £19m from lower persistency as a result of transfers out and reduced contributions on individual and group pensions and increased lapses on protection and investment products. The balance of £6m includes a number of items, largely one-off in nature including some re-pricing activity on schemes following corporate restructuring.

(b) New business margin

		Half year ended 30 June 2009				Half year ended 30 June 2008
		UK	FPI	Lombard	Total	UK	FPI	Lombard	Total
		£m	£m	£m	£m	£m	£m	£m	£m
Contribution from new business		3	18	9	30	27	22	18	67
Present Value of New Business
	Premiums (PVNBP)	1,039	481	466	1,986	1,781	737	702	3,220
Margin - PVNBP		0.3%	3.7%	1.9%	1.5%	1.5%	3.0%	2.6%	2.1%

PVNBP represents new single premiums plus the expected present value of new business regular premiums.

		30 June	31 Dec
		2009	2008
		£m	£m
Ordinary shareholders' equity on an EEV basis		2,830	2,965
Adjustment to the value of the listed Asset Management
	business to market value	64	-
Pro forma embedded value		2,894	2,965
Pro forma embedded value per share		124p	128p

(d) Summary consolidated statement of financial position on an EEV basis

		30 June 2009			31 December 2008
			Intra-			Intra-
		Segmental	group		Segmental	group
		analysis	debt (iii)	Total	analysis	debt (iii)	Total
		£m	£m	£m	£m	£m	£m
Life & Pensions - long-term funds		478	-	478	496	-	496
Life & Pensions - shareholders' funds		96	795	891	113	795	908
Life & Pensions net assets		574	795	1,369	609	795	1,404
All other net assets		585	(795)	(210)	572	(795)	(223)
Shareholders' invested net assets (i)		1,159	-	1,159	1,181	-	1,181
Attributable net asset value of the
	Asset Management business
	net of minority interest	116	-	116	150	-	150
Net pension asset of Friends
	Provident Pension Scheme (ii)	-	-	-	-	-	-
Shareholders' net worth		1,275	-	1,275	1,331	-	1,331
Provision for future corporate costs				(97)			(97)
Value of in-force Life & Pensions
	business			1,652			1,731
Ordinary shareholders' net assets
	on an EEV basis			2,830			2,965
Called-up share capital (iv)				468			234
Share premium account (iv)				-			2,372
EEV reserves (iv)				2,362			359
Ordinary shareholders' equity
	on an EEV basis			2,830			2,965

(i) Within shareholders' invested net assets is £30m (31 December 2008: £30m) of goodwill and £21m (31 December 2008: £24m) of other acquired intangible assets in relation to the purchase of the Group's two IFA distribution businesses, Sesame and Pantheon Financial.

(ii) The surplus in the Friends Provident Pension Scheme has been restricted to £nil value at 30 June 2009 and 31 December 2008.

(iii) Intra-group long-term debt is analysed as follows:

			Interest payable
	Debt		Half year ended
	30 June	31 Dec	30 June
	2009	2008	2009	2008
	£m	£m	£m	£m
Due from FPLP to Friends Provident plc	795	795	23	23

(iv) As explained in IFRS note 9 the impact of the Group reorganisation and capital reduction was to increase called-up share capital by £234m, reduce share premium account by £2,372m and to increase EEV reserves by £2,138m.

(e) Life & Pensions net assets segmental information by business segment

		30 June 2009				31 December 2008
		UK	FPI	Lombard	Total	UK	FPI			Lombard	Total
		£m	£m	£m	£m	£m	£m			£m	£m
Life & Pensions net assets		582	47	(55)	574	634	43			(68)	609
Value of in-force Life &
	Pensions business	955	279	418	1,652	975		307	449			1,731
		1,537	326	363	2,226	1,609	350			381	2,340

3. Life & Pensions EEV profit

(a) Contribution from new business

The contribution from new business is calculated using economic assumptions at the beginning of the period and operating assumptions from the end of the period. For annuity business, as the contribution is sensitive to the interest rate at outset, the appropriate rate for each month's new business is used. The table below gives the contribution before cost of capital and share based payments.

		Half year ended
		30 June	30 June
		2009	2008
		£m	£m
Contribution from new business before cost of capital
	and share based payments	32	73
Cost of share based payments		-	(2)
Cost of capital		(2)	(4)
Contribution from new business		30	67

The contribution from new business using end-of-period economic assumptions was £28m (2008: £66m) and is quoted after cost of required capital and share incentives.

The contribution is £2m lower on end-of-period economic assumptions owing to the increase in risk free rate and expense inflation assumptions.

(b) Profit from existing business - Life & Pensions

Profit from existing Life & Pensions business comprises the expected return on the value of in-force business at the start of the period plus the impact of any changes in the assumptions regarding future operating experience, changes in the reserving basis (other than economic assumption changes) and profits and losses caused by differences between the actual experience for the period and the assumptions used to calculate the embedded value at the end of the period.

