Shares bounce fails Friends Provident

INSURER Friends Provident failed to take full advantage of a revival in the appetite for investments last year. Sales fell 7% in the last three months of 2004, the company said in an update today, and full-year sales were £434m, up only marginally on £429m in 2003.

The City had been expecting sales of £437m from the UK's fourth largest stock market-listed life insurer. However, the company, which floated in 2001, paying windfalls to 1.7m policyholders, said it was confident of growth this year.

'2004 was a record year for Friends Provident, consolidating the strong growth achieved over the previous two years,' said Ben Gunn, managing director, Friends Provident Life and Pensions. 'We have also seen returning consumer confidence with a 24% increase in UK investment bond products and, with steady equity markets, anticipate continued growth in 2005.'

Last week, Friends' larger rivals Prudential and Aviva announced they had enjoyed bumper growth in 2004, with sales up 26% and 9%, respectively.

A recovery in the UK stock market has encouraged people to return to equity investments. Sales of investment products rose 13% to £129m for Friends in 2004.

However, growth was hampered by the merger of its asset management arm Isis with F&C group. Some pension consultants had withdrawn Friends as a group pension provider until the merger was completed in October.

The market for group pensions, Friends' key product, was also sluggish amid uncertainty ahead of the simplification of the pension system next year. Friends' sales of group pensions declined 7% to £164m in 2004.

Friends said low market activity was expected to continue through the first half of 2005 for group pensions but it still expected to gain market share.

Sales of protection products, which include mortgage-related insurance, rose 11% to £77m over the full year but fell 12% in the fourth quarter amid a slowdown in the housing market and the introduction of new mortgage regulation. The company believes it gained market share last year and expects to do the same this year.

The figures were on an annual premium equivalent basis, an industry measure used to iron out volatility.

Shares in Friends rose 2p to 161½p in early trading. The stock has been the third-best performer among UK life insurers over the past six months, a sector which is seen as a play on stock market fortunes. In terms of company value, Friends is fourth largest behind Aviva, Prudential and Old Mutual.