Friends Life Grp (35PG) - Interim results 30 June 2012 RNS Number : 0318K Friends Life Group plc 15 August 2012 FRIENDS LIFE GROUP plc INTERIM MANAGEMENT REPORT AND RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2012 HIGHLIGHTS Integration and business optimisation delivering results · Operational delivery on track to meet key performance targets: - Annualised synergies of £65 million achieved in the first half of 2012; on track to hit the published target - Improved Group new business IRR of 10% as UK business migrates to higher margin target platforms - Material outsourcing contract and launch of in-house asset manager successfully delivered in Heritage business - Friends Provident International ("FPI") and Lombard impacted by challenging economic environment; FPI strategic review to rebalance value, volume and risk · IFRS based operating profit before tax of £178 million (including £27 million of one-off items) (30 June 2011: £406 million including £216 million of one-off items) reflecting lower expected investment returns on the in-force book, a disappointing performance in the International businesses partly offset by reduction in costs of new business Robust capital position maintained · IGCA surplus of £1.9 billion (31 December 2011: £2.1 billion) reflecting the payment of £250 million dividend to Resolution Holdings (Guernsey) Limited in March 2012; representing a coverage ratio of 204% · Balance sheet has low exposure to higher risk European sovereign and corporate debt Andy Briggs, Chief Executive Officer said; "The Group has delivered a strong performance over the past six months, particularly in our core UK market despite the ongoing difficulties in the wider economy. We have continued to successfully implement our strategy to build a stronger and more efficient business, achieving key milestones including the launch of our new investment management operation, Friends Life Investments, and delivering cost synergies and efficiencies throughout our business. The UK 'Go-to-Market' offerings have gained significant momentum, driving improved profitability despite continuing tough trading conditions, which have also extended to our International division. We will maintain a strong focus on controlling our costs and driving efficiencies across our business to deliver our cash and synergy targets. Friends Life has a clear strategy to build a sustainable and profitable long-term business and we are well placed to benefit both from the current momentum we have built and from the opportunities in the UK market, as auto-enrolment and the RDR are implemented later this year." Notes to the editors 1. Friends Life Group are the holders of a large number of industry awards, showing continued recognition of the quality of our products and service. 2. This announcement contains certain forward-looking statements with respect to the Friends Life Group and its outlook. These statements and forecasts involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this announcement should be construed as a profit forecast. 3. For more information on the Friends Life Group including, photos, awards, fast facts, presentations, and media contacts please visit the media section at www.friendslife.com/media 4. For more information on Resolution Limited, including, photos, awards, fast facts, presentations, and media contacts please visit the media section at www.resolution.gg Overview Friends Life Group ("the Group") continues to make good progress in the pursuit of its strategic objectives in the first half of 2012. The Group has improved the underlying performance of the operating businesses, particularly in the UK, where management actions have driven strong growth in new business profits with reduced cash strain. This improved operating performance has however been impacted by the challenging economic environment resulting in weaker investment markets and lower interest rates compared to the previous period and the Group's expectations. These have adversely affected overall returns. The Group's capital position remains robust with an estimated IGCA surplus at 30 June 2012 of £1.9 billion. Notwithstanding the more challenging environment a number of core projects were delivered in the first half of the year, including the previously announced Diligenta outsourcing transaction, which commenced successfully at the beginning of March 2012. The separation and integration activity is also making good progress with separation from Bupa completed at the end of January 2012. The separation from AXA remains on track with three quarters of transitional service arrangements ("TSAs") now exited. Synergy delivery as part of the integration process has achieved £65 million of run-rate cost savings, up from the £45 million at the end of 2011. As expected, the bulk of the additional synergies recognised in the first half of 2012 reflect the realisation of contractualised savings through the Diligenta outsourcing transaction, with the closure of a number of the Group offices also contributing to the improved run-rate. Total run-rate and contractualised synergies amount to £112 million at the 30 June 2012, up from the £105 million reported in the 2011 full year results. On 2 July 2012 the Group launched an in-house asset management business, Friends Life Investment Limited ("FLI") with £6 billion of fixed interest assets. This business has been built around the current in-house investment team augmented with key hires bringing to the Group the capability and expertise needed to manage these asset portfolios. FLI will continue to seek to accumulate fixed interest assets over time and is expected to add value to the group through savings on external management fees, VAT and improved investment portfolio construction over time. Resolution Limited, the ultimate parent company of Friends Life Group plc has announced that it will no longer seek a specific exit event for its UK Life project and consequently the previously announced self-managed exit plan of separate IPOs of the UK Go to Market and Heritage business units is no longer envisaged. Economic and regulatory environment The economic environment over the last twelve months has remained uncertain with lower than expected global growth exacerbated by the debt crisis and political uncertainty in Europe. In the UK, the uncertainty in Europe has had an adverse impact on customer confidence and growth, taking the UK back into recession. In the first half of 2012, lower than expected market levels reduced returns from the in-force funds in the form of lower annual management charges compared to prior periods. In the debt markets, short and medium term gilt yields, a key driver of future expected returns, remained at or around 2011 year end levels driven in part by the UK's position as a relative safe haven. Corporate bond spreads have remained elevated over the same period. The Group's business units have all been impacted by reduced consumer confidence with customers in the international businesses postponing decisions regarding investing or saving for the future. This has been compounded in some regions, notably Asia, by increased competition levels which have led to overall margin pressures. Friends Life's UK product markets remain relatively stable with the principal challenges resulting from the changing regulatory agenda. The UK business's preparations are on track for the forthcoming regulatory changes towards the end of 2012 including the inception of the RDR, auto-enrolment and gender neutral pricing. The Group continues to believe that it is well-positioned to benefit from the opportunities expected to be generated by these regulatory changes. The corporate benefits market is large and continues to be a fast-growing but lower margin, market. Competition on price remains intense with the current market continuing to have a bias to paying commissions in a pre-RDR environment. Nevertheless the Group believes opportunities in this market are promising driven by the ongoing shift from defined-benefit to defined-contribution schemes, whilst the advent of auto-enrolment and the RDR are likely to widen the market and level the competitive playing field. The UK protection market is mature, concentrated and has remained relatively stable over the past few years despite the weak macroeconomic climate. In the period following the