* Friends Life says will miss a key earnings target in 2014
* Industry annuity sales set for sharp decline after budgetreforms
* Shares fall as much as 4.3 percent (Adds CEO, CFO comments, details, share price)
By Richa Naidu
May 9 (Reuters) - Friends Life Group Ltd,anticipating a sharp decline in annuity sales, said it wouldcreate new investment products to woo retirees given greaterchoice by recent pension reforms in Britain.
The British life insurer, known until Friday as ResolutionLtd, said it would miss a key full-year earnings target afterFinance Minister George Osborne unveiled reforms to the Britishannuities market in his latest budget.
Shares in the London-listed insurer fell as much as 4.3percent on Friday morning.
Retirees were given more investment choices for theirsavings after Osborne's budget in mid-March scrapped arequirement forcing savers to swap their pensions for an annuitythat pays out an income for life.
Many British pensioners are expected to opt for asset-basedproducts. The reforms are scheduled to be implemented in Aprilnext year.
In an interim management statement, Friends Life forecast a50-70 percent reduction in industry annuity sales in the mediumterm, excluding sales of annuities from vesting pensions withguaranteed annuity options.
"We're going to see a greater focus on more asset-basedmetrics," Chief Financial Officer Tim Tookey said on a call withreporters.
The company is developing new products that will allowretirees to keep their pension pots going while making an incomefrom them. This is a much simpler version of Friends Life'sexisting income drawdown products.
Friends Life said it would miss its 10 percent full-yeargrowth target for its value of new business (VNB) due largely tothe impact of the budget on its annuities sales. The company'sVNB metric is calculated by subtracting the cost of writing newproducts from the money that they bring in.
At its retirement income unit, which provides annuities, thevalue of new business fell 25 percent to 15 million pounds inthe first quarter ended March 31.
"Clearly, the budget only had an impact on the last coupleof weeks of March," Chief Executive Andy Briggs said on thecall. "What we were seeing, even before the budget, is more andmore customers were deferring their retirement decision."
Briggs said that, after the budget, 48 percent of thecompany's non-guaranteed annuity customers had chosen to staywith the product. Fifteen percent cancelled and 37 percent haveasked for more time to decide.
Friends Life's stock has fallen about 14 percent since thereforms were announced on March 19.
The stock, like that of other British life insurers, hascome under further pressure as a result of an investigation bythe Financial Conduct Authority (FCA) into the annuitiessector's treatment of legacy customers.
In what the head of Britain's Treasury Committee describedas an "extraordinary blunder", the chief of Britain's financialwatchdog prematurely let slip that the regulator was planning areview of the life insurance industry.
Briggs said Friends Life was awaiting "further clarity" onthe FCA review.
The company's shares were down 1.8 percent at 297.4 pence at1240 GMT. ($1 = 0.5899 British pounds) (Editing by Robin Paxton)
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