The expected return on the value of in-force business is the difference between the expected return on the assets backing the liabilities and the expected return on the market-consistent value of the liabilities. Effectively, this approach is similar to applying an unwind in the risk discount rate to the value of the in-force business at the beginning of the year. However, the risk discount rate to be used is a rate appropriate over the period of return only, which is not necessarily equal to the overall in-force risk discount rate averaged across all future durations.

Development costs include costs related to developing wholly new products or entering wholly new markets.

(d) Expected return on shareholders' net assets

The expected return on shareholders' net assets held within the Life & Pensions business comprises the return on the shareholders' net assets held by the life assurance companies within that business using the 31 December 2008 investment return assumptions detailed in note 13(a).

The expected return on other net assets is the expected investment return on assets held by Friends Provident plc and its non-life subsidiaries. It excludes the expected return on the net pension liability and the result of the Asset Management business, which are shown separately in the summary consolidated income statement.

(e) Investment return variance

The split of the investment return variance in the Life & Pensions EEV profit is shown in the table below:

	Half year ended
	30 June	30 June
	2009	2008
	£m	£m
In respect of net assets at the start of year	(29)	(52)
In respect of covered business	(71)	(320)
Investment return variances after tax	(100)	(372)
Investment return variances before tax	(139)	(511)

The investment return variance of £29m (2008: £52m) after tax relates to shareholder net assets. The investment return variance in respect of covered business comprises £27m (2008: £123m) after tax, relating to assets backing policyholder liabilities, and £44m (2008: £197m) after tax, relating to the value of the in-force business.

(f) Attributed tax charge

EEV Life & Pensions profits, except for the expected return and investments variance on shareholders' net assets, are calculated net of tax and then grossed up at the effective rate of shareholder tax. The full standard rate of UK corporation tax has been used to gross up after tax profits on UK business and appropriate tax rates have been used for the International business. EEV deferred tax is provided on the mark-to-market revaluation of debt held within covered business.

		Half year ended
		30 June	30 June
		2009	2008
		£m	£m
Contribution from new business		8	19
Profit from existing business		24	30
Development costs		(1)	(2)
Expected return on shareholders' net assets within the
	Life & Pensions business	6	8
Other		-	(1)
Tax charge on underlying profit		37	54
Other non-recurring and non-underlying items		(13)	(4)
Investment return variances		(39)	(139)
Effect of economic assumption changes		(10)	33
Tax credit on non-underlying loss		(62)	(110)
Prior year tax adjustments		-	(8)
Attributed tax credit		(25)	(64)

4. Non-recurring items

	Half year ended
	30 June	30 June
	2009	2008
	£m	£m
Group reorganisation and F&C demerger costs	(14)	-
Other	(1)	-
Corporate non-recurring item	(15)	-
Strategic review costs	(48)	(15)
Life & Pensions non-recurring items	(48)	(15)
Asset Management reorganisation costs	(3)	(2)
Gains on forward currency contracts	10	-
REIT acquisition costs	(2)	-
Other	(1)	-
Asset Management non-recurring items	4	(2)
Total non-recurring items	(59)	(17)

Explanations of non-recurring items are set out in note 3 to the IFRS condensed consolidated financial statements.

5. Earnings per share

Earnings per share have been calculated based on EEV underlying profit after tax and profit after tax attributable to ordinary shareholders of the parent. The directors consider the underlying earnings per share figure gives a better indication of operating performance.

(a) Basic and underlying earnings per share

		Half year ended		Half year ended
		30 June 2009		30 June 2008
			Per		Per
		Earnings	share	Earnings	share
		£m	pence	£m	pence
Loss after tax attributable
	to ordinary shareholders
	of the parent	(67)	(2.9)	(24)	(1.0)
Investment return variances		102	4.4	289	12.4
Effect of economic assumption
	changes	34	1.5	(115)	(5.0)
Amortisation and impairment of
	non-covered business acquired
	intangible assets	27	1.2	25	1.1
Non-recurring items		59	2.5	17	0.7
Tax credit on items excluded from
	underlying loss	(60)	(2.6)	(59)	(2.5)
Minority interest on items excluded
	from underlying loss	(8)	(0.4)	19	0.8
Underlying profit after tax
	attributable to ordinary
	shareholders of the parent	87	3.7	152	6.5

		2009	2008
		millions	millions
Weighted average number
	of ordinary shares	2,325	2,325

(b) Diluted basic earnings per share

Share options outstanding under the Group's various option schemes as at 30 June 2008 and 2009 had no dilutive impact.

6. Intangible assets on an EEV basis

		Investment
		management
	Goodwill	contracts	Other	Total
Carrying amounts	£m	£m	£m	£m
At 31 December 2008	171	267	46	484
At 30 June 2009	171	230	37	438

Of the total goodwill £141m (2008: £141m) relates to Asset Management.

Goodwill is assessed for possible impairment in December of each year. Other intangible assets are reviewed for possible impairment at the end of each reporting period. All intangible assets are reviewed for impairment whenever there is an indication of possible impairment.

Further details of intangible assets are contained in note 6 to the IFRS condensed consolidated financial statements.

