Preliminary Results for the year end 31 Dec 2010

24 March 2011

Friends Provident Holdings (UK) Plc

Preliminary Results for the year ended

31 December 2010

Overview

Following the acquisition of Friends Provident in 2009 RSL announced, in June 2010, the proposed acquisition of the AXA UK Life Business and, in October 2010, the proposed acquisition of Bupa Health Assurance Limited ("BHA").

The AXA UK Life Business acquisition was successfully completed, with an effective date of 3 September 2010 (legal completion 15 September 2010), and post year end the acquisition of BHA successfully completed on 31 January 2011.

The results of FPH in 2010 include the AXA UK Life Business from its acquisition date and are characterised by the continued focus on value over volume. The UK market continues to experience challenging conditions but the business maintained its pricing discipline and focus on cash generation. International and Lombard saw improved sales and had a greater focus on shareholder cash generation.

Further information on Resolution Limited's results and strategy can be found in its preliminary announcement issued today, (www.resolution.gg).

UK Life Project update

Following completion of the AXA transaction, a strategic review of the combined Friends Provident and AXA UK Life Business was undertaken and performance targets were announced on 23 February 2011. The highlights of this review included:

·; increased cost synergies from £75 million per annum before tax to £112 million per annum before tax by end 2013, with one-off implementation costs of £117 million;

·; a reduction in UK new business strain of approximately £200 million per annum by 2013 as a result of work on new product strategies;

·; focused product strategies based on the Company's ongoing commitment to prioritise value over volume, achieving a blended IRR on new business of at least 15%; and

·; expected cash dividends from the non UK businesses (International and Lombard) of at least £50 million per annum by 2014.

Financial highlights:

(i) Annual Premium Equivalent ("APE"), 2009 comparative is for 12 months;

(ii) 2009 IFRS based operating profit has been restated to exclude the impact of investment volatility in the long term funds. £14 million of positive investment return has been reclassified from operating profit to short term investment fluctuations. This has no impact on profit after tax.

(iii) 2009 IFRS profit after tax has been restated to increase the gain on acquisition of Friends Provident Group plc by £119 million in accordance with improvements to IFRS 3 (Revised).

(iv) Insurance Group Capital Adequacy ("IGCA").

(v) Percentage of shareholder and non-profit fund corporate debt and asset-backed securities at investment grade.

·; IFRS based operating profit before tax of £290 million in 2010 compared to £21 million in 2009 reflects a full year of Friends Provident results and the post acquisition four month results of AXA UK Life Business. Operating profit for the life businesses of £315 million, offset by £25 million of corporate costs, represents a good result driven by expense savings, improved persistency, and increased annual management charges driven by the growth of funds under management as the financial markets recover.

·; IFRS profit after tax of £848 million in 2010 compared to £1,339 million in 2009 primarily reflects the inclusion of a full year's amortisation of intangible assets in 2010 and reflects the gains on acquisition recognised for the Friends Provident businesses in 2009 and the acquired AXA UK Life Business in 2010.

·; IGCA surplus capital at FPH level is £2.3 billion as at 31 December 2010, up from £1.0 billion at the end of 2009 reflecting the positive impact of the AXA UK Life Business, the transfer of the reattributed inherited estate ("RIE") from the Friends Life Company ("FLC") non-profit funds to the FLC shareholders' fund combined with transfers from other long term funds and the positive impact of management actions offset by financing costs.

Operating highlights

·; Total sales of £1,012 million (measured on an APE basis), including a contribution of £82 million from the acquired AXA UK Life Business, represents an increase of 16% on 2009.

·; UK sales for the year ended 31 December 2010 (excluding AXA UK Life Business) of £391 million were down slightly (4%) compared to 2009.

·; Fourth quarter UK sales were 40% greater after the inclusion of AXA UK Life Business.

·; The International and Lombard businesses both delivered record levels of annual sales in the year. International delivered sales up 24% to £238 million, with Lombard up 10% to £302 million.

Outlook

2010 has seen our core UK markets of corporate pensions and individual protection continue to be impacted by difficult employment prospects and a sluggish housing market. Despite this we made good progress controlling our cost base and expect this work to be a good foundation for 2011. As we drive forward integration of our businesses we are confident of achieving our cost savings target announced on 23 February 2011.

In the overseas businesses, Lombard and International, consumer confidence began to return in the second half of 2010 and they both achieved record sales for the year.

We have made good progress integrating the acquired AXA UK Life Business and completed the purchase of BHA. Our decision to develop the protection platform acquired from BHA as our long term strategic solution in this market means we will build market leading propositions for our 5 million UK customers from the best elements of our current ranges on a low cost efficient basis.

The introduction of our new Friends Life brand will enable us to present a unified company with market leading propositions for advisers and customers.

Journalists requiring further information should contact:

Notes to the editors

1. We are the holders of a large number of industry awards, showing continued recognition of the quality of our products and service.

