Setting new standards - Friends Life

More documents

Recommendations

Info

ANNUAL REVIEW CHAIRMAN’S STATEMENT GROUP CHIEF EXECUTIVE’S REVIEW ABOUT THE FRIENDS PROVIDENT GROUP UK LIFE & PENSIONS Provisions The Group has made provision for liabilities in respect of defined pension scheme deficits, review of past sales for potential mis-selling, future consideration in respect of the acquisition of Lombard and other liabilities. In total the accounting provisions amount to £215m (2005: £364m). In addition £40m (2005: £80m) of provisions are included within actuarial liabilities. Details are set out below. Pension schemes – The Group operates several defined benefit pension schemes which are discussed in note 10 to the consolidated accounts. The main scheme is the Friends Provident Pension Scheme to which the majority of the Group’s UK Life & Pensions employees belong. This scheme will close to new entrants in 2007 and had a deficit of £31m (2005: £19m) which is small in the context of assets of £911m (2005: £888m). The F&C schemes (which are closed to new entrants) had a deficit of £46m (2005: £48m) in the context of assets of £134m (2005: £116m). Deficits in pension schemes 2006 +15% £77m 2005 £67m* * After netting with managed fund pension fund investment of £40m The total pension scheme deficit presented in the IFRS accounts amounts to £77m (2005: £107m). The 2005 figure excludes £40m of managed pension fund assets which were treated as non transferable under IFRS. At 31 December 2006 there were no non-transferable assets. In addition the Group operates defined contribution schemes for F&C and FPI where no provisions are necessary. Lombard does not operate a pension scheme. Mis-selling provisions – Provisions have been established for the estimated likely cost of redress, including administration costs, arising from the review of past sales. There is some uncertainty involved in these provisions, which have been calculated on a best estimate basis taking into account recent Group and industry experience. Endowment review 2006 -66% £37m 2005 £109m The total provision for mortgage endowment complaints has reduced from £109m to £37m with £41m (2005: £58m) paid out in the year. In 2006 there was a release of £31m of the provision with £3m being attributed to shareholders (as a non-recurring item). The majority of the remaining mortgage endowment redress compensation is expected to be settled within the next two years. The provision at 31 December 2006 is split between an accounting provision of £20m (2005: £49m) and an actuarial provision of £17m (2005: £60m). A review of certain past sales by our direct salesforce (which is now closed) is being undertaken, mainly in respect of inheritance tax planning policies. There has been no change to the estimated total cost although the total provision has reduced from £33m to £26m with £7m (2005: £7m) paid out in the year. The provision at 31 December 2006 is split between an accounting provision of £3m (2005: £13m) and an actuarial provision of £23m (2005: £20m). Review of past sales 2006 -21% £26m 2005 £33m Future consideration for Lombard – The acquisition of Lombard in January 2005 allowed for future consideration (earn-out) based on Lombard achieving certain performance thresholds for both new business profits and underlying embedded value. The total earn-out has been estimated at €551m with €440m having been settled by 31 December 2006. The estimated final amount of €111m (£75m) has been provided for at 31 December 2006 and will be settled in April 2007. The provision established at 31 December 2005 for future earn-out amounted to €213m (£146m) and included an estimated final amount of €128m (£87m). Future consideration for Lombard 2006 -49% £75m 2005 £146m Other provisions – Other provisions total £40m (2005: £49m) and include: future costs relating to vacant properties of £14m (2005: £18m), unclaimed shares following demutualisation of £9m (2005: £9m) and sundry provisions of £17m (2005: £22m). Other provisions 2006 -18% £40m 2005 £49m 38 Friends Provident Annual Report & Accounts 2006
INTERNATIONAL LIFE & PENSIONS ASSET MANAGEMENT GROUP FINANCIAL PERFORMANCE CONCLUSIONS AND OUTLOOK Conclusions and Outlook The successful development of the Friends Provident Group has continued throughout 2006, driven both by sales growth and expense efficiencies. Our growth is underpinned by a very strong capital base, and adequate cash flows have been generated to sustain our dividend policy. We also continue to place high emphasis on effective risk management. The structure of the Group remains organised around its three core business segments of UK Life & Pensions, International Life & Pensions and Asset Management. The Group strategy that has been in place since before our 2001 stock exchange flotation continues to deliver value. In UK Life & Pensions, record levels of new business have been achieved. Sales were up by 30% whilst acquisition costs increased by 5%. As a result, the contribution to profits generated by new business increased by