7. Deferred acquisition costs

Deferred acquisition costs of £10m (31 December 2008: £12m) relate to Asset Management business.

8. Reconciliation of movement in pro forma embedded value

					Total
		UK			Life &
		Life &			Pensions		Total
		Pensions	FPI	Lombard	EEV	Other	EEV
		£m	£m	£m	£m	£m	£m
Pro forma embedded value
	at 1 January 2009	1,609	350	381	2,340	625	2,965
Contribution from new business		3	18	9	30	-	30
Contribution from existing business
	- Expected return	87	10	17	114	-	114
	- Experience variances	(25)	(2)	(4)	(31)	-	(31)
	- Operating assumption changes	-	-	-	-	-	-
Development costs		(1)	(2)	(1)	(4)	-	(4)
Expected return on shareholders'
	net assets	13	-	(1)	12	(1)	11
Other net income		-	-	-	-	6	6
Other underlying items		-	-	-	-	5	5
Underlying EEV profit before tax		77	24	20	121	10	131
Investment return variances		(90)	(52)	3	(139)	37	(102)
Effect of economic assumption
	changes	(27)	(15)	8	(34)	-	(34)
Non-recurring items		(48)	-	-	(48)	(11)	(59)
Other non-underlying items		-	-	-	-	(27)	(27)
EEV (loss)/profit before tax		(88)	(43)	31	(100)	9	(91)
Attributed tax		22	12	(9)	25	(5)	20
EEV (loss)/profit after tax		(66)	(31)	22	(75)	4	(71)
Net movement recognised directly
	in the statement of recognised
	income and expenses	-	-	(44)	(44)	(46)	(90)
Minority interest		-	-	-	-	23	23
Dividends on ordinary shares		-	-	3	3	(3)	-
Share based payments		-	-	-	-	3	3
Acquisition of subsidiaries &
	associate	-	-	1	1	(1)	-
Adjustment to the value of the
	listed Asset Management
	business to market value	-	-	-	-	64	64
Allocation of OLAB surplus to
	International L&P	(6)	6	-	-	-	-
Other movements		-	1	-	1	(1)	-
Total movement in EEV		(72)	(24)	(18)	(114)	43	(71)
Pro forma embedded value at
	30 June 2009	1,537	326	363	2,226	668	2,894

Pro forma EEV comprises the EEV of the entire Group, incorporating the Group's share of F&C at market value of £180m (31 December 2008: £149m).

'Other' includes Asset Management business, Sesame, Pantheon, AmLife and corporate items.

9. Reconciliation of net worth and value of in-force business for Life & Pensions

						Total
					Value of	Life &
		Free	Required	Total net	in-force	Pensions
		surplus	Capital	worth	business	EEV
		£m	£m	£m	£m	£m
Shareholders' capital and
	reserves at 1 January 2009	(299)	908	609	1,731	2,340
Contribution from new business		(102)	9	(93)	115	22
Expected return		(3)	10	7	82	89
Experience variances, operating
	assumption changes
	and other underlying items	(11)	(13)	(24)	(3)	(27)
Expected profit - transfer to net worth		125	(6)	119	(119)	-
Life & Pensions underlying
	profit after tax	9	-	9	75	84
Investment return variances and
	economic assumption changes	(15)	(6)	(21)	(103)	(124)
Other non-underlying variances		(35)	-	(35)	-	(35)
Life & Pensions EEV loss after tax		(41)	(6)	(47)	(28)	(75)
Acquisitions		1	-	1	-	1
Foreign exchange adjustments		12	(5)	7	(51)	(44)
Dividend to parent company		3	-	3	-	3
Other movements		1	-	1	-	1
Shareholders' capital and reserves
	at 30 June 2009	(323)	897	574	1,652	2,226

All items in the table above are shown net of tax. £986m of regulatory capital is also available, largely raised through the STICS, securitisation and financial reinsurance, that is not included within the EEV shareholder capital above.

10. Value of in-force Life & Pensions business on an EEV basis

		30 June	31 Dec
		2009	2008
		£m	£m
Value of in-force allowing for market risk (excluding
	time value of options and guarantees)	1,885	1,950
Time value cost of options and guarantees
	(including the impact of non-market risks)	(81)	(72)
Cost of required capital, plus excess economic capital requirements		(67)	(61)
Provision for operational risks		(85)	(86)
Value of in-force Life & Pensions business		1,652	1,731

11. Equity attributable to equity holders of the parent

Ordinary shareholders' equity on an EEV basis reconciles to equity attributable to equity holders of the parent on an IFRS basis as follows:

		30 June	31 Dec
		2009	2008
		£m	£m
Ordinary shareholders' equity on an EEV basis		2,830	2,965
Less items only included on an EEV basis:
	Value of in-force Life & Pensions business	(1,652)	(1,731)
	Provision for future corporate costs	97	97
	Adjustment of long term debt to market value	(169)	(254)
Add items only included on an IFRS basis:
	Goodwill on covered business	379	404
	Other intangible assets	63	74
	Acquired PVIF	234	265
	STICS treated as equity	475	810
	Deferred acquisition costs	1,215	1,211
	Deferred front end fees	(116)	(115)
	IFRS reserving and other IFRS adjustments	(583)	(552)
Equity attributable to equity holders of
	the parent on an IFRS basis	2,773	3,174