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

3. For more information on the Friends Life Group including, photos, awards, fast facts, presentations, and media contacts please visit the media section at www.friendsprovident.com/media

4. For more information on Resolution Limited, including, photos, awards, fast facts, presentations, and media contacts please visit the media section at www.resolution.gg

UK Life project update

Friends Provident Holdings (UK) plc is the holding company for the Group and is used as the main acquisition vehicle for Resolution Limited's UK Life Project.

The UK Life Project comprises three phases:

1. acquisition of businesses at a suitable valuation;

2. optimisation of the business models of the acquired businesses, developing a sustainable business model, based on profitable products, an efficient cost base and strong cash generation; and

3. value delivery through financial synergies, restructuring, and exit for Resolution Limited shareholders.

Acquisition phase

The aim of this phase is to acquire sufficient scale and capability at suitable prices to allow the realisation of value through the later two phases of the project. This phase started with the acquisition of Friends Provident Group in late 2009. In June 2010, the Group announced the agreement to acquire the majority of the UK Life and Pensions businesses of AXA UK plc. On completion of the transaction in September 2010, FPH acquired AXA Sun Life ("ASL") (renamed Friends Life Company ("FLC") on 15 March 2011) and Sun Life Assurance Limited ("SLAS") (renamed Friends Life Assurance Society ("FLAS") on 15 March 2011), agreed to transfers of certain blocks of business from the acquired entities back to the retained AXA UK business and agreed to the completion of the acquisition of Winterthur Life UK ("WLUK") in late 2011. The separation from AXA UK plc and the various transfers of blocks of business require, as anticipated, considerable work to achieve. This is progressing to plan with the WLUK acquisition on track for completion in the fourth quarter of 2011. Exits from transitional agreements set up as part of the transaction are also progressing to plan.

The third acquisition, BHA, was announced in October 2010 and completed successfully on 31 January 2011. As part of the refocus and integration activities, the Group plans to rename all acquired companies in line with its revised branding; Friends Life.

UK strategic review

In late 2010, a strategic review of the Friends Life UK operations was carried out. The conclusions were set out in the announcement issued by Resolution on 23 February 2011:

·; Individual Protection

- Friends Life will build on its market‐leading positions in Critical Illness Cover and Income Protection; introduce simplified term assurance and 'over‐50s' propositions; and further develop profitable distribution segments and exclusive partnerships. This improved product mix and focused distribution, along with sales and marketing synergies, and consolidating the new businesses onto a single platform will improve returns significantly. Since the announcement in February, the Company has concluded that the platform acquired with BHA will be the strategic platform for the future. The Company is targeting gross value of new business ("VNB") of £80 million, new business strain of £30 million per annum, a payback period of five years and an IRR of 20% by 2013.

·; Corporate Pensions

- The current financial returns from Friends Life's Corporate Pensions business are unacceptably low. The market is evolving, and its structure from 2013 onwards is uncertain due to the Retail Distribution Review ("RDR") (to be effective 31 December 2012) and the introduction of auto‐enrolment (staging from July 2012), whereby all employees above the age of 22 (and below Statutory Pensionable Age) earning more than £7,475 will be automatically enrolled into a qualifying scheme (of which NEST is one).

- Friends Life has the advantages of a comprehensive range of defined contribution solutions, an integrated online workplace savings platform and a full range of group risk products, as well as the scale and relationships to be a major and profitable player, but it is not prepared to write loss making new business in anticipation of future reward. It will reshape the sales and marketing teams into more focused distribution and selectively migrate schemes to the more efficient Friends Provident NGP (New Generation Pensions) platform to improve returns on new business.

- Friends Life expects to develop the corporate Pensions and Risk business favouring value over volume with a significant improvement in VNB to £25 million, targeting a reduction in new business strain to £75 million and achieving a double‐digit IRR by 2013.

·; Annuities

- The enlarged Friends Life will have vesting pension claims in excess of £2 billion in 2011, growing steadily in subsequent years. Both Friends Provident and AXA UK Life Business have historically retained only a small proportion of their available vesting pension funds as annuity new business. This is in part because of under‐investment in the expertise required to underwrite and manage annuity business profitably. Following completion of the strategic review of product propositions, Friends Life continues to believe that the pension annuity market is attractive and intends to build its own capability in annuity underwriting, credit management and longevity risk management; while not ruling out acquiring capability via a bolt‐on transaction should the opportunity arise.

- Friends Life's immediate objective in the annuity market is to retain a larger proportion of vesting pension funds, and will aim to raise its retention rates from 30% of vesting amounts (excluding taxfree cash) to at least 50% by 2013, and reach gross VNB from retained pensions of at least £50 million per annum.

- As it has low exposure to longevity risk (as a result of past longevity risk hedging activity), and as the annuity market currently has attractive IRRs and VNB, Friends Life has appetite to write more annuity business than available from its vesting pensions, and so in due course will examine options to enter the open market option ("OMO") market.

