Friends Provident

Buoyant markets in the UK and internationally combined to propel new business at Friends Provident (FP) to £5,397 million last year, a 70 percent increase. International sales now represent 40 percent of the insurer's total due largely to last year's purchase of Lombard International. Looking ahead we believe Friends is well positioned to continue growing in both markets on the back of a strong line up of products, exceptional service and solid distribution capabilities.

New business in the UK rose an impressive 21 percent last year as strong pensions and investment activity offset lower protection and annuities business. Group pensions performed exceptionally well as Friends high levels of service and flexible offerings generated large new business wins.

As has been the case throughout 2005, the protection and annuity lines were the laggards in the UK. New business declined 8 and 14 percent respectively. The soft housing market in 2005 was primarily responsible for the decline in protection business. In the case of annuities, Friends unwillingness to chase low margin sales has resulted in the 14 percent decline.

The International new business result was flattered last year by the inclusion of Lombard. As a result new business grew 311 percent to £2,205 million. However, with Lombard excluded, Friends Provident International (FPI) still clocked in 32 percent higher. Friends emphasis on Asia and the development of strategic partnerships should help underpin further gains from FPI.

Lombard's pro forma new business results rose 15 percent in the year with strong sales registered across the board but particularly in Belgium and the UK.

F&C Asset Management, which is 51 percent owned by Friends, recently provided a lacklustre trading update. Disappointing investment management performance has affected the flow of funds into F&C. Encouragingly, management have faced up to the situation and many areas of performance have been either stabilised or improved. Additionally, we were heartened that the group has captured targeted synergies resulting from the merger of F&C and Isis in 2004 ahead of schedule.

We believe Friends is in an ideal position to benefit from the well documented debate now going on in the UK regarding long-term savings. The group benefits from well-known brands, exemplary service, market leading use of technology and high quality distribution channels both here and abroad. While at F&C Asset Management, we are optimistic that management have taken the corrective action necessary to move things in the right direction.