12. Maturity profile in years of Value of In-force (VIF) by proposition

As at 30 June 2009

	Total	1-5	6-10	11-15	16-20	21-25	26-30	31-35	36-40	41+
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
UK
With Profits Fund	72	(16)	39	28	14	6	1	-	-	-
Protection	155	67	42	26	14	5	1	-	-	-
Investments	103	54	28	13	5	2	1	-	-	-
Pensions	467	138	129	94	58	30	13	4	1	-
Annuities	(16)	(21)	2	2	1	-	-	-	-	-
UK other	175	128	44	3	-	-	-	-	-	-
UK total	956	350	284	166	92	43	16	4	1	-
		37%	30%	17%	10%	4%	2%	0%	0%	0%

International
FPI	278	155	66	35	16	5	1	-	-	-
Lombard	418	179	88	58	37	23	14	9	5	5
International total	696	334	154	93	53	28	15	9	5	5
		48%	22%	13%	8%	4%	2%	1%	1%	1%

Total VIF

1,652

684

438

259

145

41%

27%

16%

The maturity profile shown above makes no allowance for illiquidity premium on corporate bonds backing annuity business and, as such, is not a fair reflection of the cash-flows anticipated from this business.

Allowance for the repayment of the outstanding securitisation is via the shareholders' net worth rather than a reduction in the value of in-force business.

13. EEV assumptions

(a) Principal economic assumptions - deterministic

Economic assumptions are actively reviewed and are based on the market yields on risk-free assets at the valuation date.

		30 June	31 Dec
		2009	2008
UK and International (excluding Lombard):		%	%
Risk-free rate (i)		4.1	3.7
Investment returns before tax:
	Fixed interest	3.2-8.1	3.6-7.7
	Equities	7.1	6.7
	Properties	6.1	5.7
Future expense inflation:
	UK business	4.2	3.7
	International business	4.2	3.7
UK and OLAB corporation tax rate		28	28
Isle of Man corporation tax rate		28	28

For UK and FPI business the risk-free rate is set with reference to the gilt yield curve at the valuation date. For annuity business a term-dependent rate allowing for the shape of the yield curve is used as this can significantly impact value. For other business, a rate based on the annualised 15-year gilt yield is used.

		30 June	31 Dec
		2009	2008
Lombard:		%	%
Risk-free rate		4.6	4.2
Investment returns before tax:
	Fixed interest	4.6-5.6	4.2-5.2
	Equities	7.6	7.2
	Cash	0.8	2.5
Future expense inflation		3.3	3.2
Tax rate		28.6	28.6

The key exchange rates used in respect of Lombard business were a closing exchange rate of 1 Euro = £0.8517 (2008: 1 Euro = £0.7913) and an average exchange rate over the year of 1 Euro = £0.8995 (2008: 1 Euro = £0.7720).

Margins are added to the risk-free rates to obtain investment return assumptions for equity and property. For corporate fixed interest securities the investment return assumptions are derived from an AA- bond yield spread, limited to the actual return on the underlying assets. As a market-consistent approach has been followed, these investment return assumptions affect only the derived risk discount rates and not the embedded value result.

Maintenance expenses for UK and International business (excluding Lombard) are assumed to increase in the future at a rate of 1% per annum in excess of the assumed long-term rate of retail price inflation. This is derived from the difference between the risk-free rate of return and the average of the FTSE Actuaries over five-year index-linked gilt yield at 5% and 0% inflation. Lombard maintenance expenses are assumed to increase in line with the European Central Bank target inflation rate.

For Lombard the risk-free rate is the average of the 10-15 year and the over 15 year yields using the EuroMTS indices. The investment return assumption is the weighted average (based on an assumed asset mix) of returns on fixed interest securities, equities and cash.

Derived risk discount rates by product type

Average derived risk discount rates are shown below for the embedded value and the contribution from new business.

Annuities have been excluded as the increased allowance for illiquidity premium in the statutory valuation has resulted in a negative value of in-force business under MCEV and hence a meaningless derived risk discount rate.

A more detailed split of the derived risk discount rates is given in the following tables.

Derived risk discount rates for new business have been based on end-of-period economic assumptions.

30 June 2009	UK with	Other	Average	International
	profits business	UK	UK	Sterling	Euro
Embedded value	%	%	%	%	%
Risk-free rate	4.1	4.1	4.1	4.1	4.6
Market risks (non-options)	4.4	3.1	3.3	1.2	1.2
Options - market risks	7.9	-	0.8	-	-
Options - non-market risks	15.0	-	1.5	-	-
Other non-market risks	0.4	0.4	0.4	0.8	0.8
Risk discount rate	31.8	7.6	10.1	6.1	6.6

31 December 2008	UK with	Other	Average	International
	profits business	UK	UK	Sterling	Euro
Embedded Value	%	%	%	%	%
Risk-free rate	3.7	3.7	3.7	3.7	4.2
Market risks (non-options)	4.7	3.0	3.2	1.0	1.7
Options - market risks	8.0	-	0.9	-	-
Options - non-market risks	11.2	-	1.2	-	-
Other non-market risks	0.4	0.4	0.4	0.8	0.8
Risk discount rate	28.0	7.1	9.4	5.5	6.7

The with profits options elements have increased as burnthrough cost has increased and is a higher proportion of the value of in-force.

