Setting new standards - Friends Life

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ANNUAL REVIEW CHAIRMAN’S STATEMENT GROUP CHIEF EXECUTIVE’S REVIEW ABOUT THE FRIENDS PROVIDENT GROUP UK LIFE & PENSIONS How we are making our strategies work Develop service excellence and leading products to create a positive customer experience Focus on core strategic markets targeting a leading position in these markets 1 2 3 Build strong and reliable distribution relationships We aim to deliver outstanding levels of customer and intermediary service, redefining industry standards. We plan to provide new levels of speed and accuracy, further enable self-service and improve contact management. We aim to grow market share in each of our target markets in a profitable manner by constantly enhancing our overall proposition. Our current core strategic markets are corporate pensions and individual protection, but we intend to build our presence in the wealth management and group protection markets, continue to deliver profitable growth in the individual pensions market and investigate new opportunities for growth in the post-retirement market. Independent financial advisers continue to be our primary source of business. However, following depolarisation we have secured, and continue to secure and develop, significant additional distribution alliances with banks, building societies, retailers and intermediary groups, providing us with a diversified source of intermediated business. 2006 Key points • Maintained our Five Star service ranking for third consecutive year. • Numerous awards and positive survey results for our products and services. • Major internal service-related change programme (the 6 Star programme) embedded and aligned to our vision. • Continued to embed Treating Customers Fairly principles. 2007 Priorities Maintain our Five Star service ranking. • Continue our major internal change programme that aims to re-define industry standards. • Continue to embed Treating Customers Fairly principles. • Improve our Customer Impact survey scores. 2006 Key points • A number of large corporate pension schemes secured. • New online services developed for employers, intermediaries and pension scheme members. • Individual protection market is competitive but new business volumes from distribution agreements increasing. • Announced intention to develop a wrap capability to build our presence in the wealth management market. • Accelerated growth plans announced. 2007 Priorities • Enter the wrap market and re-define our wealth management proposition. • Grow large pension scheme portfolio and increase focus on scheme retention and member services. • Develop protection proposition to target new segments and extend market reach. • Investigate the post-retirement market for new growth opportunities. 2006 Key points • 11 significant new distribution agreements secured for, predominantly, protection and corporate pensions business. • Distribution agreement secured with Greenbee (John Lewis Partnership), our first such retail agreement. • Decision taken to exit the appointed representative channel and focus on directly-authorised intermediaries. • The emergence of wrap platforms is re-defining the distribution of wealth management services. 2007 Priorities • Seek to secure further distribution agreements. • Strengthen relationships and accelerate business volumes with major distributors. Financial Adviser Practiv service ranking 2006 ★★★★★ 2005 ★★★★★ 2004 ★★★★★ 2003 ★★★★ This ranking is the result of an extensive independent survey of IFAs undertaken annually. The survey rates life and pensions providers covering various aspects of service on a scale of: ★★★★★ ★★★★ ★★★ ★★ ★ Excellent Good Average Poor Very poor UK Life & Pensions market share 2006 5.5% 2005 5.2% 2004 4.3% 2003 4.2% This shows our market share of UK Life & Pension new business sales. The statistics are collated by the Association of British Insurers. 2005 has been restated to 5.2% from 4.7% to reflect a change in definition. A summary of the market is given on page 13 and a summary of our trading performance is given on page 16. Contribution from new business 2006 £108m 2005 £64m 2004 £58m This measures the profit that we make from writing new business and is discussed further on page 17. It is measured on the EEV basis. Figures for the years prior to 2004 are not comparable with the EEV basis. 14 Friends Provident Annual Report & Accounts 2006
INTERNATIONAL LIFE & PENSIONS ASSET MANAGEMENT GROUP FINANCIAL PERFORMANCE CONCLUSIONS AND OUTLOOK Key risks Apply technology to enhance distribution, improve service and reduce costs 4 5 We aim to generate higher levels of profitability by growing our new business levels significantly faster than costs. We plan to achieve service enhancements and efficiency gains through continued investment in our people and in technology-based solutions. 2006 Key points • Considerable growth in new business volumes handled cost-effectively. • More than 90% of individual protection business transacted online. • System changes required for A Day implemented successfully. • Voted by IFAs to be the E-commerce Company of the Year (Financial Adviser Practiv Service Awards). Range of new online facilities launched. • Continued growth in IFAs’ use of our online servicing facilities. 2007 Priorities • Extend technology to more business processes to reduce costs. • Extend online systems to support a wider range of products, including wrap and SIPPs. • Actively promote customer and intermediary online self-service capabilities. • Continue to improve financial management processes and capability. • Explore further opportunities for efficiency gains. Operating expenses 2006 £253m PVNBP £4,162m 2005 £243m PVNBP £3,192m 2004 £229m PVNBP £2,641m 2003 £248m PVNBP £2,535m This shows how operating expenses (as defined on page 17) have remained broadly flat whilst new business PVNBP has grown. The expenses bars are drawn to a different scale to the PVNBP bars. 1 Develop our people to enhance our performance and foster a customer focused culture based on common values We aim to create sustainable competitive advantage through our ability to recruit and retain highly motivated and appropriately skilled people. We plan to enhance performance by developing and equipping our people with the appropriate knowledge and skills and engaging them in our aims and strategies. 2 2006 Key points 86% response to our staff survey. • Developed a new people strategy to support the business vision. • Executive management development programmes undertaken. 3 • Employee engagement plans initiated for corporate change programme. • Total reward and annual bonus scheme reviewed. • Reviewed staff pensions to enhance flexibility and control costs. 2007 Priorities • Implement a new performance management approach and introduce individual performance element to the annual bonus scheme. • Improve further the level of employee engagement. 4 • Continue to improve the leadership skills of our managers through the introduction of Development Centres. • Continue to ensure that our top talent have clear career paths. • Strengthen our employment brand. Staff Engagement Index 2006 76% 2005 73% 2004 65% 2003 64% This shows the level of UK staff engagement as measured by our annual staff survey. 5 Changes to the distribution landscape. We seek to build long-term relationships with distributors. We have secured places on many best advice and multi-tie panels with leading firms and innovative new entrants. We have attracted all types of distributors by delivering excellent service, products and technology. We monitor developments in the distribution sector and seek to position ourselves in an appropriate way that plays to these strengths. Competitors develop more advanced IT solutions and service capability. Our operating platforms are leading edge and our structure is designed for continuous development to be achieved. Our internal 6 Star programme aims to retain and improve our lead in service and technology. We monitor competitor activity carefully. Changes in volume or profitability in key market segments or emergence of new markets. We monitor our relative product range and competitive position and analyse our experience of policy claims and lapses. We use this information to reprice our products or develop new ones, targeting those markets that we see as most likely to grow and to be profitable. For example, we are developing a wrap platform that plays to our technology and service strengths and allows us to work closely with key distributors. Availability of cash or capital restrict growth. We have a strong, stable capital position that can fund several years’ growth. Our plans require us to raise funds to pay for the short-term new business strain. This may include securitisation, reinsurance or other financing arrangements. We are confident that we will have sufficient funds to support our dividend policy. Unexpected changes in life expectancy. We seek to control our exposure to changes in life expectancy for postretirement income products (annuities) through pricing that reflects the economic risk. We also review our risk appetite and monitor market developments regularly to identify new, effective mitigation opportunities. Friends Provident Annual Report & Accounts 2006 15
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FINANCIAL STATEMENTS Independent Au
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