introduction of the RDR, the Group expects to benefit from any shift in the business models of distributors to focus more on protection products. Further changes regarding gender neutral pricing and life tax reforms will have an effect on the price of individual protection and are expected to increase market pricing volatility in the early part of 2013. The Group believes that the Friends Life protection business is well positioned to succeed in this scenario as it operates a value-based proposition, focused on product quality. The environment in the retirement income market also remains positive with continued growth expected to be driven by population demographics as 'baby boomers' retire. Further to this the competitive market reflects the expectations for future capital demands, in light of Solvency II, as well as persisting low Gilt rates. Despite these factors the Group does not expect the current cautious pricing levels and associated margins to be maintained in the second half of 2012 in which lower margins are assumed. On the regulatory front the business is meetingthe drive for increasedtransparency in the retirement income sector by implementing theABI Code of Conduct, which is due in March 2013. This aims toimprove the customer's understanding oftheir optionsatretirement, and highlights the importance of the strategy to develop a broader product range in the retirement income space. The implications of Solvency II remain a key focus with the Group monitoring the regulations and likely impacts as they develop. As stated in March, the uncertainty around a number of the key issues, including the treatment of matching adjustments, could have a material impact on future capital requirements. Over the coming period the Group will continue to monitor legislative developments in Europe and input to the UK's implementation plans. Business performance Friends Life's results in the first half of 2012 reflect two key elements: improved financial discipline and the effects of the macroeconomic environment. The Group has continued to make good progress in delivering against those elements of the published strategy within management's control; however, economic uncertainties have impacted the results with lower investment market levels and expected returns reducing surplus generation. The Group delivered a robust IFRS operating performance in the first half of 2012, with an operating profit of £178 million in the period principally reflecting good progress towards reducing acquisition expense levels offset by the macro economic factors impacting surplus generation. UK new business cash strain of £60 million in the first half of 2012 has been reduced by an annualised £183 million from the £303 million baseline in 2010, representing 92% of the £200 million targeted new business cash strain reduction. The activity to migrate the Go to Market businesses to their respective target platforms has supported this improvement alongside the continued focus on operating costs and the delivery of targeted synergies. 2012 2010 2013 2011 2011 Full year Target Half year Half year Full year baseline^(i) IRR (%) - UK n/a^(ii) 9.4 7.0 7.7 5.9 - International 20+ 10.5 13.5 12.7 15.4 - Lombard^(iii) 20+ 14.1 19.0 >25 >25 Blended group new business IRR ^(iii) 15+ 10.0 9.6 10.0 8.6 New business cash strain (£m) 192 120 161 278 392 (i) 2010 baseline includes an estimate of 12 months BHA and AXA UK Life Business results. (ii) Target IRRs for the Go to Market businesses are set out in the relevant sections of the UK operating review (iii) The 2011 Lombard IRR (and therefore the blended group IRR) now takes account of the Luxembourg regulatory regime in which DAC is an allowable asset. The International results are relatively disappointing although they demonstrate a resilient performance, with stable funds under management, against a challenging economic and competitive background. Pricing discipline and shift in new business mix to higher margin products have largely maintained the value of new business in a period when market and competitive pressures have reduced the overall level of new business volumes. Lombard's first half performance is also subdued with lower economic returns and one-off costs impacting the result. Lombard's sales are up 4% on a constant currency basis (2% down in sterling) in a highly uncertain market environment although the mix of business has resulted in reduced new business contribution levels in the period. The Business Review that follows covers the 2012 operating performance in detail. Capital strength Friends Life has maintained a robust balance sheet in the first half of 2012 despite continuing difficult economic conditions. At the 30 June 2012, the Group had an estimated IGCA surplus of £1.9 billion (31 December 2011: £2.1 billion) reflecting the payment of the £250 million dividend to Resolution Holdings (Guernsey) Limited in March 2012. The June 2012 position represents a coverage ratio of 204% over the Group capital resource requirement (excluding WPICC). In addition the Group also retains a highly rated corporate bond portfolio and has limited exposure to higher risk European sovereign debts. Outlook The Group has continued to make progress executing the strategy in 2012 and this is reflected in how the business has been transformed over the last 18 months. Whilst there remains a significant amount still to be completed, the Group believes it is on track to create a sustainable, profitable, long term business, driven by the Heritage, UK Go to Market and International businesses. Group results Key performance indicators The Group uses the following key performance indicators. Half year Half year Full year £m (unless otherwise stated) 2012 2011 2011 IFRS based operating profit before tax 178 406 722 IFRS (loss)/profit after tax (43) 61 10 Estimated IGCA surplus capital (£bn) 1.9 2.0 2.1 Asset quality^(i) for shareholder-related assets 97% 96% 97% (i) Corporate debt and asset-back securities at investment grade or above. · IFRS based operating profit before tax of £178 million is £228 million lower than the first half of 2011 principally reflecting the one-off benefits of £216 million reported in 2011. On a comparable basis, after the removal of one-off items in 2012, positive £27 million, the result reflects a fall of £39 million as good progress in reducing UK new business strain is offset by difficult economic conditions and one-off costs. The current economic environment in which interest rates remain low has adversely impacted surplus generation, particularly in International, while lower funds under management have impacted levels of fee generation in the UK business. The results also reflect a number of one-off costs including costs incurred as the business invests in operational capability for the future. · IFRS loss after tax of £43 million (30 June 2011: £61 million profit) principally reflects the costs of separation and integration activities, delivering the Diligenta outsourcing and preparing for Solvency II. Other non-operating items include a marginally reduced amortisation charge compared to the original run-off on acquired intangibles reflecting revised expectations for International acquired VIF ("AVIF") run-off, while the comparative period includes the gain on the acquired BHA business offset by one-off amortisation and impairment of AVIF. · Estimated IGCA surplus capital of £1.9 billion (31 December 2011: £2.1 billion) represents a coverage ratio of 204% (31 December 2011: 219%). The reduction principally reflects the payment of a £250 million dividend to Resolution Holdings (Guernsey) Limited in March 2012 which underpinned the payment of the 2011 final dividend to shareholders. · The Group has maintained high asset quality, with 97% of shareholder-related corporate debt and asset-backed securities at investment grade or above (31 December 2011: 97%). The Group has no significant shareholder exposure to sovereign debt or corporate bonds of higher risk European economies. No defaults were recorded in the period and the shareholder share of default provisions remained unchanged at £0.6 billion. Group IFRS profit The Group's IFRS results are set out below, including a reconciliation from IFRS based operating profit to the IFRS result after tax. The Group uses the operating profit measure as the Board considers that this better