With profits business is subject to more investment risk than the remaining business, and so has higher non-option market risk.

30 June 2009	International
	UK	Sterling	Euro
Contribution from new business	%	%	%
Risk-free rate	4.1	4.1	4.6
Market risks	1.7	1.0	1.1
Non-market risks	0.4	0.8	0.8
Risk discount rate	6.2	5.9	6.5

31 December 2008	International
	UK	Sterling	Euro
Contribution from new business	%	%	%
Risk-free rate	3.7	3.7	4.2
Market risks	1.9	0.5	1.2
Non-market risks	0.4	0.8	0.8
Risk discount rate	6.0	5.0	6.2

(b) Principal economic assumptions - stochastic

The cost of options and guarantees is determined using The Smith Model Plus economic scenario generator. The model is calibrated to market conditions at the valuation date and correlations between the asset classes are derived from historic data, consistent with the model used for the Realistic Balance Sheet.

Risk-free rates are calibrated to the gilt yield curve. Equity volatility is calibrated to market implied volatility and is a reasonable fit to the implied volatility of FTSE 100 put options held by the FPLP With Profits Fund.

Other assumptions (for example mortality, morbidity, persistency and expenses) are a reflection of our best estimate of the likely behaviours, outcomes or circumstances in the future. Typically the estimates are made on an annual basis following experience investigations based on the date available at the time both from our own book of business and externally sourced information.

The aim is to set assumptions at a level that reflects recent experience, unless there are reliable indicators that suggest their adoption would result in a significant variance compared to these assumptions in the future. In some instances, there may be little or no direct experience to use in setting assumptions and the future outcome is therefore uncertain.

In terms of future improvements in annuitant mortality, these have been assumed to be in accordance with the 'medium cohort' projections (with certain amendments) published in the CMI in 2002. The amendments are to use 75% of these projections for females and to introduce a minimum annual rate of improvement in future mortality - for males this is assumed to be 1% pa and for females 0.75% pa.

Appendix 1: Analysis of Life & Pensions new business

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:

		Regular premiums			Single premiums
		H1	H1		H1	H1
		2009	2008	Change	2009	2008	Change
		£m	£m	%	£m	£m	%
UK Corporate
	- pensions	127.7	210.7	(39)	124.5	304.8	(59)
	- protection	4.3	4.2	2	-	-	-
Total UK Corporate		132.0	214.9	(39)	124.5	304.8	(59)
UK Individual
	- protection	19.6	24.7	(21)	-	-	-
	- annuities	-	-	-	125.1	139.4	(10)
	- pensions	3.0	7.7	(61)	99.1	220.0	(55)
	- investments	0.1	0.6	(83)	12.3	54.1	(77)
Total UK Individual		22.7	33.0	(31)	236.5	413.5	(43)
Total UK Life & Pensions		154.7	247.9	(38)	361.0	718.3	(50)

FPI		69.0	92.8	(26)	120.6	244.1	(51)
Lombard		-	-	-	466.2	702.2	(34)
Total International Life
	& Pensions	69.0	92.8	(26)	586.8	946.3	(38)

Total Life & Pensions		223.7	340.7	(34)	947.8	1,664.6	(43)

		Regular premiums			Single premiums
		Q2	Q1		Q2	Q1
		2009	2009	Change	2009	2009	Change
		£m	£m	%	£m	£m	%
UK Corporate
	- pensions	63.9	63.8	-	66.8	57.7	16
	- protection	2.1	2.2	(5)	-	-	-
Total UK Corporate		66.0	66.0	-	66.8	57.7	16
UK Individual
	- protection	10.5	9.1	15	-	-	-
	- annuities	-	-	-	68.4	56.7	21
	- pensions	1.3	1.7	(24)	81.1	18.0	350
	- investments	0.1	0.0	-	7.9	4.4	80
Total UK Individual		11.9	10.8	10	157.4	79.1	99
Total UK Life & Pensions		77.9	76.8	1	224.2	136.8	64

FPI		36.9	32.1	15	72.2	48.4	49
Lombard		-	-	-	262.2	204.0	29
Total International Life
	& Pensions	36.9	32.1	15	334.4	252.4	32

Total Life & Pensions		114.8	108.9	5	558.6	389.2	44

New Business - Annual Premium Equivalent (APE):

