Friends Provident

We believe Friends Provident (FP) has transformed itself into a more balanced company following the expansion of the international business and the creation of F&C Asset Management (F&C). Group wide new business annual premium equivalent (APE) in the first quarter rose a robust 41 percent to £129 million. While we do not expect new business to continue growing at this rate, the foundations have certainly been laid for a solid earnings performance in 2005.

Friends Provident operates two primary businesses. The first is Friends Provident Life and Pensions (FPLP), a top ten UK. The second business is a 51 percent interest in F&C Asset Management, one of the UK's top five asset managers. Since being listed in 2001, the group's funds under management have grown over four fold.

The life and pension group recorded strong growth across both its regions and product portfolio. In the UK new life business APE rose 12 percent to £30.9 million despite the protection market contracting and only modest improvement in new investment business.

Friends' UK Pensions business performed even better as new business APE rose a healthy 24 percent to £57.3 million. Driving this result was robust growth in group pensions business. We are confident that new business will continue to grow this year as Employee Benefit Consultant (EBC) sourced business gains momentum, and as F&C products are added to more investment panels.

The star performer in the quarter was the International division, led by Lombard, the business acquired last year. International new business APE soared 132 percent to £41.1 million. The addition of Lombard's new APE (up 73.7 percent on last year) was the primary factor behind the surging International result. Excluding Lombard from the equation, new business APE still increased a solid 23.1 percent as all regions performed well.

Distribution remains a key to growing market share in the UK and abroad. FP continued to build on a strong position in the IFA market. New business from this channel increased by 31 percent. The company is also pursuing growth via the EBC channel. We are confident that a growing array of distribution opportunities will continue to underpin earnings growth as well as market share gains.

The latest new business update reinforces our confidence in the insurer's ability to grow both market share and earnings in the year ahead. In this environment we believe the company offers compelling value, with a prospective price earnings multiple of around 12 times and a yield of nearly 4.5 percent.