·; This UK strategy is targeted to deliver:

- reduced new business strain on a like-for-like basis against the 2010 annualised run-rate by around £200 million in 2013;

- increased cost synergies from £75 million per annum before tax to £112 million per annum before tax by end 2013, with one‐off implementation costs of £117 million; and

- focused product strategies based on the Company's ongoing commitment to prioritise value over volume, achieving a blended IRR on new business of at least 15%:

·; Individual Protection targeting IRR of 20% by 2013;

·; Corporate Pensions targeting double digit IRRs by 2013; and

·; Annuities targeting in excess of mid‐teens IRRs by 2013.

Results profile

The profile of the FPH IFRS results for 2010 and 2009 is dominated by the timing of the acquisitions of Friends Provident and the AXA UK Life Businesses. These financial statements include the results of the acquired businesses from the dates of their acquisitions.

The results for 2010 therefore include:

·; Friends Provident for the full twelve months of 2010; and

·; The businesses acquired from AXA for the period from 3 September 2010, which included certain portfolios to be retained by AXA (Guaranteed over fifties ("GOF") and Corporate Trustee Investment ("TIP")) and excluded the WLUK portfolio which will be acquired in the fourth quarter of 2011.

Included in the assets that were acquired as part of the AXA UK Life Business are certain portfolios of insurance business (the GOF and TIP portfolios) that are required to be transferred via Part VII transfer to AXA's retained business as part of the separation. This transfer is anticipated to take place in Q4 2011. The terms of the transfer were agreed as part of the transaction and the portfolios are treated as "held for sale" in the Group's accounts.

In addition, the shares of WLUK are to be acquired by the Group once business to be retained by AXA SA has been removed from the entity. This acquisition is also anticipated to take place in Q4 2011, once the GOF/TIP insurance portfolios have been transferred to AXA SA. These assets will be included in the Group's accounts once the acquisition has taken place in 2011 and are not therefore included within these financial results. The results of BHA are also not included as BHA was not acquired until 31 January 2011.

IFRS profit

The FPH IFRS results are set out below, including a reconciliation from operating profit to IFRS profit before tax. The Group utilises the operating profit measure as management considers that this better represents the underlying performance of the business and the way in which it is managed. These results include the results of the acquired Friends Provident business and the AXA UK Life Business from the dates of their acquisitions, being 4 November 2009 and 3 September 2010 respectively.

(i) 2010 results comprise 12 months for the Friends Provident companies and four months for AXA UK Life Business.

(ii) 2009 results comprise two months for the Friends Provident companies.

(iii) Restated to:

a. Reclassify £14 million of positive investment fluctuations on non-profit fund investments as short term investment fluctuations.

b. Increase gain on acquisition of Friends Provident by £119 million reflecting revaluation of STICS to fair value.

Operating profit

IFRS based operating profit is used internally to monitor the Group's performance and is reported here to give shareholders a better understanding of the Group's underlying performance. Operating profit is based on a longer-term investment return with the impact of short-term investment fluctuations shown separately as a non-operating item.

IFRS based operating profit for 2010 was £290 million comprising operating profit for the life business of £315 million and £25 million of corporate costs.

Overall, new business strain was £145 million. In the UK, Friends Provident new business strain improved due to reduced acquisition expenses. The AXA UK Life Business results for the post acquisition period benefited from no longer writing commission paying pensions business; this was offset by strain in the protection book.

Acquisition expense levels in the International business were held to a 7% increase whilst new business volumes rose by 24% thereby mitigating the increase in strain that would otherwise have been experienced. In Lombard new business strain remained flat year on year, which is a creditable performance in the light of the 10% increase in volumes.

The main driver of in-force surplus improvement in the period has been stock market advances which have helped to generate increased annual management charges on greater funds under management across all business segments. The shareholders' share of the special bonus arising from the reattributed inherited estate testing has also benefited the in-force surplus by £16 million.

Longer term investment returns on shareholder funds have been depressed by the payment of £462 million of dividends to holding companies and the continuing relatively low level of prevailing interest rates.

Principal reserving changes were negative overall, largely driven by the strengthening for future improvements in annuitant mortality offset by the benefit of the re-negotiation of expense recoveries from the with-profit fund in accordance with the FP demutualisation scheme.

Development costs of £28 million complete the picture for 2010. The UK elements comprise corporate investment platform development at £7 million, £3 million related to the Tesco distribution relationship, £2 million for enhanced web security and a range of projects which are individually small and whose costs amounted to £9 million in the year. The remaining element of the total is £7 million for the ongoing development of the German proposition and other International and Lombard business initiatives.

Non operating profit

Short-term fluctuations in investment return of £24 million include the variance between expected and actual investment return on assets backing shareholder and long-term funds, with the benefit primarily driven by a slightly improved credit default allowance on the corporate bond portfolio to reflect current market conditions. As noted above, the 2009 short-term fluctuations in investment return have been restated to include £14 million of fluctuations relating to the non profit funds.