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

		H1	H1		Q2	Q1
		2009	2008	Change	2009	2009	Change
		£m	£m	%	£m	£m	%
UK Corporate
	- pensions	140.2	241.2	(42)	70.6	69.6	1
	- protection	4.3	4.2	2	2.1	2.2	(5)
Total UK Corporate		144.5	245.4	(41)	72.7	71.8	1
UK Individual
	- protection	19.6	24.7	(21)	10.5	9.1	15
	- annuities	12.5	13.9	(10)	6.8	5.7	19
	- pensions	12.9	29.7	(57)	9.4	3.5	169
	- investments	1.3	6.0	(78)	0.9	0.4	133
Total UK Individual		46.3	74.3	(38)	27.6	18.7	48
Total UK Life & Pensions		190.8	319.7	(40)	100.3	90.5	11

FPI		81.1	117.2	(31)	44.1	36.9	19
Lombard		46.6	70.2	(34)	26.2	20.4	29
Total International Life
	& Pensions	127.7	187.4	(32)	70.3	57.3	23

Total Life & Pensions		318.5	507.1	(37)	170.6	147.8	15

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:

			H1				Q1
			2008				2009
		H1	(as			Q2	(as
		2009	reported)	Change		2009	reported)	Change
		£m	£m	%		£m	£m	%
FPI		70.2	117.2	(40)		45.5	36.9	23
Lombard		40.4	70.2	(43)		27.1	20.4	33
Total International Life
	Life & Pensions	110.6	187.4		(41)	72.6	57.3	27

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 EEV 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.

		H1	H1		Q2	Q1
		2009	2008	Change	2009	2009	Change
		£m	£m	%	£m	£m	%
UK Corporate
	- pensions	652	1,165	(44)	333	319	4
	- protection	14	14	-	6	8	(25)
Total UK Corporate		666	1,179	(44)	339	327	4
UK Individual
	- protection	125	155	(19)	66	59	12
	- annuities	125	139	(10)	68	57	19
	- pensions	110	250	(56)	86	24	260
	- investments	13	58	(78)	8	5	60
Total UK Individual		373	602	(38)	228	145	57
Total UK Life & Pensions		1,039	1,781	(42)	567	472	20

FPI		481	737	(35)	262	219	20
Lombard		466	702	(34)	262	204	28
Total International Life
	& Pensions	947	1,439	(34)	524	423	24

Total Life & Pensions		1,986	3,220	(38)	1,091	895	22

New Business PVNBP at constant exchange rates:

			H1				Q1
			2008				2009
		H1	(as			Q2	(as
		2009	reported)	Change		2009	reported)	Change
		£m	£m	%		£m	£m	%
FPI		416	737	(44)		271	219	24
Lombard		403	702	(43)		271	204	33
Total International Life
	Life & Pensions	819	1,439		(43)	542	423	28

Appendix 2: Cash related balance sheet disclosures

The table below provides an analysis of shareholder cash resources, IGD excess resources over capital requirements and realisable assets.

Shareholder cash resources are based on shareholder invested net assets on the EEV basis (excluding mark-to-market of long-term debt) adjusted to include cash resources generated from securitisation and financial reinsurance less the carrying value of non-covered business acquired intangible assets.

IGD is estimated and is analysed below after the deduction of group capital resource requirements from resources within long-term funds. The format provided is intended to demonstrate the relationship between the three cash related balance sheet disclosures and therefore differs from the presentation in the annual IGD return.

Realisable assets represent the assets and liabilities held by Friends Provident Group plc, Friends Provident plc and FPLP shareholders' funds (these being the funds where strategic resources are held). Assets and liabilities that we intend to hold for the long term, primarily loans, are excluded from realisable assets. An analysis of the movement in realisable assets is provided below.

		30 June 2009			31 December 2008
		Share-			Share-
		holder			holder
		cash	IGD	Realisable	cash	IGD	Realisable
		resources	surplus	assets	resources	surplus	assets
		£m	£m	£m	£m	£m	£m
Life & Pensions
	long-term funds	478	18	-	496	25	-
Life & Pensions
	shareholder funds
Regulatory debt		(795)	-	-	(795)	-	-
Other debt		14	14	-	14	14	-
Other net assets:
	FPLP realisable assets	662	662	662	636	636	636
	Other	215	261	-	258	290	-
Less: accrued transfers
	from long-term funds	-	-	(3)	-	-	(12)
		96	937	659	113	940	624
Other net assets
Other net assets:
	Friends Provident
	(Group) plc
	realisable assets	21	21	21	77	77	77
Other		395	14	-	241	31	-
IFA subsidiaries
	- intangible assets	(46)	(46)	-	(48)	(48)	-
		370	(11)	21	270	60	77
Asset Management,
	net of capital resource
	requirement	-	(182)	-	-	(175)	-
Securitisation,
	regulatory provisions and
	financial reinsurance	57	-	-	18	-	-
Total		1,001	762	680	897	850	701

Movement in realisable assets

		30 June	30 June
		2009	2008
		£m	£m
Net transfers from long-term funds		12	211
Dividends received		10	10
Other operating cashflow		(24)	(37)
Non-recurring items		(18)	-
Dividends paid		-	(123)
Capital outflows:
	Loans and capital into life subsidiaries	(1)	(80)
	Investment in IFA subsidiaries	-	(8)
Additional pension scheme contribution		-	(20)
Other		-	(5)
Movement in realisable assets		(21)	(52)
Realisable assets as at 1 January		701	844
Realisable assets as at 30 June		680	792

