Friends Life Drops 2014 Earnings Target in Wake of Budget

Friends Life Group Ltd. fell in London trading after the insurer created by Clive Cowdery said it will miss its earnings target this year as it forecast annuity sales may tumble as much as 70 percent.

The value of new business, a measure of future cash flow, will be “adversely affected” by the U.K. government’s 2014 budget and the company won’t meet a target of 10 percent growth this year, Friends Life said in a statement today. Chief Financial Officer Tim Tookey also said it would be “tough” to deliver a return on its insurance business of 15 percent.

The insurer, which changed its name from Resolution Ltd. (RSL), has slumped 15 percent this year after Chancellor of the Exchequer George Osborne scrapped rules that pushed retirees to buy annuities with their pension savings. Its shares were also hit after the Financial Conduct Authority said it would probe old life insurance policies.

The proposals on annuities “were the most significant we have seen for a generation,” Chief Executive Officer Andy Briggs said in the statement. “This has materially changed the markets that we operate in.”

The shares declined 1 percent to 300 pence in London trading. The company is the third-worst performing stock on the FTSE 350 Life Insurance Index this year behind Partnership Assurance Group Plc (PA/) and Just Retirement Group Plc.

Friends Life said the changes in the budget, which allows retirees to withdraw their pensions in full without paying a 55 percent tax rate, would result in declines of 50 percent to 70 percent in non-guaranteed individual annuity sales from 2013 levels.

Standard Life Plc, Legal & General Group Plc and Prudential Plc this month reported declines of 50 percent, 40 percent and 35 percent respectively in individual annuities since the budget was announced in March.

The value of new business in the first quarter dropped 16 percent to 32 million pounds ($54 million) from the year-earlier period. Sales on an annual premium equivalent basis rose 9 percent to 263 million pounds.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

To contact the editors responsible for this story: Edward Evans at eevans3@bloomberg.net Jon Menon, Steve Bailey

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