represents the underlying performance of the business and the way in which it is managed. Half Half Full year year^(i) year^(ii) £m UK Int'l Lombard Corporate 2012 2011 2011 New business strain (41) (24) (18) - (83) (103) (181) In-force surplus 196 51 28 - 275 323 572 Long-term investment return (26) - - 9 (17) (14) (26) Principal reserving changes and one-off items 27 - - - 27 216 404 Development costs (18) (4) - - (22) (14) (36) Other income and charges (1) (2) - 1 (2) (2) (11) IFRS based operating profit before tax 137 21 10 10 178 406 722 Short-term fluctuations in investment return 18 (2) (261) Non-recurring items (118) (79) (293) STICS interest adjustment to reflect IFRS accounting for STICS as equity 16 16 31 IFRS profit before acquisition accounting adjustments and shareholder tax 94 341 199 Gain on acquisition of businesses - 68 116 Costs associated with business acquisitions - (1) (3) Amortisation and impairment of acquired in-force business (204) (453) (675) Amortisation of other intangible assets (42) (41) (84) IFRS loss before shareholder tax (152) (86) (447) Shareholder tax 109 147 457 IFRS (loss)/ profit after tax (43) 61 10 (i) Half year 2011 results comprise six month results for Friends Provident and the AXA UK Life Business, five months for BHA, six months for GOF and TIP. The GOF and TIP businesses were sold on 1 November 2011. (ii) Full year 2011 results comprise 12 months results for Friends Provident and the AXA UK Life Business, 11 months for BHA, ten months for GOF and TIP and two months for WLUK. The Group IFRS based operating profit in the period to 30 June 2012 totalled £178 million, a reduction of £228 million on the same period in 2011 (30 June 2011: £406 million). After the removal of principal reserving changes and one-off items (30 June 2012: £27 million, 30 June 2011: £216 million) the 2012 half year result is £39 million lower than the first half of 2011 reflecting the Group's focus on financial discipline within the operating companies in a challenging macro economic environment. The economic conditions, in which expected returns remain low, have adversely affected the results with the International business in particular impacted by lower interest rate levels. The results also reflect a number of one-off costs in both the International and Lombard businesses, including the strategic review, while other one-off development costs have been incurred in the UK as the business invests in operating capabilities for the future. The result comprises the operating profit of the life businesses of £168 million and £10 million of corporate income. Further details of the operating performance of the Group are included in the relevant business unit operating sections. Non-operating items Short-term fluctuations in investment returns, on assets backing the shareholder and non-profit funds, were a favourable £18 million in the period to 30 June 2012. This benefit principally reflects the release of credit default allowances as default experience on assets backing annuity liabilities was better than assumed. In addition, an £8 million benefit has resulted from annuity portfolio mismatches reflecting the fact that these liabilities are matched on a realistic basis as opposed to the reported regulatory basis. Partially offsetting these positive items is a £7 million adverse variance on shareholder assets, which mainly reflects the difference between actual and expected longer-term return on the external debt. Non-recurring items of £118 million include: · separation and integration costs of £39 million; · costs, net of provision releases, on the separation and integration programmes totalled £39 million in the period and take cumulative spend on these projects to £89 million and £83 million respectively (31 December 2011: £72 million and £67 million before £6 million provision release). · outsourcing implementation costs of £27 million; · costs of £84 million relating to the Diligenta outsourcing implementation were provided for as at 31 December 2011. In the period, £13 million of these provisions have been released against costs of £40 million resulting in net costs in the period of £27 million. The costs incurred to date therefore amount to £111 million. Total implementation costs are expected to be £250 million with the remainder being incurred in the period to the end of 2014. · finance transformation costs of £48 million largely relating to Solvency II; · capital optimisation project costs of £13 million and other non-recurring costs of £1 million; and · other non-recurring income of £10 million relating to a curtailment gain on the Group pensions scheme, resulting from the Diligenta outsourcing agreement. Interest payable on the STICS of £16 million is included as a £11 million deduction to corporate long-term investment return in the operating profit analysis, and a £5 million adverse investment fluctuation. As the STICS are accounted for as equity in IFRS (with interest being recorded as a reserve movement), £16 million is added back to the non operating result to reflect the requirements of IFRS. Acquisition accounting adjustments, totalling £246 million, represent the amortisation of the intangible assets recognised on the acquisitions. These charges comprise £204 million of amortisation of acquired in-force business, and £42 million of amortisation of other intangible assets. The amortisation of acquired in-force business in 2011 included a one-off charge of £201 million (£130 million for the AXA UK Life Business, £71 million for BHA) which reflected the accelerated run-off of in-force surplus following the recognition of negative reserves in these businesses. The Group continues to monitor the expected run-off profile of the acquired in-force business with this adjusted in 2012 to reflect changes to the expected run-off profile of the International business's acquired in-force book. A shareholder tax credit of £109 million has been recognised in the period and is higher than the loss before tax of £152 million would imply. The principal differences between the implied and actual shareholder tax credit relate to: · £47 million shareholder tax credit for tax reliefs, expenses and exemptions predominantly in relation to the life insurance companies in the Group which are taxed on the 'I minus E' basis; · £30 million shareholder tax credit relating to the reduction in the UK corporation tax rate; offset by · £5 million shareholder tax charge in respect of provisions. The tax credit includes £87 million credit in respect of the amortisation of AVIF and other acquired intangibles in the period. Summary IFRS balance sheet 30 June 31 December £m 2012 2011 Acquired value of in-force business 4,219 4,437 Other intangible assets 366 410 Financial assets 102,945 103,643 Cash and cash equivalents 8,567 8,690 Other assets 8,592 8,132 Total assets 124,689 125,312 Insurance and investment contracts 112,130 112,455 Loans and borrowings 952 972 Other liabilities 5,763 5,737 Total liabilities 118,845 119,164 IFRS net assets 5,844 6,148 Equity attributable to equity holders of the Company 5,514 5,825 STICS 327 318 Attributable to non-controlling interests 3 5 Total equity 5,844 6,148 At 30 June 2012, IFRS total equity was £5,844 million (31 December 2011: £6,148 million), with equity attributable to equity holders of the Company of £5,514 million (31 December 2011: £5,825 million). Financial assets are predominantly invested in listed shares, other variable yield securities, corporate bonds, asset backed securities and government securities. Asset quality has been maintained with 97% of shareholder-related corporate bonds and asset-backed securities held at investment grade or above and there is limited exposure to European sovereign debts. UK operating review The UK business has evolved rapidly since 2009, making good progress separating and integrating the acquired businesses and subsequently reorganising the business units into the Heritage and Go to Market units. The Heritage business unit forms the bulk of the UK business by assets and in-force value, as illustrated below, while the Go to Market business units are focused on scale markets where good margins are generally available and where the Group has strong market positions enabling access to those margins. Assets under management UK by business unit % UK Heritage 80 Corporate Benefits 