Stock market boost for Friends Provident

FRIENDS Provident, the last of the big life insurers to deliver results, has seen annual profits grow faster than expected as its stock market investments have been paying off.

The 29% rise in annual operating profit, from £266m in 2003 to £344m in 2004, has exceeded even the higher end of market expectations. Shares in Friends are up 2p at 176p.

The smallest of the UK's blue-chip life insurers said the profit increase was mainly due to higher income from its stock of investments, improved sales performance and a strong result from its enlarged asset management division.

The other big insurers - Legal & General, Prudential and Aviva - insurers have also seen good profit increases, but have benefited more from new sales.

In contrast, Friends generated flat revenues last year, partly due to the reverse takeover of its asset management arm by F&C. The group said, however, that the F&C deal, along with its expansion via acquisitions overseas, would set the stage for quicker growth over the next two years and beyond.

On Thursday, F&C, in which Friends has a 51% stake, beat expectations with core earnings per share of 14p, up from 12p in 2003.

Friends said it had increased its provision for compensating customers for inappropriate products to £128m from £64m in 2003. Friends said it was recommending a total dividend of 7.55p per share, up 2%.Friends shares closed down nearly 1 percent at 174 pence on Thursday. The stock has performed in line with UK peers over the past year.Life insurers report on an achieved basis, which includes profit from new sales as well as profit earned from existing policies, reflecting investment returns and assumptions about future returns.