View more on these topics

Friends in need?

Resolution’s acquisition of Friends Provident paves the way for further consolidation in the life sector but advisers have raised concerns over the service levels their clients may receive as a result.

Under the £1.86bn deal, Resolution will rename its acquisition vehicle Friends Provident Holdings and Friends chief executive Trevor Matthews will retain his role in the new company.

Resolution is reckoned to be eyeing up a further nine insurers, rumoured to include Prudential, Aviva, Scottish Widows and the UK arms of foreign insurers such as Axa, Zurich and Aegon.

The acquisition group says it is looking to buy firms with market caps of £1bn or more and is very much focused on bigger companies.

Resolution’s plan is to take over three or four life offices, merge them with Friends and then sell them off in two to four years.

Last week, Friends announced losses from continuing operations of £102m for the first half of 2009 and Matthews admitted that the business has been hit by the economic climate.

Stockbroking firm Charles Stanley says it has mixed feelings about the deal. It says Friends had started to make good progress on its own to turn around the business.

A spokesman says: “What we suspect has happened is that two groups of investors have put pressure on the Friends’ board to do a deal, the first group being investors who wanted an exit from the stock and the other group being investors who have a stake in Resolution and realise that if Resolution is going to be successful in its consolidation project, then Friends had to be the first step.”

Moody’s has changed the outlook for Friends from stable to developing as a result of the deal and says in the medium term, the transaction might be beneficial for Friends as it represent a catalyst for future acquisitions which will be “indispensable” for the life office if it is to achieve sufficient economies of scale.

But this will depend on future M&A deals which at present are uncertain with respect to possible targets and means of financing.

Moody’s says: “At the same time, negative rating pressure arises from both the deterioration of Friends’ H1 2009 results as well as the execution risk in Resolution’s acquisition strategy, in particular, the challenge from the inherent risk of integrating large open life insurance operations.”

Friends insists the deal will not affect policyholders but advisers may need more convincing.

Hargreaves Lansdown pensions analyst Laith Khalaf says that, for the moment, policyholders will probably be unaffected but in the medium term there may be disruption.

Khalaf says: “Resolution is going to look to buy other life companies and that is going to mean merging them and integrating them with Friends Provident. This can lead to problems, such as losing staff and merging admin systems.”

He says it is good for Friends that it is the first insurer that Resolution has bought because whatever the next acquisition is will have to fit into the Friends’ model.

Khalaf says: “Looking forward even further, Resolution is going to consolidate other life companies and sell them on, so policyholders are going to be shifted on to someone else. This could mean there is disruption for policyholders being pushed from pillar to post.”

He says advisers could think twice before placing new business with Friends because the future of the company is uncertain.

He says: “I would not say to policyholders to change provider just for this reason. But if service standards start to slip, then that is probably the time to change.” Informed Choice managing director Nick Bamford says: “Friends has become something of a second-division provider to the IFA community. More and more IFAs are moving away from using mainstream life insurers.”

Bamford does not think the deal is necessarily bad news for policyholders but says admin often “goes out the window” when consolidators take over.

Worldwide Financial Planning IFA Nick McBreen says the deal makes sense as Resolution will offer the financial backing that Friends needs but it is important that Friends retains its brand.

He says: “I think they need to make sure their brand image is not diluted or damaged by this but it is a smart business move because it is all to do with who is going to get market share.”

Recommended

DB deficit at tipping point

Nearly a quarter of FTSE 100 firms will be unable to pay off their pension deficits over any reasonable time period, according to KPMG research.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com