more than two-thirds. Our approach is to build on our already strong positions in the pensions and protection segments, and to renew our focus on investment business through entry into the wrap market by the end of this year. In 2007, we expect the overall life and pensions market to grow by 5-10%, our share of the market to increase and overall product margins to continue to improve as a result of operational leverage. However, recent market turbulence, if prolonged, may have a dampening effect. We have continued to extend the diversity of our international businesses, which provide some 40% of our total sales and almost half of our total Life & Pensions new business profits, reflecting the generally more profitable nature of international territories. Friends Provident International (FPI) achieved record sales, up 16% on 2005, successfully entered the German personal pensions market, and received licence approval to operate in Singapore. These activities reflect FPI’s approach, which is to look for growth opportunities in new markets. FPI’s trading prospects remain very good. Lombard also achieved record sales growth, well above trend at 40%. Lombard’s primary focus remains on further developing the already strong relationships secured with distributors. The new Swiss office supports this approach, as does Lombard’s continued investment in quality people. Lombard is particularly impacted by tax regime changes, which can present positive opportunities as in Italy, or negative as in Mexico in late 2006. Whilst many of the situations that came together to drive the 2006 growth are unlikely to be repeated in 2007, we remain confident about the opportunities across the diverse and well-regulated markets in which Lombard operates. Throughout 2006, our asset management company, F&C, has continued to put in place the significant building blocks required to turn the business around. The management framework has been comprehensively restructured and the investment teams strengthened. Significant progress has been made to introduce a culture focused on performance, and products have been developed for highermargin business, both of which are already having a positive impact. F&C has announced an accelerated growth plan, which will encompass further new product and distribution initiatives, and which we believe will generate higher margins and new revenue streams well beyond 2007. This plan requires increased investment in the business during 2007, to be financed through a rebasing of the F&C dividend. The approach is to have products appropriate for the changing marketplace, and to attract and retain quality people with the capability to drive up investment performance. In summary, we are announcing another year of strong results founded principally on profitable growth in our life and pensions businesses, both in the UK and abroad. As to outlook, in UK life and pensions our goal for the next two years remains to build our market share significantly and profitably, for which we are investing accordingly. Beyond that, we continue to expect the international life and pensions businesses to have greater potential for sustained growth at a higher margin than the UK and believe that we have the right business model in place to exploit that potential. In asset management, F&C has the potential to grow and generate substantial earnings for the Group, as its growth plan progresses. We therefore believe that Friends Provident has attractive growth credentials. Friends Provident Annual Report & Accounts 2006 39
Page 1 and 2: Setting new standards Friends Provi
Page 3 and 4: ANNUAL REVIEW CORPORATE GOVERNANCE
Page 5 and 6: Group financial highlights Group
Page 7 and 8: INTERNATIONAL LIFE & PENSIONS ASSET
Page 39: INTERNATIONAL LIFE & PENSIONS ASSET
Page 43 and 44: DIRECTORS’ REPORT CORPORATE GOVER
Page 71 and 72: FINANCIAL STATEMENTS Independent Au
Page 73 and 74: PARENT COMPANY ACCOUNTS ABBREVIATIO
Page 91 and 92:
PARENT COMPANY ACCOUNTS ABBREVIATIO
Page 93 and 94:
Page 95 and 96:
Page 97 and 98:
Page 99 and 100:
Page 101 and 102:
Page 103 and 104:
Page 105 and 106:
Page 107 and 108:
Page 109 and 110:
Page 111 and 112:
Page 113 and 114:
Page 115 and 116:
Page 117 and 118:
Page 119 and 120:
Page 121 and 122:
Page 123 and 124:
Page 125 and 126:
Page 127 and 128:
Page 129 and 130:
Page 131 and 132:
Page 133 and 134:
Page 135 and 136:
Page 137 and 138:
Page 139 and 140:
Page 141 and 142:
Page 143 and 144:
Page 145 and 146:
Page 147 and 148:
Page 149 and 150:
Page 151 and 152:
Page 153 and 154:
Page 155 and 156:
Page 157 and 158:
Page 159 and 160:
Page 161 and 162:
Page 163 and 164:
Page 165 and 166:
Page 167 and 168:
Page 169 and 170:
Page 171 and 172:
Page 173 and 174:
Page 175 and 176:
Page 177 and 178:
Page 179 and 180:
Page 181 and 182:
Page 183 and 184:
Page 185 and 186:
Page 187 and 188:
Page 189 and 190:
Page 191 and 192:
Page 193:
Page 196:
Friends Provident plc Pixham End Do
show all

Setting new standards - Friends Life

Create successful ePaper yourself

Delete template?

Save as template?