In April 2010 the Friends Provident UK business reduced its holdings in F&C Commercial Property Trust ("F&C CPT") from 50.3% to 34.16% in order to manage the property exposure of the life funds. As a result, the Group is no longer required to consolidate the assets, liabilities and results of this investment trust and the results for the year therefore only include F&C CPT through to April. The £23 million return on F&C CPT in 2010 reflects the market return attributable to third parties for the period up to April; this will not recur in future.

Acquisition accounting adjustments, totalling £428 million, represent the amortisation of the intangible assets recognised on the acquisition of Friends Provident and the AXA UK Life Business in 2009 and 2010. These charges include the amortisation of acquired in-force business, £364 million, and the amortisation of intangible assets, £64 million.

Non-recurring items are a significant element of the Group IFRS profit before tax. The main item in 2010 relates to the gain on the acquisition of the AXA UK Life Business amounting to £883 million.

Other non-recurring items include separation and integration costs of £34 million, capital optimisation costs of £3 million, finance transformation costs (including the costs of preparing for Solvency II) of £24 million and a charge of £7 million reflecting the one-off impact of the increase in the VAT rate to 20%.

Interest payable on the Friends Provident Step-up Tier one Insurance Capital Securities ("STICS") of £31 million is included as a deduction to corporate long term investment return in the foregoing operating profit analysis, and is added back here to reflect the requirements of IFRS (where it is accounted for as equity with interest being recorded as a reserve movement).

The total IFRS tax charge is £137 million and comprises a policyholder tax charge of £244 million and a shareholder tax credit of £107 million. Of the total tax charge, £8 million is current and £129 million is deferred. The policyholder tax charge is predominantly tax borne by the policyholder funds in the operating life companies but accounted for by the company under the UK's I minus E tax regime. The quantum of the policyholder tax is a function of the investment return on the policyholder funds and is not included in the summary of IFRS shareholder profit shown above. The shareholder tax credit principally comprises tax relief for expenses.

New business sales

Group life and pension new business sales, on an annualised premium equivalent basis (APE), totalled £1,012 million in the year to 31 December 2010. These results combine sales of £930 million generated over the 12 months by the Friends Provident business and £81 million from the acquired AXA life businesses for the final four months of the year. Excluding the acquired AXA business, sales from the Friends Provident businesses have increased by 7% from £873 million in 2009, with sales in the UK business marginally down and the International and Lombard businesses up 24% and 10% respectively.

(i) includes the post acquisition trading results of the acquired AXA UK Life businesses for the period from 3 September 2010 to 31 December 2010.

Segment summary

UK

*restated

New business volumes in the Friends Provident business were reduced in comparison to 2009 reflecting the competitive market conditions. Friends Provident UK IFRS based operating profit before tax of £116 million reflects the action taken to reduce expenses, leading to reduced new business strain and the benefit of higher annual management charges on fund values which have increased as a result of improved market conditions.

International

*restated

International benefited from an improvement in customer confidence across the majority of its markets, impacting both the new business volumes and profits and cash from the back book of business. International sales volumes were up 24% to £238 million (2009: £192 million), and IFRS operating profit rose by 66% to £95 million with the result reflecting the strong increase in fee generation as improved global investment markets increase assets under management.

Lombard

*restated

2010 was a particularly strong year for Lombard. The business achieved record results, with an emphasis on significantly improving underlying cash generation and distributable profits.

Lombard has continued the positive sales momentum generated at the end of 2009 with volumes up 10% (15% in local currency) in the year to 31 December 2010. In this period management has successfully spread sales across the year which differs from the predominantly fourth quarter weighted sales profile of previous years.

Lombard generated operating profits of £33 million, up £17 million on 2009. The result highlights the focus on shareholder cash resource generation and IFRS profitability, with the enhancements made to products and distribution contributing to a reduction in new business strain notwithstanding increased sales.

Acquisition of the AXA UK Life Business on an IFRS basis

The acquisition of the AXA UK Life Business was completed in September, with an effective acquisition date of 3 September 2010. Included in the assets that were acquired are certain portfolios of insurance business that are required to be transferred via Part VII transfer to AXA's retained business as part of the separation. This transfer is anticipated to take place Q4 in 2011. The terms of the transfer were agreed as part of the transaction and the portfolios are treated as "held for sale" in the Group's accounts.

The acquisition of WLUK has not yet been completed and is anticipated to take place in Q4 2011 once the GOF and TIP portfolios have been transferred back to AXA. The terms of the transfer were agreed as part of the transaction. These assets will be included in the Group's accounts once the acquisition has taken place in 2011 and are not included within the current acquisition balance sheet.

The fair value of consideration and gain on acquisition were as follows:

Distribution of the re-attributed inherited estate

·; As at 31 December 2010, the FLC RIE was £2,437 million, increased from an estimated £2,200 million at 31 December 2009.

·; The High Court approved scheme ("the Scheme") rules require that a test be undertaken every five years to determine whether it is possible to transfer any of the RIE from the FLC non-profit funds to the FLC shareholders' fund or to distribute any of the inherited estate retained in the Old With-Profits Fund ("the Old WPF") in the form of Special Bonuses (and associated transfer to the shareholders' fund). The latest five yearly test was undertaken as at 31 December 2010.

