31st Jan 2008 07:05
Friends Provident PLC31 January 2008 31 January 2008Friends Provident 2007 trading update Total life and pensions new business (on a PVNBP1 basis) for 2007 increased by8% to £7,662 million (2006: £7,074m). The 2007 figure was reduced by persistencyassumption changes, discussed in today's announcement of strategic reviewresults, with a net negative impact of £75 million. UK life and pensions highlights: • Total UK new business up 7% to £4,442 million (2006: £4,162m)• Group pensions up 14% to £2,611 million (2006: £2,298m)• Protection down 4% to £413 million (2006: £432m)• Investment down 27% to £501 million (2006: £687m)• Individual pensions (excluding DWP rebate premiums) up 50% to £504 million (2006: £336m) International life and pensions highlights: • Total international new business up 11% to £3,220 million (2006: £2,912m)• Lombard down 5% to £1,985 million (2006: £2,089m)• Friends Provident International (FPI) up 50% to £1,235 million (2006: £823m) Ben Gunn, chief executive of Friends Provident Life and Pensions, said: "The fourth quarter saw mixed results across our Life and Pensions operations. In the UK there were headwinds in the key protection market reflecting anuncertain housing market, but our leading group pensions business continued todrive an increase in sales for the year. FPI continued its excellent momentum with full year sales up by nearly half onlast year, driven by success of savings products in Asia. Lombard sales wereslower than expected in the key fourth quarter as fewer large cases from thepipeline were completed, so the overall result was lower year-on-year." - Ends - For further information, please contact: Nick Boakes Friends Provident plc +44 (0)845 641 7814Chris Ford Friends Provident plc +44 (0)845 641 7832Vanessa Neill, Alex Simmons Finsbury Limited +44 (0)20 7251 3801 Ref: I009 Notes to editors 1. New business is reported on the Present Value of New Business Premiums (PVNBP) basis, which represents new single premiums plus the expected presentvalue of new business regular premiums. A table detailing sales on an AnnualisedPremium Equivalent (APE) basis (annualised new regular premiums plus 10% ofsingle premiums) is at the back of this announcement. 2. Financial reporting dates F&C Asset Management plc Quarter 4 Funds Under Management 31 January 2008 F&C Asset Management plc Preliminary Results 6 March 2008 Friends Provident plc Group Preliminary Results 11 March 2008 F&C Asset Management plc Quarter 1 Funds Under Management 25 April 2008 Friends Provident plc Interim Management Statement and Quarter 1 New Business Announcement 29 April 2008 F&C Asset Management plc Annual General Meeting 13 May 2008 Friends Provident plc Annual General Meeting 22 May 2008 F&C Asset Management plc Interim Results (provisional) 6 August 2008 Friends Provident plc Group Interim Results 7 August 2008 Friends Provident plc Interim Management Statement and Quarter 3 New Business Announcement 31 October 2008 F&C Asset Management plc Quarter 3 Funds Under Management 31 October 2008 3. Certain statements contained in this announcement constitute 'forward-lookingstatements'. Such forward-looking statements involve risks, uncertainties andother factors, which may cause the actual results, performance or achievements,from time to time, of Friends Provident plc, its subsidiaries and subsidiaryundertakings or industry results to be materially different from any futureresults, performance or achievements expressed or implied by suchforward-looking statements. Such risks, uncertainties and other factors include,among others, adverse changes to laws or regulations; risks in respect oftaxation; unforeseen liabilities from product reviews; asset shortfalls againstproduct liabilities; changes in the general economic environment; levels andtrends in mortality, morbidity and persistency; restrictions on access toproduct distribution channels; increased competition; and the ability to attractand retain personnel. These forward-looking statements are made only as at thedate of this announcement and, save where required in order to comply with theListing Rules, there is no obligation on Friends Provident plc to update suchforward-looking statements. Dealing Disclosure Requirements Under the provisions of Rule 8.3 of the Takeover Code (the 'Code'), if anyperson is, or becomes, 'interested' (directly or indirectly) in 1% or more ofany class of 'relevant securities' of Friends Provident, all 'dealings' in any'relevant securities' of that company (including by means of an option inrespect of, or a derivative referenced to, any such 'relevant securities') mustbe publicly disclosed by no later than 3.30pm (London time) on the Londonbusiness day following the date of the relevant transaction. This requirement will continue until the date on which the offer becomes, or isdeclared, unconditional as to acceptances, lapses or is otherwise withdrawn oron which the 'offer period' otherwise ends. If two or more persons act