Friends Life profits soar 38% but insurer takes £25m Sesame hit

Friends Life’s operating profits increased by 38 per cent in 2014, from £402m to £556m, despite the firm incurring huge costs as its review of Sesame rumbles on.

The provider’s annual results, published this morning, show profits were boosted by changing assumptions about how long annuity customers will live – which saved £103m – the recapture of assets backing annuities, which saved £90m, and a £19m saving from a reallocation of annuities from with-profits funds.

But the firm took a £25m cost hit from its ongoing strategic review of Sesame Bankhall, alongside further costs of £20m for “strategic projects” including the proposed acquisition by Aviva.

The decline in annuity sales as a result of the pension reforms was less severe than expected, Friends Life says, with sales down only 15 per cent compared to a market average of 38 per cent.

Friends Life coporate benefits managing director Colin Williams says: “Our entry in to the open market and the fact that about 50 per cent of our sales have guaranteed annuity rates has really helped out numbers, but there has been a decline.”

The corporate benefits business saw net fund inflows of £600m as auto-enrolment brought 169,000 new members onto schemes. This compares to outflows of £200m in 2013.

However, the value of new business fell 26 per cent to £132m in 2014, down from £179m in 2013.

The provider also announced it will be launching individual savings platform My Savings to coincide with the pensions freedoms in April this year. Customers will have access to a new Isa, flexible Sipp, flexi-access drawdown, cash withdrawals through uncrystallised funds and traditional annuities. Charges for the platform have not yet been announced.

Friends Life shareholders will vote on 26 March to approve the proposed takeover by Aviva.

Friends Life group chief executive Andy Briggs: “I am pleased with the progression shown in this year’s results, in spite of the unprecedented regulatory and legislative challenges Friends Life, and the UK life insurance industry as a whole, have faced in 2014.

”We have delivered a strong performance and put ourselves in a strong position to deliver cash tomorrow. I have the utmost confidence in our standalone position, but I’m excited by the opportunity the Aviva deal offers to accelerate our proven, successful strategy.”

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