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Friends cuts payouts in wake of £242m losses

Friends Provident has cut with-profits payouts by 6 per cent after writing down £402m in investment losses.

It made an operating profit of £161m in the first half of this year but the investment writedown brought an overall loss of £242m compared with a profit of £19m in 2001.

The company says it needs to reduce payouts to more sustainable levels. The 6 per cent cut will only affect maturing policies but regular bonuses will be reduced by 0.5 per cent.

The payout on a 25-year £50 a month endowment policy falls from £77,096 to £72,947. For a 10-year pension plan with a premium of £200 a month, the payout drops from £35,364 to £32,959.

Friends says stockmarket falls have led to a negative return on the with-profits fund of -4.8 per cent for the first six months of this year. It says the payouts reflect considerable smoothing but it cannot rule out further cuts.

The company has declared a free-asset ratio of 10 per cent although managing director Ben Gunn says this would rise to 11.5 per cent if the FSA&#39s recent relaxation of resilience testing was taken into account.

Life and pension business rose to £182m in equivalent premium income from £160m.

Friends has doubled funds under management following its acquisition of Royal & Sun Alliance&#39s asset management business. It also estimates a share of the offshore market of 17 per cent once its purchase of Royal & Sun Alliance International Financial Services is completed this year.

Gunn says: “These are damn good results. We are very pleased with them. But it is likely that we will see further bonus cuts if the markets do not improve.”

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