Friends Provident poised to cut dividend as market braces itself for battered results

Published on Saturday 14 March 2009 13:16

INSURANCE giant Friends Provident is expected to cut its dividend this week due to falling sales and fluctuating markets.

Analysts will be looking for reassurance that the capital level is secure but shares in life and pensions firms have been battered by fears over reserves, although Standard Life gave the sector a boost when it reported its results last Thursday.

Friends Provident is expected to announce pre-tax profits of just under 400m, taking account of expectations of future growth or "embedded value". This is up from 16m in 2007, although that figure was skewed by a 361m one-off charge. However, the firm could make a loss of around 194m for 2008 when its results are calculated using international reporting standards. Last year its loss was 113m. Analysts said it could cut its dividend in half to 4p a share.

Trevor Matthews, who last year left Standard Life to become chief executive of Friends, is likely to take the opportunity this week to reiterate that his firm has healthy levels of capital.

However, he has already braced the market for battered full-year profits figures following news of sliding sales in 2008. He said last month that UK life and pension sales plunged 27% last year, partly blaming "corporate uncertainty" caused by the threat of a hostile takeover bid and a failed attempt to merge with Resolution.

Prudential, which also reports full-year figures this week, is expected to say that sales figures were more resilient, showing a 4% lift in the UK to 947m.

However, the fourth quarter revealed a worsening picture, with UK sales down by 35% in the three-month period. On Wednesday, its operating profits could show an 8% drop to 2.3bn, said Barrie Cornes, an analyst with Panmure Gordon. Aside from its results, the market will be looking for some clarification of its decision on the AIG Asian business auction, after reports suggested it had pulled out over price.

While life insurers have so far avoided rights issues, analysts say these should not be ruled out. Nic Clarke, of Charles Stanley, said: "Everyone is worried that life assurers may have to come to the market for capital. In previous recessions they have had to do so at a certain point in the cycle and I can't see why this one should be any different."

Legal & General is the last of the big insurers to publish its result on March 25. Credit rating agency Fitch put the firm on "negative watch", blaming depletion of the firm's capital as a result of steep declines in equity and credit markets.