Appendix 3: IFRS ongoing profit before one-off items

(a) UK Life & Pensions IFRS ongoing profit before one-off items

Half year ended 30 June 2009

					Savings
					&	With	UK
					Invest-	Profits	Life &
		Protection	Pensions	Annuities	ments	Fund	Pensions
		£m	£m	£m	£m	£m	£m
New business strain
Commission		(31)	(15)	-	(1)	-	(47)
Acquisition expenses		(22)	(26)	(8)	(1)	-	(57)
Other revenue and
	reserve movements	31	(3)	13	-	-	41
		(22)	(44)	5	(2)	-	(63)
In-force surplus
Annual management charges		-	34	-	9	17	60
Maintenance expenses		(10)	(8)	-	(7)	(8)	(33)
Investment management fees		-	(3)	-	(1)	(4)	(8)
Other revenue and
	reserve movements	32	(1)	1	5	26	63
		22	22	1	6	31	82
Net cash generated		-	(22)	6	4	31	19

Deferred acquisition costs
Deferred in period		-	12	-	1	-	13
Amortised in period		-	(11)	-	(11)	-	(22)
		-	1	-	(10)	-	(9)

Deferred income reserve
Deferred in period		-	-	-	-	-	-
Amortised in period		-	-	-	-	-	-
		-	-	-	-	-	-

Other IFRS adjustments
New business		-	2	-	(1)	-	1
In-force		-	4	-	9	-	13
		-	6	-	8	-	14

IFRS ongoing profit/(loss) before one offs
IFRS new business strain		(22)	(30)	5	(2)	-	(49)
IFRS in-force surplus		22	15	1	4	31	73
		-	(15)	6	2	31	24
Investment return and
	other items						12
Effect of credit spreads on
	assets and liabilities
	for annuities						-
IFRS underlying profit
	before tax						36

Half year ended 30 June 2008

					Savings
					&	With	UK
					Invest-	Profits	Life &
		Protection	Pensions	Annuities	ments	Fund	Pensions
		£m	£m	£m	£m	£m	£m
New business strain
Commission		(39)	(27)	-	(4)	-	(70)
Acquisition expenses		(29)	(30)	(3)	(3)	-	(65)
Other revenue and
	reserve movements	47	(1)	2	-	-	48
		(21)	(58)	(1)	(7)	-	(87)
In-force surplus
Annual management charges		-	37	-	12	23	72
Maintenance expenses		(9)	(8)	-	(8)	(10)	(35)
Investment management fees		-	(3)	-	(1)	(4)	(8)
Other revenue and
	reserve movements	37	(9)	1	(2)	25	52
		28	17	1	1	34	81
Net cash generated		7	(41)	-	(6)	34	(6)

Deferred acquisition costs
Deferred in period		-	25	-	5	-	30
Amortised in period		-	(10)	-	(11)	-	(21)
		-	15	-	(6)	-	9

Deferred income reserve
Deferred in period		-	(1)	-	-	-	(1)
Amortised in period		-	1	-	(1)	-	-
		-	-	-	(1)	-	(1)

Other IFRS adjustments
New business		-	(1)	-	(4)	-	(5)
In-force		-	1	-	21	-	22
		-	-	-	17	-	17

IFRS ongoing profit/(loss)
	before one offs
IFRS new business strain		(21)	(35)	(1)	(6)	-	(63)
IFRS in-force surplus		28	9	1	10	34	82
		7	(26)	-	4	34	19
Investment return and
	other items						25
Effect of credit spreads on
	assets and liabilities
	for annuities						(70)
IFRS underlying loss
	before tax						(26)

(b) Total Life & Pensions IFRS ongoing profit before one-off items

Half year ended 30 June 2009

				Intl	UK	Total
				Life &	Life &	Life &
		FPI	Lombard	Pensions	Pensions	Pensions
		£m	£m	£m	£m	£m
New business strain
Commission		(52)	(8)	(60)	(47)	(107)
Acquisition expenses		(15)	(19)	(34)	(57)	(91)
Other revenue and
	reserve movements	21	2	23	41	64
		(46)	(25)	(71)	(63)	(134)
In-force surplus
Annual management charges		12	39	51	60	111
Maintenance expenses		(10)	(10)	(20)	(33)	(53)
Investment management fees		(1)	-	(1)	(8)	(9)
Other revenue and
	reserve movements	59	(2)	57	63	120
		60	27	87	82	169
Net cash generated		14	2	16	19	35

Deferred acquisition costs
Deferred in period		66	8	74	13	87
Amortised in period		(31)	(8)	(39)	(22)	(61)
		35	-	35	(9)	26

Deferred income reserve
Deferred in period		(3)	(2)	(5)	-	(5)
Amortised in period		(8)	5	(3)	-	(3)
		(11)	3	(8)	-	(8)

