Friends Provident

There appears to be no stopping Friends Provident (FP). The release of new business results at the end of last month, confirmed the UK's smallest listed life insurer continues to grow robustly. Through the first nine months of the year, total new life and pensions business stood at £4,629 million, an increase of 39 percent.

The UK is still Friends' largest market contributing around 65 percent of new business sales. Through the first nine months of the year, with the exception of annuities, every product category was up. In all domestic sales were 34 percent ahead of last year at £3,039 million.

Leading the way were performances in the group and individual pensions businesses. Group pensions grew a healthy 46 percent. Driving these gains were higher activity levels stimulated by the A-Day pension changes and the trend way from defined benefit plans to defined contribution schemes. New individual pensions grew to £240 million, an impressive 64 percent increase.

Friends' other UK division is the Life business. Characterised by more modest growth, the Protection and Investment businesses grew 8 and 10 percent respectively.

Significantly boosting profits in the UK over the next two years will also be a brand new management initiative targeting the SIPP market. Aimed at trebling earnings to as much as £200 million by 2008, Friends is planning to invest up £30 million throughout the remainder of this year and £50 million in both 2007 and 2008 in improvements to service and technology.

This domestically oriented focus should not, however detract from the tremendous performances of the group's International operations. Overseas new business contributions were up 51 percent to £1,590 million through the first three quarters.

As in prior periods, Luxembourg based Lombard led the way. Strong results in Italy and the UK were singled out for praise as new business surged ahead 68 percent to £955 million.

F&C Asset Management, the group's 51 percent owned funds management business, continues to struggle. Thus far this year F&C has lost £29 billion in funds under management. F&C is addressing the issue by strengthening both general and investment management expertise. In addition, the group is developing its own 'multi-boutique' investment framework.

We believe the necessary changes are in place to derive improved performance at F&C Asset Management. Meanwhile, the life and pensions business in the UK and abroad is firing on all cylinders. The new management initiative to drive earnings growth at home should underpin a further welcome boost to group earnings in the years ahead.

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