·; Following the results of the five year testing, the FLC Board determined that as at 31 December 2010 it should make:

(a) a transfer of £1,010 million of RIE from the non-profit funds to the shareholders' fund; and

(b) a distribution of £157 million of the inherited estate in the Old WPF, which will be split 90% to with-profits policies allocated to or reinsured to the Old WPF in the form of a Special Bonus and 10% to the FLC Shareholders' Fund.

·; The transfer of RIE to the FLC Shareholders' Fund is an after tax amount, and consists of £843 million of cash and £167 million of receivables which would otherwise have had to be repaid by holding companies. Following completion of the 2010 year end valuation, FLC has paid a dividend of £390 million to its parent company, FPLP, consisting of £300 million of the cash transferred from the RIE, the £16 million shareholders' share of the Special Bonus declared in the Old WPF, and £74 million derived from business as usual activities.

Group capital management

The Group manages its capital on both regulatory and economic capital bases, focusing primarily on capital efficiency and the ease with which cash and capital resources can be transferred between entities. In managing capital, the Group considers the following:

·; establishing targets for the main UK life companies at the greater of 150% of the EU minimum required margin and 125% of the Individual Capital Assessment ("ICA") and any Individual Capital Guidance ("ICG") - the capital required to mitigate the risk of insolvency to a 99.5% confidence level over a one year period;

·; at the FPH level, to hold sufficient capital to meet 160% of the Insurance Groups Directive ("IGD") capital resource requirements;

·; maintaining financial strength within companies sufficient to support new business growth targets, including rating agency requirements;

·; the need to have strong liquidity to cover expected and unexpected events, which includes access to an undrawn facility with a consortium of banks;

·; managing, in particular, the with-profits business of the Group in accordance with agreed risk appetites and all statutory requirements; and

·; transfers from long-term business funds and dividends from entities that support the cash generation requirements of the Group, balanced with the need to maintain appropriate capital within the businesses for the reasons outlined above.

As part of the integration of the AXA UK Life Business, a number of initiatives are being considered including fund mergers and the optimisation of the corporate structure, designed to fit with the drive for capital efficiency and fungibility.

Solvency II

The implementation of the EU Solvency II Directive continued to be a key focus of attention for the Group during 2010. The Group has been closely following the emerging regulations and monitoring their potential impact on the Group balance sheet. FPH is closely involved with the industry in lobbying on key areas where some uncertainty remains. During 2010, FPH participated in the QIS5 exercise, which was an EU wide test of the calibration of the standard formula and other technical items.

During the course of 2010, FPH has successfully integrated the Solvency II programme for the acquired AXA UK Life Business and the overall programme is progressing well against its plans.

FPH intends to apply for internal model approval pursuant to the Solvency II Directive and has been notified by the Financial Services Authority ("FSA") that it may start the internal model pre-application process. The purpose of the internal model pre-application process is to give firms and the FSA an opportunity to consider whether a firm's proposed internal model is suitable to be submitted for approval under the formal internal model assessment requirements. The pre-application process ends when a firm either submits a formal internal model application to the FSA for approval or notifies the FSA that it no longer intends to use an internal model.

Insurance Groups Capital Adequacy

In addition to individual company requirements FPH as the ultimate European Economic Area ("EEA") parent insurance undertaking, is required to meet the IGCA requirements of the Insurance Groups Directive. The Group's capital policy is to maintain sufficient group capital resources to cover 160% of group capital resource requirements (excluding With Profits Insurance Components ("WPICC")). This policy was temporarily increased from 150% following the acquisition of the AX UK Life Business. It is anticipated that the FPH group capital management policy target will reduce back to 150% in due course as the integration of the AXA UK Life Business and BHA into the group proceeds.

The balance sheet remained strong with an IGCA surplus of £2.3 billion at 31 December 2010, with Group Capital Resources being 228% of Group Capital Resource Requirements (excluding WPICC). Group Capital Resources were estimated to be £1.2 billion in excess of the amount required to satisfy FPH's revised group capital policy of holding 160% of Group Capital Resource Requirements (excluding WPICC).

The increase in IGCA surplus over the year largely reflects the £369 million impact of the AXA UK Life Business, the impact of the transfer of RIE to the FLC shareholders' fund of £722 million (£1,010 million transfer less shareholder funds required to cover FLC non-profit fund capital resources requirements of £238 million) and other long-term fund transfers totalling £215 million (net of any shareholder funds now being utilised to cover capital resource requirements).

Financing costs include the £65 million dividend paid to RSL and interest costs at FPH. These include the coupon payments of the external debt in addition to the interest due on the £700 million lower tier debt issued to RSL in September 2010.

Management initiatives in the year to optimise the IGCA surplus position delivered a benefit of £95 million. These largely related to the more appropriate valuation treatment of non-regulated entities within the Group's distribution businesses.