18 Protection - Retirement income 2 Total 100 Profitability of new business 2012 Half year 2010 £m (unless Go to Market 2011 2011 Full otherwise Corporate Retirement Half Full year stated) Heritage Benefits Protection Income Total year year baseline New business cash strain (20) (32) (23) 15 (60) (98) (169) (303) IRR (%) 4.2 6.8 9.8 >25 9.4 7.0 7.7 5.9 APE 60 291 44 19 414 372 721 677 The profitability of new business delivered in the first half of 2012 reflects the significant progress made in delivering operating cost synergies, continued migration of new business to target platforms and the outsourcing arrangement with Diligenta. New business cash strain has decreased period on period with a 39% improvement compared to the first half of 2011. This improvement is a reflection of the material progress made by each of the business units as they drive forward their respective strategies. The profitability of UK new business with an IRR of 9.4% similarly reflects the good underlying business unit performance with the improvement in Protection and Retirement Income feeding into the overall result. Corporate Benefits profitability also reflects an upward trend on the first half 2011 although the improvement has been partly offset by the lower IRR on the current not-yet-scale new corporate platform and the acquired WLUK business which has not yet transferred to the target platform. Financial performance UK IFRS based operating profit 2012 2011 2011 Half year Half year^(i) Full year^(ii) £m New business strain (41) (66) (112) In-force surplus 196 214 402 Long-term investment return (26) 4 (5) Principal reserving changes and one-off items 27 222 416 Development costs (18) (10) (28) Other income and charges (1) - (1) IFRS based operating profit before tax 137 364 672 (i) Half year 2011 results comprise six month results for Friends Provident and the AXA UK Life Business, five months for BHA, six months for GOF and TIP. The GOF and TIP businesses were sold on 1 November 2011. (ii) Full year 2011 results comprise 12 months results for Friends Provident and the AXA UK Life Business, 11 months for BHA, ten months for GOF and TIP and two months for WLUK. The interim 2012 UK operating profit of £137 million is £227 million lower than the same period in 2011 (30 June 2011: £364 million) mainly reflecting the significant one-off benefits reported in the comparative period. After the removal of principal reserving changes and one-off items (30 June 2012: £27 million, 30 June 2011: £222 million) the UK result is £32 million lower than 2011. This underlying result reflects a number of factors with strong progress made in reducing the costs of writing new business offset by the impacts of a low return environment, increased intragroup interest costs and one-off costs. One-off costs of £3 million have been incurred in respect of the establishment of FLI, with £3 million benefits being recognised through reduced levels of reserves for future investment management fees. The increase in development costs incurred in the period include an increase in spend as the business invests in the retirement income strategy as well as operational capabilities in the lead up to RDR and auto-enrolment implementation. Reconciliation of new business cash strain to IFRS new business strain 2012 2011 2011 £m Half year Half year Full year Total UK new business cash strain (60) (98) (169) DAC/DFF adjustments 19 33 60 Other IFRS adjustments - (1) (3) Total UK IFRS new business strain (41) (66) (112) In the period, IFRS new business strain has been reduced by 38% to £41 million (30 June 2011: £66 million) reflecting the Group's actions to reduce acquisition expense levels. The reduction in IFRS new business strain is principally driven by the underlying new business cash strain which is detailed in the Go to Market and Heritage operating sections that follow. Deferred acquisition costs ("DAC") are recognised on pensions and investment new business with the lower level of deferral compared to prior periods reflecting the reduced commission levels following the decision to stop selling investment bonds in 2011. Reconciliation of in-force cash surplus to IFRS in‑force surplus 2012 2011 2011 £m Half year Half year Full year Total UK cash surplus 166 207 354 DAC/DFF adjustments (1) (1) (7) Other IFRS adjustments 31 8 55 Total UK IFRS surplus 196 214 402 In-force surplus of £196 million reduced from £214 million in the first half of 2011 principally reflecting the impact of the challenging economic environment. The reduced level of funds under management, driven by both low period on period market levels and net outflows from the Heritage business, reduced the amount of fees generated in the first half of 2012. In addition the effect of year end basis changes made at 31 December 2011 has resulted in the non-recurrence of the benefit of favourable experience variances included in the first half of 2011. The overall contribution to in-force surplus of the acquired WLUK business is £12 million in the first six months of 2012 following the business's acquisition in November 2011. Maintenance expenses incurred by WLUK were £11 million, excluding these maintenance expenses are flat period on period. The £1 million net amortisation of DAC and deferred front end fees ("DFF") reflects the relatively small value of these costs that have been capitalised in the post-acquisition period. The other IFRS adjustments mainly relate to the reversal of investment contract reserve movements which are not allowable under IFRS. Longer-term investment return 2012 2011 2011 £m Half year Half year Full year Longer-term return on life and pension shareholder funds - excluding debt 27 35 70 Longer-term return on life and pension shareholder funds - debt (53) (31) (75) Total (26) 4 (5) The decrease in longer-term investment return in the UK business is a reflection of the reduced expected rates of return combined with the increased cost of debt compared to the same period in 2011. In the first half of 2012 rates of expected return for gilts, corporate bonds and cash have reduced significantly resulting in a £8 million reduction in investment return. The increased debt costs in the first half of 2012 reflect a full six month's interest charge on the internal LT2 subordinated debt issued by Friends Life Limited to Friends Life holding companies in 2011 (with £500 million issued in April 2011 and a further £200 million issued in December 2011). The benefit of the interest received is reflected in the Corporate business unit's operating result. Principal reserving changes and one-off items Principal reserving changes and one-off items include a benefit of £17 million relating to revised transfers on guaranteed annuity options triggered by the vesting of pensions business within the with-profit funds. Other one-off items of £10 million mainly reflect the favourable impact of a refinement of the reserving for attributable expenses as well as the recognition of benefits to be achieved following the set up of FLI. UK operating expenses 2010 2012 2011 2011 Full year £m Half year Half year^(i) Full year baseline^(ii) Acquisition 77 89 178 220 Maintenance 141 130 263 256 218 219 441 476 Development 18 10 28 23 Total 236 229 469 499 (i) 2011 half year operating expenses do not include the acquired WLUK business as this was acquired on 7 November 2011, but include BHA from the date of acquisition. (ii) 2010 full year baseline includes an estimate of 12 months operating expenses for AXA UK Life Business, BHA and WLUK. UK operating expenses, which exclude commission payments and non-recurring costs, totalled £236 million in the period, up £7 million on the same period in 2011. The increase in development spend, up £8 million in the period, is the principal driver of this period on period increase and reflects preparations by the UK business for the forthcoming regulatory changes such as the RDR and auto-enrolment. Development costs also include expenditure associated with the recently launched corporate platform 'My Money' as well as the Retirement Income strategy. Acquisition and maintenance costs amounted to £218 million in the period, marginally lower than the same period in 2011. After adjusting for the inclusion of the acquired WLUK business (£15 million) and inflation (£7 million), costs in the period have been reduced by £23 million