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News Release

11 February 2010

Friends Provident - fourth quarter 2009 new business

Turnaround continues - Lombard drives record quarter

Highlights

Sales (measured in APE*) in the fourth quarter amounted to £368 million compared to £305 million for the same quarter of 2008 (an increase of 21%). Sales for the year were £873 million compared to £1,005 million for the previous year (a decrease of 13%)
Lombard sales reflected the seasonal profile of previous years at £199 million for the fourth quarter, bringing the total for 2009 to £273 million. 2008 sales for Lombard were £246 million
New protection business partnerships with Tesco Bank and Virgin Money are now on stream following successful implementation
33% growth in funds under management on the New Generation Pensions (NGP) platform to £9.7 billion at 31 December 2009, compared to £7.3 billion at the end of 2008
Estimated IGD surplus maintained at £0.9 billion at 31 December 2009

*see notes to editors

Trevor Matthews, chief executive officer of the Friends Provident Group, said:

“We continued our turnaround at Friends Provident in the fourth quarter. Thanks to Lombard’s excellent finish to the year, in particular in the Italian and Belgian markets, and a third consecutive quarter of growth in both Friends Provident International and in the UK, we delivered record fourth quarter sales results. This was a strong performance against the backdrop of a year of economic troubles and volatile financial markets. We have made steady progress with initiatives including the implementation of our new distribution arrangement with Tesco Bank and we are on track to deliver our corporate platform in 2010. We have good prospects overseas and we believe despite the tough conditions in the UK the work we have done to reshape our business and preserve our financial strength gives us a solid base on which to build in 2010.”

New Business

Sales on an annual premium equivalent (APE) basis for the fourth quarter 2009 were £368 million. Sales in Q4 were boosted by the seasonal increase in Lombard sales, combined with the sustained improvements in sales for the UK and overseas businesses. For 2009 sales on the APE basis were £873 million, compared to £1,005 million for 2008. This reflects Friends Provident’s decision in 2008 to withdraw from less profitable lines of business in the UK, the continuing difficult market conditions experienced by the life insurance industry in 2009 and an ongoing focus on the value and cashflow signature of new business.

UK sales

UK corporate sales mainly relate to pensions business which was £91 million for the quarter on an APE basis, up £12 million on the third quarter of 2009, but down £12 million compared to the fourth quarter of 2008. Q4 2008 included £14 million from a large one-off increment to an existing scheme. The significant majority of group pensions new business represents increments to existing schemes, these were depressed in 2009 due to economic conditions.

Sales in Q4 were boosted by a number of scheme wins, including some large schemes. In the period following the announcement of the proposed acquisition by Resolution, a number of consultants removed Friends Provident from their panels. Friends Provident has now been reinstated on all the major target panels, but this temporary removal in the last quarter of the year reduced the pipeline for new schemes. This is likely to be reflected in reduced new business from new schemes in the first quarter of 2010. The latest market share data available shows Friends Provident’s share of the group pensions market at 8.8% for Q3 2009 compared to 6.7% for Q3 2008.

Group pensions new business APE	12m 2009 £m	12m 2008 £m	Q4 2009 £m	Q4 2008 £m
Transfers in and lump sum contributions	47	45	16	6
Regular contributions:
- from increments to existing schemes	212	309	54	91
- from new schemes with unfunded commission	0	45	0	3
- from new schemes in target segment	51	24	21	3
Total	310	423	91	103

Funds under management for unit-linked group and individual pensions on the New Generation Pensions platform increased from £7.3 billion at the end of 2008 to £9.7 billion at 31 December 2009.

UK individual business at £18 million for the quarter on an APE basis is down £6 million on the preceding quarter, reflecting difficult market conditions and Friends Provident’s maintenance of pricing discipline. Whilst we expect market conditions in the UK to remain challenging in 2010, Friends Provident has continued to add new distribution arrangements, such as those implemented recently with Tesco Bank and Virgin Money, and Friends Provident increased its share of the IFA individual protection market to 7.8% based on market data for the third quarter of 2009 (Q3 2008: 7.1%).

International sales

International sales of £465 million for the year were up 2% on 2008, with Friends Provident International (FPI) reporting sales of £183 million, Lombard £273 million and AmLife £9 million. These businesses accounted for over half of group new business sales for the year.

FPI has achieved quarter on quarter growth throughout 2009. Although demand in Hong Kong remains well below the peak level of early 2008, there are signs of improvement. FPI has significantly increased its share of linked business in this market from 6.0% for the full year 2008 to 11.2% for the first nine months of 2009.

Lombard, the international estate planning life assurer, where business is traditionally weighted towards the fourth quarter, achieved record sales, both for the quarter (£199m) and the year (£273m). Lombard had particularly strong Quarter 4 sales in the Italian market and its Swiss operations also contributed significantly as a result of relationships built up over the years. This, together with a strong contribution from Belgium, more than offset less positive results in Spain and Germany, although the recent legal and fiscal uncertainty in these markets has now been largely clarified. AmLife, Friends Provident’s Malaysian Life Insurance joint venture with AmBank Group, performed strongly throughout 2009. 30% of full year APE (reflecting Friends Provident’s share of the joint venture) was £9.1 million (first half 2009: £3.1m). The business has achieved strong growth in both its agency sales force and bancassurance distribution.

Capital

As at 31 December 2009, Friends Provident maintained a strong IGD surplus estimated at £0.9 billion (30 September 2009: £0.9 billion). The surplus was not affected by the strong performance of equities through the later part of the year, as shareholder funds have limited exposure to movements in equity markets. Insurer financial strength ratings from each of the three rating agencies, Moody’s, Standard & Poor’s and Fitch remain in the A range.

- Ends -

View a PDF of the full press release (509K).

Journalists requiring further information should contact:

Contact name	Company	Contact number
Peter Timberlake	Friends Provident	0845 641 7834
Lorna Wiltshire	Friends Provident	0845 641 7836
Emma Wylie	Friends Provident	0845 268 4909

Ref: K006

Notes to editors

Headline new business figures are presented on the Annualised Premium Equivalent (APE) basis, representing annualised new regular premiums plus 10% of single premiums. The Present Value of New Business Premiums (PVNBP) basis represents new single premiums plus the expected present value of new business regular premiums. Figures on both bases together with comparatives are shown in an appendix to this update.
We are holders of a large number of industry awards, showing continued recognition of the quality of our products and service. These are listed in appendix 2 of this update.
This announcement contains certain forward-looking statements with respect to Friends Provident and its outlook. These statements and forecasts involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this announcement should be construed as a profit forecast.
For more information on Friends Provident including, photos, awards, fast facts, presentations, and media contacts please visit the media section at www.friendsprovident.com/media

Important note

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