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Cazalet attacks upgraded Friends rating

Industry analyst Ned Caz-alet has criticised ratings agencies Standard & Poor&#39s and Moody&#39s for upgrading Friends Provident&#39s financial strength despite mounting liabilities and reduced excess capital.

Following its demutualisation last year, Friends floated on the stockmarket and injected £1.2bn of the £1.6bn raised into its with-profits fund, earning a AArating by S&P and an Aa3 rating by Moody&#39s.

But Cazalet believes both firms were wrong to boost their ratings (from A+ and A2 respectively), saying Friends lost around 1.7bn last year.

However, Friends&#39 claims this is an exaggeration and places the loss closer to £1bn from its £13bn with-profits fund.

Cazalet says: “I am just staggered by its ratings. During the course of the year, Friends&#39 liabilities inc-reased, it cut bonuses and its excess capital to support the business reduced. So why do these agencies get it wrong?”

S&P financial service group director Paul Waterhouse says: “I am surp-rised. The business figures Friends have had are in line with the rating we gave it. We are usually accused of being too conservative.”

Moody&#39s vice-president and senior analyst Duncan Rawson says: “Moody&#39s does not immediately jump to change ratings. We rate through the cycle and take the long-term view.”

Friends finance director Martin Jackson says: “It is perfectly valid for us to have similar ratings to other companies with solvency ratios around the same level.”

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