togetherpursuant to an agreement or understanding, whether formal or informal, toacquire an 'interest' in 'relevant securities' of Friends Provident, they willbe deemed to be a single person for the purpose of Rule 8.3. Under the provisions of Rule 8.1 of the Code, all 'dealings' in 'relevantsecurities' of Friends Provident by an offeror or Friends Provident, or by anyof their respective 'associates', must be disclosed by no later than 12.00 noon(London time) on the London business day following the date of the relevanttransaction. A disclosure table, giving details of the companies in whose 'relevantsecurities''dealings' should be disclosed, and the number of such securities inissue, can be found on the Takeover Panel's website atwww.thetakeoverpanel.org.uk. 'Interests in securities' arise, in summary, when a person has long economicexposure, whether conditional or absolute, to changes in the price ofsecurities. In particular, a person will be treated as having an 'interest' byvirtue of the ownership or control of securities, or by virtue of any option inrespect of, or derivative referenced to, securities. Terms in quotation marks are defined in the Code, which can also be found on thePanel's website. If you are in any doubts as to whether or not you are requiredto disclose a 'dealing' under Rule 8, you should consult the Panel. About Friends Provident: Friends Provident Life and Pensions Limited is part of the Friends ProvidentGroup of companies. The holding company Friends Provident plc is a member of theFTSE 100. Now in its 176th year, the business was founded on Quaker principlesand aimed to alleviate the hardship of families facing misfortune. FriendsProvident has embraced corporate governance, and achieving high standards ofcorporate behaviour and accountability to both stakeholders and customers is atthe heart of our business. In 2001 the company established the grant-makingcharity The Friends Provident Foundation with the aim to encourage new ways ofthinking about how money can be used to solve a wide range of problems. For more information on Friends Provident including, photos, awards, fast facts,presentations, and media contacts please visit the media section atwww.friendsprovident.com/media Commentary and tables UK life and pensions New UK life and pensions business increased by 7% to £4,442m (2006: £4,162m).The impact of persistency changes is £87 million, consisting of a £99 milliondecrease in group pensions and a £12 million increase in protection. Life business New protection business decreased by 4% to £413 million for the year (2006:£432m). The slowing market for mortgage-related products has affected sales,with a 17% reduction on a like-for-like basis between the third and fourthquarters. We expect to have lost market share in critical illness products (32%of 2007 sales) but maintained our share in life business (38%), the remainder ofour sales being income protection business. Through the year, our pricingstrategy has been to identify and target less competitive price points in themarket. New investment business was down by 27% to £501 million (2006: £687m) withfourth quarter sales down 35% at £100 million (2006: £155m). The market forinsurance bonds was impacted in the latter part of the year by uncertaintysurrounding proposals for capital gains tax changes. We believe we have alsolost ground to competitors who are established in the guaranteed product market.Our focus has been to develop and launch new products to address the poorpersistency of our existing insurance bond products. To this end the existinginvestment product was withdrawn in October and the newer products have notachieved comparable sales. We expect the overall 2007 margin to be close tozero, with the profitable, recently-introduced products not yet contributingsignificantly. Pensions business Group pensions sales were up 14% for the year. Before the impact of higher lapseassumptions, which will also reduce margins in this product, sales were up 18%.We remain one of the leaders in this market. The main development in the finalquarter was implementation of a SIPP option for Group schemes. This feature isrequired to compete effectively for many better quality schemes, so the aim ofthe development is to protect our position in the market rather than drivegrowth in new business volumes. As a result of uncertainty surrounding ourstrategic review, some advisor panels put Friends Provident on hold in the lastquarter of the year. Due to the lead-time to complete the sales process for newschemes, this has not affected 2007 sales but will have an effect in 2008. New individual pensions business (excluding DWP rebate premiums) was up 50% to£504 million (2006: £336m). The product has now reached a steady level of marketpenetration among intermediaries and quarterly sales growth has moderated, withthe fourth quarter up 10% year-on-year and down 11% on the third quarter. DWPrebate premiums were down by 9% to £140 million (2006:£154m), in line with