Life and pensions company Friends Provident Plc (FP.L, FRDPF.PK, FRDPY.PK) Friday reported that new business sales for the nine-month period declined domestically, while it grew strongly overseas. However, the company noted that it was financially strong with high resilience to equity and credit market movements.
Friends has also dropped the idea of selling Lombard, which performed poorly, and is spinning of its F&C stake to its shareholders. The company also appointed Robin Phipps as an independent director.
Surrey, England-based company's new business total life and pensions sales for the first nine months declined 14% to GBP 701 million on an Annualized Premium Equivalent, or APE, basis from GBP 817 million in the prior-year period. APE represents annualized new regular premiums plus 10% of single premiums.
New business total sales in the UK decreased by 24% to GBP 425 million APE from the last year. This comprised of a 23% decline in Protection sales at GBP 40.1 million APE and a 20% fall in UK pensions sales at GBP 356 million APE.
Friends Provident International new business sales increased by 29%, or 25% on constant exchange rate basis, to GBP 168 million APE. The increase came in line with its strategy to prioritize international growth with new business sales up at GBP 86 million APE in Asia alone and continued good progress in the Middle East and Germany.
Lombard's new business sales decreased by 16%, or 27% on constant exchange rates, to GBP 108.2 million APE.
For the third quarter, company's new business total life and pensions sales dropped 39% to GBP 194.3 million APE from GBP 316 million in the prior-year quarter. New business total sales in the UK decreased by 47% to GBP 105.1 million APE from the last year. This comprised a 35% decline in Protection sales at GBP 119 million APE and a 46% fall in UK pensions sales at GBP 85.6 million APE.
Friends Provident International new business sales for the quarter decreased by 8% to GBP 51.2 million APE, whereas Lombard's new business sales dropped 40% to GBP 38 million APE. On constant exchange rate basis, the decline was 14% and 48%, respectively.
On its financial strength, Friends Provident noted that its surplus capital position on Insurance Groups Directive basis at September end was estimated to be GBP 1 billion with high resilience to equity and credit market movements. This has not changed materially from the surplus reported at June end. The company further estimates surplus on October 30 to be again around GBP 1 billion, with a modest impact from falls in bond markets since September end.
The company had more than 50% of debt securities rated AAA as of September end. Debt securities rated investment grade that is BBB or above was 97%. Corporate bonds rated investment grade securities were 94%, whereas the rest almost entirely consisted of strong quality, unrated issues, which represents legacy holdings in credits considered good quality with spreads on average broadly equivalent to AA-rated securities.
On the credit quality of its securities, the company noted that debt securities issued by Lehman Brothers and Washington Mutual, held within non-linked funds and having a value of GBP 22 million at June end and GBP 3 million at September end, stood in default now. This also includes bonds issued by Bradford & Bingley and AIG having a combined value of GBP 156 million.
Friends Provident said that its liquidity position remains strong with about GBP 1.2 billion in liquid assets at September end, and consequently the company will not need to refinance either of its "STICS" debt issues in the short term, as the first interest step-up is not due till 2015.
The company also confirmed that cost saving steps have been taken over the quarter "to ensure the business has the appropriate cost base," and that the company was well on track to deliver annual cost savings of GBP 40 million by the end of 2009. Also, in order to deliver the balance of cost savings, "firm" plans have been put in place.
Friends Provident decided to abandon the sale of Lombard International, its asset management unit, as well as its stake in F&C Asset Management Plc (FCAM.L), both of which were put up for sale earlier this year as part of a strategic review of its operations. Lombard is a niche business that provides custom-made estate tax-planning solutions for high net-worth clients across Europe.
Trevor Matthews, chief executive officer, said, "Today we are ending the uncertainty over Lombard and F&C. We received a number of proposals for Lombard but it is clear to me that we should not only retain but also develop this unique business."
Instead of selling its 52% stake in F&C, the company has decided to distribute it among its shareholders, which is expected to close by the middle of 2009. Earlier on July 14, Friends Provident had also scrapped its plans to sell its financial advisory unit, Pantheon Financial Ltd., following its failure to attract an adequate bid for the division.
The company also stated that its dividend policy remains unchanged. The interim dividend of 1.3 pence per share, declared for 2008, would be paid on November 21 to shareholders on record of October 17.
In a separate release, the company announced the appointment of Robin Phipps as a non-executive director. His appointment is, however, subject to regulatory approval by the Financial Services Authority. It also expects to shortly announce the appointment of a new permanent chief financial officer.
Phipps is currently a non-executive director of G.E. Money UK and Partnership Assurance, as well as an adviser to the financial services practice of Ernst & Young. He retired in 2007 from Legal & General group Plc as Group Director UK Operations, He joined Legal & General group in 1982.
Looking ahead, Matthews added, "It (the business) is financially strong and well set to ride out the current financial turmoil. Our estimated IGD surplus at 30 October remains £1.0 billion, there are no equities in our shareholder funds, and our bond portfolio is 97% investment grade."
Friends Provident will publish its fourth quarter and full year preliminary results on January 27, 2009, and March 17, 2009, respectively.
FP.L is currently trading on the LSE at 69.10 pence, up 2.40 pence, or 3.60%, with a volume of 3.83 million shares.
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