In its interim statement, the firm says the deal, which is expected to complete towards the end of the year, will significantly extend the reach of its protection distribution.
The news comes as Friends announces a 40 per cent drop in Q1 sales compared to the first quarter of 2008. The poor performance is a result of the firm’s withdrawal from less profitable product lines during 2008, it says.
The firm’s share price fell 8 per cent to 57.4p at 9.15am.
Friends’ estimated IGD capital surplus dropped from £850m at the end of December to £800m at March 31, 2009. The firm says there would be no material sensitivity to a fall of 30 per cent in equity markets from the end of March position and that a further 100 basis points of bond spread widening would reduce estimated IGD surplus by no more than £100m.
Friends’ annualised operating cost savings have increased to £31m at the end of March from £25m at the end of December. It aims to make £40m worth of savings by the end of the year.
Group pensions new business plunged from £127m in the first quarter of 2008 to just £70m on an APE basis this year, although the firm signed deals with 20 new schemes in Q1. The firm puts the drop down to the financial crisis leading to pay constraints and fewer new staff joining schemes.
Individual pensions sales were down 72 per cent from £12.3m in Q1 2008 to £3.5m this year.
Individual protection sales were £9.1m in Q1 compared with £12.4m in the first quarter of 2008 – a 27 per cent drop. Meanwhile group protection sales were £2.2m compared with £2.5m in Q1 2008.
Lombard’s sales have dropped 16 per cent from £24.3m to £20.4m in Q1 this year while Friends Provident International is down 36 per cent from £58m to £36.9m.
Chief executive Trevor Matthews says: “In the current economic environment, trading continues to be tough. I am delighted to announce that in line with our strategy, we have significantly broadened our distribution capabilities with an agreement in principle to provide protection products with Tesco Personal Finance, a very exciting development. We are very much back in business in group pensions, winning 20 schemes in the quarter, and our capabilities have been recognised by a number of awards.
“Our capital position is strong, despite further adverse movements in credit markets this year, and our reserves for corporate bond defaults are the most prudent among our peer group. We are focused on improving the cash characteristics of our business, with further good progress on our cost reduction programme. I am confident that the actions we are taking will stand Friends Provident in good stead for the future.”