Asset Quality

The vast majority of the Group's exposure to sovereign debt holdings is to UK gilts. The Group's non-linked and shareholder funds have immaterial exposure totalling £7 million to the higher risk government debts of Spain, Portugal, Italy, Ireland and Greece.

The Group has a direct exposure to various corporate securities issued by companies domiciled in Spain, Portugal, Italy, Ireland and Greece of £405 million. These corporate securities are mostly issued by non-financial companies, which are in many cases less exposed to their domicile economy than to other countries. Where the Group holds securities issued by financial companies, the company's financial strength and the ability of the domicile government to provide financial support in the event of stress has been considered.

Over 95% of the corporate bond and asset backed securities held in the non-profit and shareholder funds are investment grade. The Group controls its exposures to corporate issuers by rating, type of instrument and type of issuer. The sub-investment grade bonds held in investment portfolios are monitored closely in order to maximise exit values. Where asset backed securities and other complex securities are held, the Group monitors closely its exposures to ensure that the relevant structure, liquidity and tail credit risks are well understood and controlled.

Dividends

The directors are recommending an interim dividend of £250 million (2009: £65 million) payable by 31 March 2011.

Consolidated income statement

For the year ended 31 December 2010

(i) All profit attributable to ordinary shareholders is from continuing operations.

(ii) The Group has chosen to early adopt amendments to IFRS 3 (revised) Business Combinations which requires that the STICS should be recorded at their fair value at the date of acquisition of Friends Provident. This has resulted in an increase in other income and profit of £119 million net of tax.

The consolidated income statement includes the results of AXA UK Life Business from the date of acquisition on 3 September 2010.

Consolidated statement of comprehensive income

For the year ended 31 December 2010

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

(ii) Shadow accounting includes £nil (2009: £1 million) in respect of the revaluation of owner occupied properties and £3 million (2009: £3 million) in respect of foreign exchange adjustments on translation of overseas subsidiaries held by the with-profits fund of FPLP.

For the period ended 31 December 2009 (Restated)

Consolidated statement of IFRS based operating profit

For the year ended 31 December 2010

(i) The Group has revised the definition of IFRS based operating profit in order to reduce the impact of investment volatility on operating profit. Operating profit excludes: (a) all investment variances from expected investment return which is calculated on a long term rate of return; (b) policyholder tax; (c) returns attributable to non-controlling interests in policyholder funds; (d) significant non-recurring items; and (e) amortisation and impairment of present value of acquired in-force business and other intangible assets and is stated after deducting interest payable on STICS. Operating profit is considered to be a better measure of performance of the Group and this measure of profit is used internally to monitor the Group's IFRS results.

Further details are included in Note 2.

Consolidated statement of financial position

At 31 December 2010

(i) The Group has chosen to early adopt amendments to IFRS 3 (revised) Business Combinations which requires that the STICS should be recorded at their fair value at the date of acquisition of Friends Provident.

The financial statements were approved by the Board of directors on 23 March 2011.

Consolidated statement of changes in equity

For the year ended 31 December 2010

(i) Adjustment to measure the STICS at fair value at the date of acquisition (4 November 2009) of Friends Provident.

For the period ended 31 December 2009 (Restated)

Consolidated cash flow statement

For the year ended 31 December 2010

Notes to the consolidated financial statements

1. Accounting policies

1.1 Basis of preparation

The Company, formerly known as Friends Provident Holdings (UK) Limited was re-registered under the Companies Act 2006 as a public company on 30 September 2010 under the name Friends Provident Holdings (UK) plc ("the Company") and is domiciled in England and Wales. The financial statements of the Company as at and for the year ended 31 December 2010 comprise the consolidated financial statements of the Company and its subsidiaries (together referred to as 'the Group') and the Group's interests in associates and jointly controlled entities.

The consolidated financial statements of the Group have been prepared under International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and as adopted by the European Union (EU). The results in this preliminary announcement have been prepared in accordance with IFRS applicable at 31 December 2010 and have been taken from the Group's Annual Report and Accounts which will be available on the Company's website shortly.

The annual report and accounts complies with the Disclosure and Transparency Rules (DTR) of the United Kingdom's Financial Services Authority in respect of the requirement to produce an annual financial report. The preliminary announcement is the responsibility of, and has been approved by, the directors.

Responsibility Statement

We confirm that to the best of our knowledge:

·; the consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS);

·; the financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

·; the preliminary announcement includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

On behalf of the Board

Andy Parsons

Executive Director - Finance

23 March 2011

This preliminary announcement does not constitute the Company's statutory financial statements for 2010 but is derived from those financial statements. Statutory accounts for 2009 have been filed with the Registrar of Companies. The auditors have reported on the 2010 and 2009 financial statements and their reports were unqualified and did not contain a statement under section 498 (2) or 498(3) of the Companies Act 2006. The auditor for 2010 is Ernst & Young LLP (also acted as auditor for 2009).

