LONDON (Alliance News) - Friends Life Group Ltd, formerly known as Resolution Ltd, Friday said it won't be able to meet its value of new business growth target in 2014, as a result of changes made to the annuities market in the UK's 2014 government budget.
In a statement, the life and pensions company said it will miss the 10% growth it had been targeting for value of new business in 2014, after Chancellor of the Exchequer George Osborne unveiled new proposals that give individuals more freedom over their pension pots, meaning they are no longer effectively forced into buying annuities - products that provide a guaranteed income in retirement.
Still, Friends Life said the immediate impact of the announced changes has not been as severe as the 50% to 70% reduction in new individual annuity business that had expected. It said its non-guaranteed annuity option business shows 48% of customers are proceeding with the purchase of an annuity, with 15% cancelling and 37% remaining undecided.
Friends Life said the overall value of new business it wrote in the three months ended March 31 fell to GBP32.0 million, from GBP38.0 million in the corresponding quarter a year earlier.
Its UK division's first-quarter value of new business was flat, at GBP35.0 million, while its international division reported a GBP7.0 million fall to GBP3.0 million
Friends Life said it expects its overall new business margin for 2014 to be "broadly similar" to that achieved in the first-quarter. Despite saying it will miss its value of new business target, Friends Life said neither cash generation nor capital will be affected and left its dividend policy unchanged.
Furthermore as a consequence of the expected shift in mix from insurance to asset-based business, insurance-type metrics will become less relevant, Friends Life said.
Over the course of the quarter, assets under administration remained flat at GBP40.3 million.
Discussions regarding potential sale of life assurance and wealth-planning business Lombard are ongoing, although uncertainties surrounding the potential sale have resulted in lower sales and net fund outflows, Friends Life said.
"Our first quarter performance has been robust, driven by increased profitability and volumes in protection and corporate benefits - with net fund inflows into corporate benefits," Andy Briggs, chief executive said in a statement.
"The recent budget announcement will give customers more flexibility around their retirement savings. Whilst some of these changes will have longer-term implications for our business and the industry as a whole, they will also create new opportunities. As the number two player in the corporate benefits market and with one in nine maturing pensions, we remain well positioned to develop and provide innovative new solutions to meet customers' retirement needs," Briggs said.
"Neither the budget nor the recent regulatory and market developments will impact on our short term ability to generate cash, but the Budget will impact on the delivery of our value of new business target this year. By keeping customers at the heart of everything we do, we will develop flexible new retirement propositions and, together with continued growth in areas not affected by the Budget, this will enhance our ability to generate cash in the future," Briggs said.
Friends Life Group shares were Friday quoted up 0.7% at 297.0 pence.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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