principally reflecting the in year delivery of £65 million run-rate savings. Maintenance expenses have increased in the period by £11 million, largely reflecting the inclusion of the acquired WLUK business in the 2012 results. In addition, costs of £3 million have been incurred in relation to the set up of FLI although these costs have been offset by a benefit in principal reserving changes and one-off items. Excluding these impacts, maintenance expenses are lower than the comparative 2011 period with further reductions expected as the business completes the integration process and delivery of the target £143 million synergies by 2015. UK other income and charges Other income and charges of £(1) million include the trading profit of £1 million in Sesame Bankhall Group ("SBG"). SBG is a broad-based financial services group and the UK's largest distributor of retail financial advice, operating three market leading brands. Sesame is the leading appointed representative network, Bankhall is the largest support service provider for directly regulated IFAs and PMS is the biggest mortgage club for intermediaries. SBG's result is in line with expectations in the first six months as the business continues to make significant investments in its technology infrastructure and in a range of new services for its customers to strengthen its market-leading position in advance of the RDR implementation. UK Heritage Market environment The Heritage business is making good progress in preparing for the significant number of changes facing the UK life and pensions market. The Heritage business has a broad range of products that will be impacted by the RDR, gender neutral pricing and auto-enrolment of pensions. Consequently the Heritage business is undertaking the product and systems enhancements necessary to fulfil the Group's regulatory obligations in particular Treating Customers Fairly. In doing so, the business is applying commercial judgement to the need for investment, taking account of the scale of products and planned longer term outsourced platform developments. Strategy implementation The UK Heritage business unit serves over four million customers. It manages a significant proportion of the funds under management of the Group, relating to a large suite of products that are no longer actively marketed and are administered on complex legacy systems. Consequently the business is very different to the UK Go to Market businesses. Good progress continues in embedding a dedicated management team focused on the Heritage business, consistent with the aim to be the UK's leading legacy business manager with the knowledge and expertise to maximise the value created from these books. The value drivers for the Heritage business are: · management of an efficient cost base in line with business scale; · minimisation of capital required for the business; and · retention of in-force business. The Heritage business has previously identified six strategic themes to begin to harness these value drivers. Progress on the themes prioritised in 2012 is set out below. The Heritage business expects to address the remaining strategic themes, fund rationalisation and customer value management, over a longer timeframe. Outsourcing The significant policy administration and IT outsourcing deal with Diligenta which commenced on 1 March 2012 is operating as expected. Combined with the existing outsource arrangement with Capita, materially all of Heritage policy administration is now outsourced. This means a considerable part of the Heritage cost base is now directly variable, and will decrease as policies run off. Since the initial transfer of 1,900 staff and smooth transition of work to Diligenta with effect from 1 March 2012, implementation of the deal has continued to progress well. The customer service work of circa 400 full time employees ("FTE") transitioned seamlessly from WIPRO (an existing outsource provider) to TCS (Indian parent company of Diligenta) in May, again on schedule and with no disruption to service. The IT application and support work of circa 200 FTE also transferred to TCS in May without disruption. Building an in-house asset manager Building in-house asset management capability supports the aim of running a lean cost base with the expectation that assets can be managed more efficiently in the longer term. FLI successfully launched on 2 July 2012 with £6 billion of fixed interest assets under management. This successful development of in-house capability demonstrates the opportunity to deliver more value from the existing book through optimised investment strategies at lower cost. FLI is set to continue growing and aims to recapture a further £3-5 billion of assets over the remainder of 2012. The current phase of development is focused on the recapture of the core non-linked and shareholder assets of the Group. Subsequent phases are expected to focus on fixed income assets currently managed in the Group's with-profits and unit-linked funds. To achieve maximum business efficiency, FLI's middle and back office support functions are outsourced. This also provides the benefits of future scalability and flexibility while achieving certainty on costs. Capital optimisation programme and with-profits fund management The current capital optimisation programme ("COP") to simplify the legal structure of the business and remove capital inefficiencies continues to progress well. The Group has five UK life companies within the Group and the ultimate result of the programme will be to reduce these in order that they are broadly aligned to the Heritage business and Go to Market business lines. The most significant steps of this project are expected to be completed by the end of 2012. The Group is confident that the costs to be incurred to deliver this restructure will be exceeded by benefits. The programme to develop and implement a uniform capital management framework for the six with-profits funds within the Heritage business is currently underway. This programme is closely linked to the COP, as a number of with-profits funds are included in the planned COP transfers of business. Financial performance UK Heritage unit-linked funds under management The challenging economy over the first half of 2012 has not had a significant negative impact on the Heritage results. The operating performance to date during 2012 indicates the lapse experience of the book is performing in line with the business's assumptions including the provision set aside for increased scheme re-broking activity prior to RDR becoming effective on 1 January 2013. The business has seen net outflows of both unit-linked pensions and investment business. Unit-linked investment business, primarily single premium bonds, reflects the positive action taken in 2011 to close Investment Bond products and the maturity of this book. Whilst net outflows are significant, the Heritage business expects to be able to manage these books of business within the current assumptions. £bn Pensions Investments Total 31 December 2011 18.9 16.3 35.2 Inflows 0.3 0.1 0.4 Outflows (1.2) (0.9) (2.1) Net investment return - (0.1) (0.1) 30 June 2012 18.0 15.4 33.4 New business 2012 2011 2011 £m (unless otherwise stated) Half year Half year Full year New business cash strain (20) (30) (54) IRR 4.2% 6.8% 6.0% APE 60 87 157 The Heritage business specifically focuses on those products no longer actively marketed. It does not actively drive new business, but the book delivers a significant level of ongoing incremental business written across all product types. New business strain is £(20) million compared to £(30) million in the first half of 2011 reflecting the closure of bond products to new business in the second half of 2011. The IRR from UK Heritage new business in the first half of 2012 was 4.2% representing a fall from 6.8% in the first half of 2011. This change reflects: · a benefit from a marginal increase in Department of Work and Pensions ("DWP") rebate business in the first half of 2012. Further rebates have been received in July but thereafter are expected to be minimal. The UK Government has determined that 2012 is the final year in which DWP rebates will be provided; offset by · the closure of bond products referred to above, leading to a reduction in sales and value generated. Key priorities The key priorities for the Heritage business for the