The principal activity of the Company is that of a holding company for acquisitions in the life assurance and pensions sector. On 3 September 2010, the Company acquired its second acquisition when it acquired all of the share capital of AXA Sun Life Holdings Limited, a UK life insurance business which at that date was owned by AXA UK plc. The consolidated income statement therefore includes the results of this business from that date subject to the following exceptions. Under the terms of the AXA UK Life acquisition certain portfolios of business have been purchased that are currently still legally owned by AXA UK plc and similarly certain portfolios of business legally owned by the Group as a result of the acquisition are to be transferred back to AXA UK plc.

The 2009 comparatives include the consolidated income statement of the Company for the period from incorporation and those of Friends Provident Group plc from the date of acquisition (4 November 2009).

The consolidated financial statements of the Group are prepared in accordance with EU adopted IFRS and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of property, investment properties, share based payment schemes and financial instruments at fair value through the income statement in accordance with the respective accounting policies contained herein.

The presentation currency of the Group is £million sterling. Unless otherwise stated the amounts shown in these financial statements are in millions of pounds sterling (£ million).

These financial statements have been prepared on a going concern basis. The directors have undertaken a going concern assessment in accordance with "Going Concern and Liquidity Risk: Guidance for UK Directors of UK Companies 2009", published by the Financial Reporting Council in October 2009. As a result of this assessment, the directors are satisfied that the Group and the Company have adequate resources to continue to operate as a going concern for the foreseeable future and have prepared the financial statements on that basis.

The Group has applied all IFRS standards and interpretations adopted by the EU and effective for accounting periods beginning on or after 1 January 2010. Those new standards, changes to existing standards and interpretations adopted by the Group during the year are:

IFRS 2: Share-based payment: Group cash-settled share-based payment transactions. The amendment clarifies the scope and the accounting for group cash-settled share-based payment transactions.

IAS 39: Financial instruments: recognition and measurement - amendments to eligible hedged items. The Group has not entered into the type of hedges addressed by this amendment.

Annual improvements to IFRSs (April 2009). The Group has evaluated the impact of these annual improvements and incorporated them where appropriate. The Group has assessed that they do not have a material impact.

IFRIC 17: Distribution of non-cash assets to owners. The Group has determined that this interpretation does not have a material impact on the Group.

IFRIC 18: Transfers of assets from customers. The Group has determined that this interpretation does not have a material impact on the Group.

The International Accounting Standards Board (IASB) has issued the following new standards, changes to standards and interpretations with effective dates for reporting periods beginning after 1 January 2010, but where earlier adoption is permitted.

The Group has elected to early adopt the following in the financial statements for the year ended 31 December 2010:

The annual improvement to IFRS 3 (revised) on Business combinations which requires that non-controlling interests in an acquired that do not entitle their holders to a proportionate share of the entity's net assets in the event of liquidation be measured at their acquisition date fair values. The impact of early adopting this annual improvement is detailed in section 2(b).

Amendment to IFRIC 14: Prepayments of a minimum funding requirement. This amendment provides guidance on assessing the recoverable amount on a net pension asset and permits an entity to treat the prepayment of a minimum funding requirement as an asset.

The Group has elected to adopt the following when they become effective:

IAS 32: Financial instruments: presentation - amendments relating to classification of rights issues. The amendment addresses the accounting for rights issues that are denominated in a currency other than the functional currency of the issuer. This amendment will not have a material impact on the group.

IFRS 7: Financial instruments: disclosures. This amends IFRS 7 to improve the disclosure requirements in relation to transferred financial assets.

IFRS 9: Financial instruments: classification and measurement. This standard reflects the first phase of the Board's work on the replacement of IAS 39 and applies to classification and measurement of financial assets as defined in IAS 39. This IFRS has not yet been endorsed by the EU. The adoption of IFRS 9 may have a material effect on the classification and measurement of the Group's financial assets and the Group will require adequate time to assess its impact.

IAS 24 (revised): Related party disclosures. The revised standard clarifies and simplifies the definition of a related party and provides a partial exemption for government-controlled entities. This exemption is not applicable to the Group.

Annual improvements to IFRSs (May 2010). The Group intends to adopt these improvements, apart from the amendment to IFRS 3 (revised): Business combinations when they become effective. The Group does not expect a material impact on its financial position or performance from the annual improvements that have not been adopted.

IFRIC 19: Extinguishing financial liabilities with equity instruments. This interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. The adoption of this interpretation will have no material effect on the financial statements of the Group.

The financial statements comply with the Statement of Recommended Practice issued by the Association of British Insurers in December 2005 (as amended in December 2006) in so far as these requirements do not contradict IFRS requirements.

The Group presents its balance sheet in order of liquidity. Where applicable, for each asset and liability line item that combines amounts expected to be recovered or settled both within and beyond 12 months after the balance sheet date, disclosure of the amount due beyond 12 months is made in the respective note.

Financial assets and financial liabilities are not offset unless there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liability simultaneously. Income and expenses are not offset in the income statement unless required or permitted by an accounting standard or interpretation, as specifically disclosed in the accounting policies of the Group.

