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 International Life & Pensions Our aim, strategies and risks STRATEGIES These are explained in more detail on pages 20 & 21 1 Seek out and capitalise on rewarding and well regulated markets 2 3 4 5 Create and maintain strong and close relationships with our distribution partners to enhance sales opportunities Differentiate ourselves with market leading service for our distribution partners and customers Use technology and e-commerce to enhance our service offering Engage our people to maximise our performance OUR AIM Our aim is to capitalise on rewarding overseas market opportunities and thereby make a significant and increasing contribution to the Group’s profits New business – see page 22 2006 +32% £2,912m 2005 £2,205m Contribution from new business – see page 23 2006 +20% £96m 2005 £80m EEV underlying profit – see page 23 2006 +12% £119m 2005 £106m Return on embedded value – see page 23 2006 -8% 19.8% 2005 21.5% VALUE OF NEW BUSINESS MANAGEMENT OF EXISTING BUSINESS GROW PROFITS These are explained in more detail on page 21 1 2 3 4 5 Further regulation and fiscal change Reliance on key territories or distribution partners Changes to lapse rates Expansion into new territories Mismatch of solutions and client expectations KEY RISKS “ Our two international businesses, Friends Provident International and Lombard, continue to complement each other. Both achieved growth in sales and both have opened new offices, in Singapore and Switzerland respectively, to extend their reach still further. ” Ben Gunn Chief Executive, Friends Provident Life and Pensions 18 Friends Provident Annual Report & Accounts 2006
INTERNATIONAL LIFE & PENSIONS ASSET MANAGEMENT GROUP FINANCIAL PERFORMANCE CONCLUSIONS AND OUTLOOK Our view of the market Our international business is conducted across the globe, with specific emphasis on four key regions: Asia, the Middle East, the UK and Continental Europe. The business mix includes regular premium savings and protection plans, alongside single premium savings, investment and estate-planning propositions. Customers are attracted by our innovative solutions, wide-ranging investment opportunities, the portability of the products and the long-term confidence of strong currency investments. Friends Provident International (FPI) – FPI has followed a deliberate strategy of market diversification, ensuring that it does not limit itself to a single region or jurisdiction. From its base in the Isle of Man, FPI operates in all the four key regions, with a product mix that ranges from regular savings and protection business to investment contracts, including highly personalised portfolio bonds. Distribution partners are primarily Independent Financial Advisers. FPI has also actively developed distribution relationships with a number of institutional partners. Asia remains FPI’s largest generator of new business volumes, with the bulk of that business coming from regular premium savings. The overall Hong Kong market grew strongly over the first half of 2006 before slowing over the second half. FPI continues to be confident in, and committed to, the region. The Continental European strategy centres on the targeting of a small number of specifically selected territories, including the launch of a series of personal pension products in Germany, alongside a German distribution partner. Business from the Middle East has benefited from the establishment of a local presence. The UK remains an exclusively single premium investment market with particular emphasis on tax and estate planning. 2006 saw no lessening of market activity and competitiveness, with a number of companies expressing a renewed interest in the Asian region, but we maintain a robust position, based on strong relationships with distribution partners and a demonstrable commitment to the market. The successful development of a new branch office in Singapore, and the continuing demand for high quality wealth management solutions, adds to our confidence. Lombard – The provision of tailor-made financial and estate planning solutions for high net worth individuals (HNWIs) and ultra HNWIs in Europe and beyond remains the focus of the Lombard business. Lombard operates primarily across eight EU member states, while continuing to explore new opportunities in other regions. Geographic diversification is supported by a unique multi-jurisdictional expertise. This expertise is critical in meeting the planning needs of many clients and the business needs of international private banks, and has led to writing rapidly increasing volumes of new business. Lombard’s approach is to partner with leading specialist advisers, which enables the combining of Lombard’s financial expertise with the relationship and asset management capability of the distribution partner. As the very large market for HNWI/ultra HNWI continues to grow, so does the requirement for effective protection of private wealth. Lombard has been able to increase its penetration of this market year-by-year and intends to deepen this penetration further as the business develops. The HNWI sector in particular continues to attract the attentions of governments seeking to increase tax on private wealth. This intensifies the pressure on traditional tax planning structures and offshore tax havens, and increases the relative attractions of life assurance being used as a tax shelter and estate planning solution, such that experts increasingly recognise life assurance as an important financial planning tool. HNWI financial wealth forecast by region 2003–2010 estimated (Figures in trillions US$) 2010 44.6 Allowing for 6%pa global growth 2005 33.3 2004 30.7 2003 28.5 Annual growth rate 2005–2010 estimated Africa 5.2% Middle East 8.0% Latin America 5.9% Asia-Pacific 6.7% North America 7.4% Europe 3.7% Source: Capgemini Lorenz curve analysis May 2006 Lombard competes through the provision of enhanced value-added services and administration rather than on price. Competitors are mainly those that have established subsidiaries in Luxembourg and Dublin, primarily to sell back to their home country (although some are increasing their international diversification), and generally offer a lower priced, less value-added service. Friends Provident Annual Report & Accounts 2006 19
Page 1 and 2: Setting new standards Friends Provi
Page 3 and 4: ANNUAL REVIEW CORPORATE GOVERNANCE
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FINANCIAL STATEMENTS Independent Au
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Friends Provident plc Pixham End Do
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