theexpected direction of travel. New annuity business was up by 7% at £273 million (2006: £255m). We havemaintained a consistent approach to this business, reflecting risk in thepricing of products. In 2007 business was weighted more to the start of the yearthan would usually be expected. We expect the 2007 margin to be down on thefirst half level, which was supported by interest rate movements. International life and pensions New international life and pensions business increased 11% to £3,220 million(2006: £2,912m). The FPI result includes a £14 million increase due to adjustedpersistency assumptions. Friends Provident International (FPI) --------------------------------------------------------------------------------PVNBP by region 2007 2006 £m £m--------------------------------------------------------------------------------Asia 593 350UK 184 143Middle East 116 71Europe (excluding UK) 214 168Rest of World 128 91--------------------------------------------------------------------------------Total FPI 1,235 823-------------------------------------------------------------------------------- FPI sales were up 50% for the full year and 91% year-on-year in the finalquarter. Increased regular premium savings business in Asia and the Middle Eastis the key driver of this result, supported by pensions in Germany. The Hong Kong market for offshore products has remained very active through theyear. As a result of our focus on promoting and refining the key savingsproduct, FPI increased Hong Kong market share measured against its peer group.Our understanding of intermediaries and customers in this market means webelieve this position is sustainable. Our new Singapore office will transactmore business in 2008, but from a very low base in 2007. FPI's UK insurance bond sales have been impacted in the latter part of the yearby uncertainty surrounding capital gains tax, and this may impact UK sales in2008, which tend in any event to be at a lower margin than other territories. We have continued to develop our product range in the Middle East but furtherdevelopment will be needed to capitalise fully on the UAE licence granted in2007. 2007 was our first full year in the German pensions market, with FPI productsand electronic new business capabilities, based on the UK platform, gainingpositive market feedback. £46 million of FPI sales in 2007 were from this sourceand we are well positioned in this market. Lombard International (Lombard) --------------------------------------------------------------------------------PVNBP by region 2007 2006 £m £m--------------------------------------------------------------------------------UK and Nordic 284 320Northern Europe 583 576Southern Europe 974 731Rest of World 144 462--------------------------------------------------------------------------------Total including large cases 1,985 2,089--------------------------------------------------------------------------------Of which: Large cases (greater than €10m) (784) (908)--------------------------------------------------------------------------------Total excluding large cases 1,201 1,181-------------------------------------------------------------------------------- Lombard full year sales were 5% down on 2006, with final quarter sales 38% lowerthan in 2006. Some £0.3 billion of 2006 sales (mainly large cases of greaterthan €10 million) were in the Mexican market, where the outcome of tax changesannounced late in 2006 was to close the opportunity. Southern Europeanterritories have performed strongly. UK sales were lower, mainly due to anespecially strong 2006 result, and in part reflecting uncertainty caused bypotential changes to tax rules. Lombard continues to write niche, value-addedbusiness in this territory. Sales in the nine months to September 2007 were running well ahead of the 2006comparative due to the timing of a number of large cases in the third quarter.However the value of large cases written in the final quarter was significantlylower than in 2006 at £169 million (2006: £578m), and as a result across thefull year 40% of sales consisted of large cases (2006: 44%). Results in anyperiod will continue to be subject to variation from timing of large cases. Lombard has increased sales at a compound annual growth rate of 15% across thelast three years. Lombard's revenues are derived mainly from fees charged onfunds under management. Funds under management at the end of 2007 were €13.7billion, an increase of 19%. Over the past 3 years funds under management havegrown at a compound annual rate of 32%. We believe that Lombard has very strongprospects from both existing markets and planned developments, including theongoing development of Swiss private banking relationships. Friends Provident New Life and Pensions Business 12 months to 31 December 2007 vs 12 months to 31 December 2006 12 months 2007 12 months 2006 % Change Regular Prems Single PVNBP Regular Single PVNBP Regular Single PVNBP Prems Prems Prems Prems PremsUK Operations £m £m £m £m £m £m % % %----------------------------------------------------------------------------------------------------------Life Protection 68.3 0.0 413 72.0 0.0 432 -5 n/a -4 Investment 1.4 493.1 501 1.6 676.8 687 -13 -27 -27---------------------------------------------------------------------------------------------------------- 69.7 493.1 914 73.6 676.8 1,119 -5 -27 -18---------------------------------------------------------------------------------------------------------- Pensions Individual Pensions 25.6 392.3 504 16.9 263.1 336 51 49 50 DWP Rebates 0.0 140.0 140 0.0 154.3 154 n/a -9 -9 Group Pensions 447.2 784.8 2,611 354.8 737.4 2,298 26 6 14 Annuities 0.0 273.1 273 0.0 254.7 255 n/a 7 7---------------------------------------------------------------------------------------------------------- 472.8 1,590.2 3,528 371.7 1,409.5 3,043 27 13 16--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------UK Life andPensions 542.5 2,083.3 4,442 445.3 2,086.3 4,162 22 0 7---------------------------------------------------------------------------------------------------------- InternationalOperations Lombard 0.0 1,985.3 1,985 0.0 2,089.0 2,089 n/a -5 -5 Friends Provident International 131.1 551.3 1,235 71.1 456.2 823 84 21 50----------------------------------------------------------------------------------------------------------Total InternationalLife and Pensions 131.1 2,536.6 3,220 71.1 2,545.2 2,912 84 0 11--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Total GroupLife and Pensions 673.6 4,619.9 7,662 516.4 4,631.5 7,074 30 0 8---------------------------------------------------------------------------------------------------------- Effect of currency movements All amounts in currency other than sterling are translated into sterling at amonthly average exchange rate. The estimated new business assuming constantcurrency rates would be as follows: -------------------------------------------------------------------------------- 2007 2006 Change (as reported) £m £m %--------------------------------------------------------------------------------Lombard 1,947 2,089 -7Friends Provident International 1,288 823 57--------------------------------------------------------------------------------Total International Life and Pensions 3,235 2,912 11-------------------------------------------------------------------------------- Friends Provident New Life and Pensions Business 3 months to 31 December 2007 vs 3 months to 31 December 2006 Q4 2007 Q4 2006 % Change Regular Prems Single PVNBP Regular Single PVNBP Regular Single PVNBP Prems Prems Prems Prems PremsUK Operations £m £m £m £m £m £m % % %--------------------------------------------------------------------------------------------------------Life Protection 15.3 0.0 102 18.1 0.0 110 -15 n/a -7 Investment 0.4 98.0 100 0.4 153.4 155 0 -36 -35-------------------------------------------------------------------------------------------------------- 15.7 98.0 202 18.5 153.4 265 -15 -36 -24-------------------------------------------------------------------------------------------------------- Pensions Individual Pensions 6.7 90.8 117 5.7 84.4 106 18 8 10 DWP Rebates 0.0 13.2 13 0.0 19.0 19 n/a -31 -32 Group Pensions 124.4 188.3 623 87.4 281.5 665 42 -33 -6 Annuities 0.0 63.1 63 0.0 67.7 68 n/a -7 -7-------------------------------------------------------------------------------------------------------- 131.1 355.4 816 93.1 452.6 858 41 -21 -5----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------UK Life andPensions 146.8 453.4 1,018 111.6 606.0 1,123 32 -25 -9-------------------------------------------------------------------------------------------------------- InternationalOperations Lombard 0.0 702.3 702 0.0 1,134.0 1,134 n/a -38 -38 Friends Provident International 43.3 127.6 360 17.3 83.7 188 150 52 91--------------------------------------------------------------------------------------------------------Total InternationalLife and Pensions 43.3 829.9 1,062 17.3 1,217.7 1,322 150 -32 -20----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Total GroupLife and Pensions 190.1 1,283.3 2,080 128.9 1,823.7 2,445 47 -30 -15-------------------------------------------------------------------------------------------------------- Effect of currency movements All amounts in currency other than sterling are translated into sterling at amonthly average exchange rate. The estimated new business assuming constantcurrency rates would be as follows: -------------------------------------------------------------------------------- Q4 2007 Q4 2006 Change (as reported) £m £m %--------------------------------------------------------------------------------Lombard 663 1,134 -42Friends Provident International 370 188 97--------------------------------------------------------------------------------Total International Life and Pensions 1,033 1,322 -22-------------------------------------------------------------------------------- PVNBP by operations 12 months to 31 December 2007 vs 12 months to 31 