1.2 Use of estimates, assumptions and judgements

The Group makes judgements in the application of critical accounting policies that affect the reported amounts of assets and liabilities, as well as affecting the reported income and expenses for the year. The Group also makes key assumptions about the future and other sources of uncertainty. These are continually evaluated and based on historical experience and other factors, including expectations of future events that are considered to be reasonable under the circumstances. Actual results may differ from these estimates.

1.3 Changes in accounting policy

1.3.1 Treatment of deficit reduction contributions

Early adoption of IFRIC 14 which applies to IAS 19 on Employee benefits results in the following changes to the accounting treatment for deficit reduction contributions:

• a pension deficit to be recognised to the extent that reduction contributions will not be available after they are paid into the scheme;

• a deferred tax asset to be recognised through other comprehensive income (OCI) for tax relief on deficit reduction contributions; and

• a tax credit to be recognised on contributions paid through other comprehensive income (OCI).

1.3.2 Accounting for loans at fair value through P&L

As part of the process to align accounting policy between heritage AXA business and the Group, accounting policies have been amended to permit loans to be valued at fair value where certain conditions in IAS 39 on Financial Instruments are met, including the elimination or significant reduction in accounting mismatches.

1.3.3 Economic life of capitalised software

As part of the process to align accounting policy between heritage AXA business and the Group, an amendment has been made to the duration of amortisation of software intangible assets to 3-4 years.

2. Restatement of prior period figures

(a) Restatement of definition of IFRS operating profit

IFRS based operating profit is used internally to monitor the Group's performance and is included within these financial statements to give shareholders a better understanding of the Group's underlying performance.

Operating profit is based on a longer term investment return with the impact of short term investment fluctuations shown separately as a non-operating item. The Group has amended its definition of operating profit to exclude the impact of investment volatility in the non-profit fund. This has been recorded as a restatement of prior year figures.

The table below bridges the previous basis of IFRS operating profit for the period ended 31 December 2009 to the amended basis.

(b) Restatement due to adoption of amendments to IFRS 3 (revised)

The Group's early adoption and application of annual improvement to IFRS 3 (revised): Business Combinations results in certain non-controlling interests arising from the acquisition of the Friends Provident Group of Companies on 4 November 2009 being restated at fair value whereas they were previously shown at their nominal value less issue costs and interest adjustments. This results in the equity attributable to STICS holders decreasing by £165 million at 31 December 2009. The impact of this change in accounting policy is to increase the gain on acquisition of Friends Provident Group plc recognised in the previous period by £119 million (£165 million net of deferred tax of £46 million).

The effect of the restatement on the financial statements is summarised below.

Year ended 31 December 2009

The STICS were deemed non-controlling interests in the previous year. During the current year, the STICS ceased to be non-controlling interests following an intra-group transfer of these equity instruments from FPG to the Company.

3. Segmental information

(a) Summary

Segmental information is presented on the same basis as internal financial information used by the Group to evaluate operating performance. Segmental information relating to revenue, net income, products and services for the period ended 31 December 2009 and year ended 31 December 2010 includes acquired Friends Provident from 4 November 2009 and AXA UK Life Business balances from 3 September 2010. No segmental information is presented in respect of the period ended 31 December 2009 for the acquired AXA UK Life Business as the acquisition had not occurred at this point.

The Group's management and internal reporting structure is based on the following operating segments which all meet the definition of a reportable segment under IFRS 8:

·; UK - comprising Friends Provident UK life and pensions business, the acquired AXA UK Life Business, Sesame Bankhall and, for the period prior to its disposal, Pantheon Financial Limited;

·; International comprising Friends Provident International Limited, the overseas life assurance business within the UK life and pensions subsidiaries and the Group's share of AmLife Berhad;

·; Lombard International Assurance SA ("Lombard"); and

·; Corporate.

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.

In presenting geographical segment information, segment revenue is based on the geographical location of customers. The Group has defined two geographical areas: UK and the rest of the world. AXA UK Life Business is reported as UK as its business is entirely written and sold to customers based in the UK.

(b) Operating segment information

(i) IFRS based operating profit

For the year ended 31 December 2010

10 August 2009 to 31 December 2009 (Restated)

(ii) Reconciliation of operating profit before tax to profit before tax from continuing operations

For the year ended 31 December 2010

(i) Non-recurring items

Corporate items include £883 million (£869 million net of stamp duty expenses) in respect of the gain on acquisition of the AXA UK Life Business. Further details are set out in Note 13.

A further £68 million of non-recurring costs comprises £34 million of separation and integration costs in respect of the acquired AXA UK Life Business, £23 million in respect of Solvency II and finance system developments and £11 million of other costs. The segment results also include £76 million of non-recurring items which comprises a management recharge to the life companies for pension scheme contributions. The net impact of the recharge for the Group is nil.

For the period from 10 August 2009 to 31 December 2009 (Restated) from continuing operations