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Friends Life to launch asset management arm

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Friends Life to launch asset management arm

Life company Friends Life is set to launch an asset management division called Friends Life Investment in the second half of 2012.

Friends also announced a major outsourcing deal which will see 1,900 roles cut from the company.

Friends Life Investment (FLI) will initially focus on fixed income assets, although further asset classes will come under consideration as the business grows.

FLI will be a wholly owned subsidiary of the Friends Life Group run by current chief investment officer Mark Versey and will be seeded with £8 billion of recaptured assets.

The business will use an outsourced model with investment operations managed by a third party administrator.

A statement from Friends said: ‘This in-house asset manager is expected to support the UK business units, particularly retirement income, and will look to recruit and add to the current 30-strong in-house team of investment professionals. The estimated one-off costs associated with the set-up of this capability are £5 million with ongoing running costs of £4 million per annum.’

Friends also announced a 15 year outsourcing arrangement with Diligenta, a subsidiary of Tata consulting, which will result in 1,900 roles transferring from Friends Life to Diligenta meaning the staff affected are no longer Friends employees, although they will continue in the same roles working from the same offices.

The outsourcing deal is aimed at ‘delivering additional synergies’ for the Resolution-owned insurer.

The agreement is expected to generate additional annual cost savings of £60 million by 2015 split between acquisition and maintenance expenses.

This cost saving means Friends has upped its overall cost saving target for the group from £112 million by 2013, as previously announced, to £143 million by 2015.

The cost of the arrangement is around £250 million.

Diligenta specialises in life and pension outsourcing and already manages around five million policies for six life offices. It will take on the policy the administration and IT services for Friends’ closed book business, Heritage, which includes with-profits, annuity, legacy protection as well as UK Wealth business.

Andy Briggs (pictured), Friends Life chief executive, said: ‘The launch of Friends Life Investments marks a significant development for our business. Together with the partnership with Diligenta to outsource IT and customer service, we have today demonstrated a significant reduction in our cost base and a clear strategic commitment to our core markets in the UK. The intention is for this new company to build on existing expertise across our business and is further evidence of our strategic focus in the UK.’

Friends’ overall sales were up for the nine months to 30 September at £880 million, on an APE basis, compared to £705 million in the equivalent period in 2010.

New business sales in the UK totalled £547 million for the first nine months  of 2011, up from £316 million in 2010.

In its results Friends also raised the issue of ‘broker activity in the run-up to the introduction of the retail distribution review (RDR) impacting corporate benefits business in both the heritage AXA and Friends Provident business units.’

Briggs said Friends’ corporate benefit business had seen more movement to commission paying schemes than in previous years.

‘We’re not seeing anything different to anybody else….but we have seen an increase in the movement of schemes that pay commission compared to what we have seen in the past, obviously we don’t pay initial commission,' he said.

Friends said its corporate wrap was still on target for launch in the first quarter of 2012.

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