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Friends Life to be split between open and closed business

Resolution is to split Friends Life’s operations between an open front book and a closed back book, Money Marketing understands.

An announcement is likely to be made as part of the firm’s interim results on August 16 with Friends Life executive director of strategy, capital and risk Evelyn Bourke set to run the closed life business.

Resolution chief executive John Tiner first floated the idea in February as one of a number of exit strategy options when it comes to concluding its life sector consolidation project. It is understood that Tiner and his team has now decided that the open/closed book split is the best route to take.

Speaking in the February market update conference call, Tiner said: “There is merit in looking at that because if you look at the financial characteristics you see a back end which has a very large cost base and a business which is running off and generating cash, whereas the front end of the business is out in the marketplace striving to win new business and increase the value of new business, but requires a lot of cost to be dedicated to it in comparison.

“We are exploring whether there are structural solutions that would be beneficial for shareholders in separating those two books.”

Andy Briggs was confirmed as Friends Life chief executive on June 1, replacing Trevor Matthews who will become Aviva’s chief executive later this year. Briggs will run the open book operation.

Following Resolution’s £1.86bn takeover of Friends Provident in August 2009, the management team were at pains to stress that Resolution had no plans to turn the firm into a closed book provider, following concerns from advisers about service levels.

In an interview with Money Marketing in August 2009 former Friends Provident chief executive Trevor Matthews said Resolution founder Clive Cowdery had no intention of turning Friends into a closed book operation. He said: “I do not think there is any doubt whatsoever over our future as an open life book.”

Resolution says the open/closed book plan is one of a number of options being considered.

Friends Life declined to comment.

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Comments

There are 13 comments at the moment, we would love to hear your opinion too.

  1. Whichever way you want to look at it – when you are captured by a Vulture you’re a corpse.

  2. Based upon my dealings with these people over the last couple of weeks, they can stick their new business division on the moon if they want & if any IFA has sense, they will give them a wide berth!!

    Crap service & oh, by the way, if you would like it emailed, thats another 8 hours!! Who writes it, John Bishop!!??!!

  3. As ever, the first we hear of it is on MM and not via internal briefings…

  4. Here we go, that’s another major problem trundling over the horizon. Time to get the clients out fast methinks.

  5. Were Friends not doing that anyway..?

  6. Is this news? Didn’t they announce this months ago?

  7. The open bit will shrink steadily until eventually the whole lot will fall within the closed bit.

    I wonder if they’re paying John Tiner even more than we were when he was Top Dick at the FSA?

  8. This decision was always inevitable from a company where the main driver is to reduce costs to increase return to shareholders over the shortest term possible. This means a quality customer service has little or no importance in the decision making and a reduction in service standards is inevitable once new and closed business are separated especially as outsourcing to a third party will inevitably follow.

  9. Let’s face it. UK Life office companies no longer make big profits from there UK Businesses as UK Legislation has driven down the cost of financial products. These companies rely heavily on their Offshore business arms and in the case of Friends, 65%+ of profits generated for the company comes from their offshore businesses.

    So it’s no use all of us complaining about UK life offices as all of them are in this dilemma. Just take AXA UK as an example sold their UK division to Friends and went off to focus on their Offshore Business.

  10. I recommended clients to vote against de-mutualising this company AND against letting Resolution have it.

    Even so, I am sorry to be proven right.

    We stopped dealing with them for new business long ago. On the strength of service on existing business I wouldn’t touch them, closed fund, open fund or whatever.

    None as blind as he who refuses to see…

  11. There is a genuine issue with this type of transaction. One reason why companies look after so called legacy business is because of the reputational dmage to their new business. Where the old and new get split, there is no reason for the business running the old portion to provide good service and evenhandedness with regard to with-profits etc.

    Best way round is for with-profit policyholders to be given some shares in the new/new business

  12. John Stephenson 10th August 2011 at 8:31 am

    …still no word from internal briefings, save from that this apparently isn’t even news at all!

    When you can’t even show any basic respect for your staff, I feel for our clients.

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