remainder of 2012 are the successful delivery of the Capital Optimisation Programme and continued expansion of FLI whilst continuing to deliver value from the in-force portfolio. Go to Market: Corporate Benefits Market environment Corporate Benefits operates in a large, fast-growing but relatively low-margin market with intense price competition and, currently, commission bias. The Group believes opportunities exist as a result of the ongoing shift from defined benefit to defined contribution schemes, auto-enrolment, demographic changes and the advent of the RDR. Strategy implementation The Group will continue to improve profitability through four key levers: · retaining and developing the existing portfolio of schemes through dedicated Client Relationship Managers and workplace marketing operation focusing on key clients and distributors; · cost reduction through focusing on the business's more efficient, cost-effective target platforms, including the new, "My Money" Corporate Wrap platform, the deployment of a small, focused new sales team and the benefits secured from the outsourcing deal with Diligenta; · positioning the business optimally for the forthcoming auto-enrolment and RDR market changes: the development of the auto-enrolment hub which will seek to ease the legislative and administrative burden on employers for the significant volumes of business expected from this change. The timing of this business depends upon scheme size and the Group, with a balanced portfolio of mid to large schemes, expects the flow of auto-enrolment for its schemes to commence in January 2013, slightly after the very earliest staging schemes in the last quarter of 2012; and · selectively writing profitable new business within the Friends Life target range of mid to large schemes; these will be primarily through a small number of key distribution relationships. The Group have observed increased pressure on pricing, reflecting the competition for commission-paying business before RDR closes this opportunity, but expects a normal environment from 2013. Indeed, as a business which does not currently pay commission in respect of new schemes, the Group expects a greater number of opportunities from 2013 from when it can compete for all business and not just non commission-paying business. Financial performance 2013 2012 2011 2011 £m (unless otherwise stated) Full Year target Half year Half year Full year New business cash strain (75) (32) (35) (51) IRR 10%+ 6.8% 6.6% 8.3% APE n/a 291 219 440 Corporate Benefits again delivered improved new business results reflecting the increased level of business written (up 33% on the first half of 2011, including 15% from the transfer of WLUK business), the more commercial pricing approach and the benefits of cost reduction. New sales include £19 million APE on "My Money", the new corporate platform launched on 31 January. In this period, 79% of new business was written on the target platforms, NGP and My Money. New business cash strain of £32 million is at a higher run rate than the £26 million implied from the full year 2011 results (noting the step-down between first and second half of the 2011 numbers being due to modelling improvements which were introduced in December). This reflects the higher sales volumes in 2012 including the introduction of the WLUK business but offset by cost reductions. Sales volumes of £291 million in the first half of 2012 in turn reflect the healthy pipeline of business built up following the successful merger of the Friends Provident and AXA UK Life Business and the recognition, including by NMG and Greenwich Associates, of the quality of the Friends Life proposition. In addition, the workplace marketing operation has had a successful first half through the attention given to key relationships by the Client Relationship Management team and buoyed by the seasonal peak of employer-driven salary reviews in January and April. Cost savings and increased volumes continue to drive the IRR on Corporate Benefits business with an IRR of 6.8% in the first half of 2012 up from 6.6% in the first half of 2011.The steady upward trajectory through the second half of 2011 has however been offset by the lower IRR on the transferred-in WLUK business (which is not yet on target platform) and the lower initial IRR on the not-yet-scale My Money platform. The Group expects the favourable IRR trajectory to continue and for 2013 market commitments to be achieved through continued cost savings and pricing discipline and the benefits of the volumes of auto-enrolment business. The Group expects an increase in new business activity as a result of both auto-enrolment itself and also auto-enrolment consultancy activity triggering scheme reviews. This is expected to result in a change in market focus with the quality providers, with comprehensive auto-enrolment solutions, taking market share. Corporate Benefits funds under management £bn 31 December 2011 15.4 Inflows 1.3 Outflows (0.9) Net investment return - 30 June 2012 15.8 Net fund inflows of £0.4 billion have been generated in the first half of 2012 whilst investment markets have been flat over that period. Key priorities The Group will continue the development and promotion of My Money (already rated best corporate platform in a platform survey of 70 advice firms) to achieve scale on this platform. The business will continue to champion the NGP platform to deliver growth through the Worksite Marketing operation and write profitable new business governed by robust pricing discipline. The Corporate Benefits business is on track to complete and prove the auto-enrolment hub as well as the supporting business processes in time for the arrival of the first tranches of this business. Similarly, preparation continues to ensure that systems and processes are updated to be ready for the regulations and opportunities arising from RDR. The business continues to focus on moving existing business onto the target platforms but following the clear message from clients that they do not want to manage a migration at the same time as the legislative requirements of auto-enrolment, together with the opportunity to extend the Embassy platform servicing arrangement with AXA, the business has decided not to migrate the book of business from this platform in the short term and is concentrating on ensuring the auto-enrolment solution will also support these clients. This is not expected to have a material effect on the business or delivery of financial targets. Go to Market: Protection Market environment The UK protection market is mature and has remained relatively stable over the past few years despite the turbulent macroeconomic climate. In 2011 the market size was circa £1 billion APE, of which three-quarters consisted of individual protection and one-quarter group protection. The protection market is forecast to have modest growth over the next few years with a number of key factors driving increases for example the RDR, recovery in the mortgage market, and growth in the Whole of Life market. Protection products are not directly impacted by RDR, nevertheless there is expected to be a positive impact on Protection sales. The industry consensus view is that there is likely to be a short term growth in sales of advised protection products as distributors transition their business model to the post-RDR landscape. The business expects other growth, in the medium term, to come from non-advised sales and this trend is starting to be evidenced. Changes regarding gender neutral pricing (effective from 21 December 2012) and life tax reforms (implemented on 1 January 2013) will almost certainly have an effect on the price of Individual Life Protection; as a result the business expects to see increased market pricing volatility in the early part of 2013. Over the next year the group protection proposition will be affected by a number of significant regulatory changes in addition to the RDR. These include the welfare reforms and pension auto-enrolment with the business continuing to monitor and develop towards the implementation of these. Strategy implementation The Group's overall approach is to deliver the strategic change agenda to fulfil the 2013 market commitments, whilst maintaining proposition quality and innovation. Delivery in 2012 to date includes the successful implementation of the partnership with