Other IFRS adjustments
New business		(28)	-	(28)	1	(27)
In-force		(4)	3	(1)	13	12
		(32)	3	(29)	14	(15)

IFRS ongoing profit/(loss)
	before one offs
IFRS new business strain		(11)	(19)	(30)	(49)	(79)
IFRS in-force surplus		17	27	44	73	117
		6	8	14	24	38
Investment return and other
	items	(14)	(4)	(18)	12	(6)
Effect of credit spreads on
	assets and liabilities for
	annuities	-	-	-	-	-
IFRS underlying profit/
	(loss) before tax	(8)	4	(4)	36	32

Half year ended 30 June 2008

				Intl	UK	Total
				Life &	Life &	Life &
		FPI	Lombard	Pensions	Pensions	Pensions
		£m	£m	£m	£m	£m
New business strain
Commission		(87)	(9)	(96)	(70)	(166)
Acquisition expenses		(11)	(17)	(28)	(65)	(93)
Other revenue and
	reserve movements	29	3	32	48	80
		(69)	(23)	(92)	(87)	(179)
In-force surplus
Annual management charges		14	37	51	72	123
Maintenance expenses		(8)	(8)	(16)	(35)	(51)
Investment management fees		(1)	-	(1)	(8)	(9)
Other revenue and
	reserve movements	46	(1)	45	52	97
		51	28	79	81	160
Net cash generated		(18)	5	(13)	(6)	(19)

Deferred acquisition costs
Deferred in period		106	9	115	30	145
Amortised in period		(10)	(7)	(17)	(21)	(38)
		96	2	98	9	107

Deferred income reserve
Deferred in period		(4)	(3)	(7)	(1)	(8)
Amortised in period		(8)	5	(3)	-	(3)
		(12)	2	(10)	(1)	(11)

Other IFRS adjustments
New business		(44)	-	(44)	(5)	(49)
In-force		(17)	-	(17)	22	5
		(61)	-	(61)	17	(44)

IFRS ongoing profit/(loss)
	before one offs
IFRS new business strain		(11)	(17)	(28)	(63)	(91)
IFRS in-force surplus		16	26	42	82	124
		5	9	14	19	33
Investment return and other
	items	(2)	(2)	(4)	25	21
Effect of credit spreads on
	assets and liabilities for
	annuities	-	-	-	(70)	(70)
IFRS underlying profit/
	(loss) before tax	3	7	10	(26)	(16)

Appendix 4: Definitions

Annual Premium Equivalent (APE) represents annualised new regular premiums plus 10% of single premiums.

Contribution from new business is the present value of future cashflows expected to arise from the new business sold during the year. It is calculated using economic assumptions at the beginning of the period, and is quoted after the cost of required capital, share based payments and including an apportionment of fixed acquisition expenses across products.

Discounted cash payback on new business is the time at which the value of the expected cash flows, after tax, is sufficient to have recouped the capital invested to support the writing of the business. The cash flows are discounted at the appropriate risk-discount rate, and calculated on the same assumptions and expense basis as those used for the contribution from new business.

EEV underlying profit is based on expected investment return and excludes: (i) amortisation and impairment of non-covered business acquired intangible assets, (ii) effect of economic assumption changes, (iii) non-recurring items; and is stated after deducting interest payable on STICS.

IGD Surplus Capital resources (IGD) is the Insurance Groups Directive surplus capital as defined by the FSA. It is calculated as the surplus of the available resources over the capital resources requirement. It excludes the surplus capital held within the long-term funds.

Internal Rate of Return on new business (IRR) is equivalent to the discount rate at which the present value of the after tax cashflows expected to be earned over the lifetime of the business written is equal to the capital invested to support the writing of the business. With the exception of investment return, all assumptions and expenses are consistent with those used for calculating the contribution from new business. IRR assumes best estimate investment returns after an allowance for default risk, whereas contribution from new business assumes (market consistent) risk-free rates. IRR also takes into account the funding and release of regulatory capital requirements.

Margins are defined as the pre-tax contribution from new business generated by each product type, divided by the new business volume for that product.

Present Value of New Business Premiums (PVNBP) represents new single premiums plus the expected present value of new business regular premiums.

Pro forma embedded value is the shareholders' equity on an EEV basis, adjusted to bring the value of the holding in F&C Asset Management plc to market value.

Return on embedded value (ROEV) is the underlying profit after tax on an EEV basis expressed as a percentage of the opening embedded value. Asset Management is excluded.

Shareholder cash generation is a measure of the cash generated available to cover dividends, increases in regulatory capital requirements and other capital items.

Shareholder cash resources (SCR) are a measure of the tangible assets available to the Life & Pensions business and attributable to shareholders. The movement in SCR therefore provides a view of the sustainability of the business model. SCR are based on shareholders' invested net assets included within the embedded value (excluding mark-to-market of long-term debt), but adjusted to include securitisation and financial reinsurance balances, and to exclude intangible assets.

Total shareholder return (TSR) is a measure of the annual return for shareholders taking into account both share price movements and dividends during the year.

This information is provided by RNS

The company news service from the London Stock Exchange

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