December 2006 12 months 2007 12 months 2006 £m % £m %-------------------------------------------------------------------------------- UK 4,442 58 4,162 59--------------------------------------------------------------------------------Lombard 1,985 26 2,089 29Friends Provident International 1,235 16 823 12--------------------------------------------------------------------------------International 3,220 42 2,912 41-------------------------------------------------------------------------------- 3 months to 31 December 2007 vs 3 months to 31 December 2006 Q4 2007 Q4 2006 £m % £m %-------------------------------------------------------------------------------- UK 1,018 49 1,123 46--------------------------------------------------------------------------------Lombard 702 34 1,134 46Friends Provident International 360 17 188 8--------------------------------------------------------------------------------International 1,062 51 1,322 54-------------------------------------------------------------------------------- PVNBP equals new single premiums plus the expected present value of new regularpremiums. Premium values are calculated on a consistent basis with the EEV contribution toprofits from new business. Start of period assumptions are used for the economicbasis and end of period assumptions are used for the operating basis. A riskfree rate is used to discount expected premiums in future years. The impact ofoperating assumption changes across a whole reporting period will normally bereflected in the PVNBP figures for the final quarter of the period that thebasis changes relate to. No change in operating assumptions will be reflected inthe PVNBP for the first and third quarters, when the contribution to profitsfrom new business is not published. All amounts in currency other than sterlingare translated into sterling at a monthly average exchange rate. In classifying new business premiums the following basis of recognition isadopted: • 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. Analysis of APE 12 months to 31 December 2007 vs 12 months to 31 December 2006 2007 2006 changeUK Operations £m £m %--------------------------------------------------------------------------------Life Protection 68.3 72.0 -5 Investment 50.7 69.3 -27-------------------------------------------------------------------------------- 119.0 141.3 -16-------------------------------------------------------------------------------- Pensions Individual Pensions 64.8 43.2 50 DWP Rebates 14.0 15.4 -9 Group Pensions 525.7 428.5 23 Annuities 27.3 25.5 7-------------------------------------------------------------------------------- 631.8 512.6 23----------------------------------------------------------------------------------------------------------------------------------------------------------------UK Life and Pensions 750.8 653.9 15-------------------------------------------------------------------------------- International Operations Lombard 198.5 208.9 -5 Friends Provident International 186.2 116.7 60--------------------------------------------------------------------------------Total International Life and Pensions 384.7 325.6 18----------------------------------------------------------------------------------------------------------------------------------------------------------------Total Group Life and Pensions 1,135.5 979.5 16-------------------------------------------------------------------------------- 3 months to 31 December 2007 vs 3 months to 31 December 2006 Q4 2007 Q4 2006 changeUK Operations £m £m %--------------------------------------------------------------------------------Life Protection 15.3 18.1 -15 Investment 10.2 15.8 -36-------------------------------------------------------------------------------- 25.5 33.9 -25-------------------------------------------------------------------------------- Pensions Individual Pensions 15.8 14.1 12 DWP Rebates 1.3 1.9 -32 Group Pensions 143.2 115.5 24 Annuities 6.3 6.8 -7-------------------------------------------------------------------------------- 166.6 138.3 20----------------------------------------------------------------------------------------------------------------------------------------------------------------UK Life and Pensions 192.1 172.2 12-------------------------------------------------------------------------------- International Operations Lombard 70.2 113.4 -38 Friends Provident International 56.1 25.6 119--------------------------------------------------------------------------------Total International Life and Pensions 126.3 139.0 -9----------------------------------------------------------------------------------------------------------------------------------------------------------------Total Group Life and Pensions 318.4 311.2 2-------------------------------------------------------------------------------- Annualised Premium Equivalent (APE) represents annualised new regular premiumsplus 10% of single premiums. 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