Connells, which both increases the proposition's distribution footprint and provides capability on the Protect+ platform for migration of other strategic partners later in the year. The Protection business continues to deliver capability and proposition enhancements, including piloting an improved rehabilitation claims service within Group Protection and recent critical illness product enhancements within Individual Protection. The business has also made progress in developing selective strategic distribution partnerships within both businesses, such as Intrinsic for Individual Protection and Mercer for Group Protection. Friends Life Individual Protection has prepared for the expected outcome of the RDR, developing a selective range of distribution relationships as well as innovative propositions such as the new Simple range of products, which extend the Group's distribution capabilities with products that are suitable for non-advised sales through a variety of channels and partnerships. The Group Protection proposition is continuing its selective approach to the channels and products which offer acceptable levels of return, whilst continuing to innovate with proposition enhancements such as on-line scheme servicing and growing employee benefits consultant ("EBC") relationship strength. As referred to above, the implementation of gender neutral pricing and life tax reforms is expected to result in some pricing volatility. The business's focus on a value-based high quality proposition in this market is expected to reduce its exposure to price volatility, compared to some other UK providers, when these changes are implemented. Financial performance 2013 Full year 2012 2011 2011 £m (unless otherwise stated) target Half year Half year Full year New business cash strain (30) (23) (43) (77) IRR 20% 9.8% 3.9% 5.5% APE n/a 44 50 92 The progress in financial performance achieved in the second half of 2011 has continued into 2012 with increased IRR of 9.8% (30 June 2011: 3.9%) and with new business strain reducing by almost half. All intermediary partner individual protection new business has now migrated to the Protect+ proposition, continuing the business's strategy of focusing on value over volume and migrating new business capability to the target platforms to achieve productivity benefits. 81% of new business is now written on the three target platforms (Individual Protect+, Individual Simple and Group). Although new business APE is lower than the equivalent period for 2011, profitability is significantly improved. The focus remains on achieving value through product mix and managing profitability during continued subdued economic conditions. Group protection has benefited both from increased volumes during the (traditionally strong) first half of the year, following early integration of the business, and also from an increased proportion of higher value group income protection business where the Group has strong claims management capability. Key priorities New business profitability and IRR in the first half of 2012 continues to progress towards the 2013 market commitments. Further improvements will be driven by a clear focus on key priorities, including the migration of strategic partners, such as Countrywide, to the target Friends Life platforms by the end of 2012. The Protection business continues to target improvements in existing relationships and selected new partnership opportunities, and to maintain the overall quality of the Group and Individual propositions. During the second half of 2012 the Group will also seek to manage and benefit from the high volume of impending regulatory and tax changes in both the Individual and Group Protection businesses. Go to Market: Retirement Income Market environment The annuity market continues to show underlying growth with the first quarter of 2012 up 16% on the same period in 2011. The market is proving to be resilient in the face of the volatile economic environment and the associated fall in annuity rates driven by falling UK gilt yields. Growth in baby boomer retirements are expected to contribute to additional annuity sales in 2012 and over the coming years. Sales in the open market continue to show the trend towards enhanced annuities which now account for half of total open market sales. The strong growth in enhanced annuities over recent years supports the Retirement Income strategy to broaden the product proposition to take account of lifestyle and medical factors in pricing. The regulatory environment continues to evolve with the ABI Code of Conduct due to come into force in March 2013. This will require all providers to prominently highlight enhanced annuities and the higher income they can potentially offer. The Code will ensure that providers continue to explain the benefits of advice and support, including the benefits of shopping around. The Code also seeks to increase transparency in the annuity market so that customers have a clear picture of how individual providers' product offerings fit in with the wider market. Solvency II requirements and timing remain uncertain although the industry focus on efficient use of capital is expected to ensure a rational commercial response to the final rules. Strategy implementation Progress on each of the five key strategic initiatives has been in line with the strategic plan over the first half of 2012 providing confidence over delivery of the 2013 financial commitments for Retirement Income. A series of further improvements to the proposition are set to be delivered over the next few quarters that will progressively improve the business's ability to retain retiring customers. Provision of broader product proposition At the beginning of June 2012 Retirement Income launched an annuity product incorporating lifestyle and medical underwriting. This is expected to be rolled out to maturing pension policyholders over the second half of 2012 leading to an expected increase in retention rates towards target over the course of 2013. The development of the enhanced annuity product ensures that maturing pension policyholders can take advantage of this option when appropriate. The growth in the enhanced annuity market over recent years and the promotion of this option within the ABI Code of Conduct illustrate the importance of this component of the Retirement Income strategy. Development of sophisticated pricing and underwriting The longevity team was strengthened further in the first half of 2012 and has now developed the lifestyle underwriting capability required to support the enhanced annuity proposition. In addition, the business is partnering with Swiss Re on the medical proposition thereby benefiting from their underwriting expertise and tools in this field. Improving customer engagement The launch of an enhanced annuity follows a number of successful pilot initiatives during the first half of 2012. The pilots have helped inform product development and the approach to customer engagement in the run up to retirement. With this proposition becoming established, the business will increasingly focus on enhancing operational capability to raise customer awareness and encourage customer engagement in this important option that can enhance their income for life. Optimising and developing the investment strategy The launch of FLI will enable the business to leverage its investment and asset liability management capability to support the growth of core product areas such as annuities. The Retirement Income business will benefit from the fixed income investment expertise within the FLI team to ensure that the asset strategy supports competitive rates for customers whilst managing investment risk within appetite. Development of capabilities to support an open market offering The next phase of the strategic plan involves developing the operational and technological capacity to support additional business derived from the enhanced annuity products. These developments create the capability for a potential future entry into the open market. Competition in the open market remains concentrated among a small number of established and specialist players. The opportunity to enter into the open market remains additive to the Retirement Income 2013 full year targets. The timing of any launch has not been decided and will take account of impending regulatory changes, including the RDR and gender neutral pricing. Financial performance 2013 Full year 2012 2011 2011 £m (unless otherwise stated) target Half year Half year Full year New business cash strain n/a 15 10 13 IRR 15%+ >25% >25% 22.0% APE n/a 19 16 32 Uncertainty in fixed income markets throughout the first half of 2012 led to cautious pricing levels that resulted in strong new business margins, with IRR above 25% in the period. However, whilst the business remains cautious, margins are expected to reduce to more normal levels over the second half of 2012. Sales volumes of £19 million in the period reflect stable retention rates and the acquisition of the WLUK business in November 2011. New business cash strain has also benefited from the cautious pricing levels and strong volumes in the first half of 2012 resulting in a cash release of £15 million compared to a full year contribution of £13 million in 2011. Key priorities The Retirement Income business has a number of key priorities which will lead the business towards the 2013 financial targets. These include the promotion of the new enhanced annuity propositions to a significant proportion of Friends Life customers as they prepare for retirement. This is expected to benefit the level of internal vesting although retention rates are not expected to start increasing materially until 2013 due to the lead time and the gradual nature of the roll out. In order to support the additional business derived from the enhanced annuity products, operational and technological capacity will be developed. These developments will also underpin the development of an option for the business to enter the open market in the future. International operating review The International segment comprises: · Friends Provident International Limited ("FPIL"), an Isle of Man based company manufacturing unit-linked savings and single premium bond products with a focus on affluent expatriates via hubs in Hong Kong, Singapore, Dubai, as well as serving UK customers with offshore products; · Overseas Life Assurance Business ("OLAB"), the overseas branch business of Friends Life Limited, benefiting from EU freedom of services rules which allow regulated EU insurers to trade anywhere within its borders; · Financial Partners Business AG ("FPB"), a German distributor of OLAB unit-linked pensions business; · 30% interests in both AmLife Insurance Berhad ("AmLife"), a Malaysian life insurance company, and AmFamily Takaful Berhad ("AmFamily"), a Malaysian family takaful business. Both businesses are majority owned by AmBank Berhad, a major Malaysian banking group. 2012 2011 2011 £m Half year Half year Full year IFRS based operating profit before tax 21 41 40 IFRS based operating profit of £21 million in the first half of 2012 reflects a £20 million reduction from £41 million reported in the same period of 2011. This reduction largely reflects the impact of lower valuation interest rates which have increased new business reserving strain and increased the cost of guarantees on some German business. The 2011 full year result is a better comparator in assessing operating performance as these factors are also reflected in the 2011 full year result. In addition to these economically driven factors, the 2012 half year result also includes one-off costs for strategic reorganisation and implementation. Profitability of new business 2012 2011 2011 £m (unless otherwise stated) Half year Half year Full year New business cash strain (48) (52) (89) IRR 10.5% 13.5% 12.7% APE (at actual exchange rates) 104 132 252 Sales volumes are 22% lower than the equivalent period in 2011, driven mainly by a significant reduction in regular premium business. This has been due to maintenance of pricing discipline and increased controls around business acceptance. Single premium business is below last year in most regions due to reduced investor confidence, although the UK offshore business has performed above expectations. Protection business has had a particularly strong first half year as a result of IFAs moving away from savings to risk products. New business cash strain is lower principally due to the reduced volumes, but has increased relative to premiums due to an increase in higher strain protection products and negative economic impacts. The International IRR has reduced from 13.5% to 10.5% due to the adverse impact of lower new business volumes, increased expenses due to improved controls, as well as year end basis and modelling changes. Future improvements are expected to be driven by the completion of the continued roll-out of the new higher margin product structures to all international regions and a review of the cost base as part of the strategic review described below. Market environment The business is facing challenging economic and market conditions in most of its key markets. The economic environment in Europe is continuing to prove challenging and is impacting sentiment in Asia affecting single premium sales in particular. Protection business has however had a particularly strong first half year with growth in most regions. The largest market is the North Asia region. This is a relatively mature and competitive market. The region has strong medium term growth prospects, however in the short-term, due to the current economic environment and its impact on investment markets, there is a shift towards non-linked business and sales are likely to remain under competitive pressure. The South East Asia region is managed through Singapore. Singapore continues to evolve as a wealth management hub and offers good growth potential. Singapore's economic and competitive backdrop appears to be more benign than North Asia but the current economic uncertainty is still expected to constrain growth in the short-term. The United Arab Emirates and the wider Middle East region are immature local markets, however they have a large number of high net worth expatriates and continue to provide good growth prospects. In Germany, the business participates in the unit-linked individual pensions market. The market environment is challenging in the short term, as low investment market confidence drives consumers towards the still dominant traditional with-profits business. Guaranteed rates of return on traditional products are expected to reduce due to the impact of the introduction of Solvency II. In the medium-term the unit-linked sector has good prospects through demand for private sector savings and investments and the move from state to private pension provision. AmLife participates in the Malaysian market through both an agency and the bancassurance channel. This is a fast moving market which is currently closed to further entrants through the rationing of available licences. AmFamily was established in 2011 but is not expected to contribute materially to results in 2012. Strategy implementation The International business is currently in the process of a strategic review, the results of which will be announced before the end of 2012. The aim of the review is to enhance value by developing a sustainable portfolio of international businesses in regions with sound regulatory positions, focusing on the growth of profits and cash delivery. Reducing unit costs by implementing process improvements, increased outsourcing and a narrower geographical footprint will underpin the new strategy. The business has continued to invest in building capability and four new executives and a new non-executive chairman have been appointed. The roll-out of new higher margin product structure continues. The launch into Singapore in the second quarter of 2012 was successful and the Middle East and Hong Kong launches will be completed by the end of 2012. Key priorities Key priorities for the business include the completion of the roll out of the new higher margin product structures, completion of the strategic review to build a sustainable portfolio with sound regulatory positions, focused on growth in profits and cash delivery, and the reduction of unit costs. Financial performance International IFRS based operating profit 2012 2011 2011 £m Half year Half year Full year New business strain (24) (20) (36) In-force surplus 51 69 97 Long term investment return - - 1 The story has been truncated, Principal reserving [TRUNCATED]
Friends Life Grp 35PG Interim results 30 June 2012
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