Friends Provident warns dip in home-loan sales could hit profits

Friends Provident has warned investors that its profit targets for 2008 could be jeopardised by a slowdown in the UK mortgage market, on which it depends for sales of insurance products.

The insurer, which yesterday said new business rose by 12 per cent, year-on-year during the first quarter of 2007, is concerned that it may miss next year's targets, even if takes a greater share of the market for protection products such as life and sickness insurance, policies which are often sold to mortgage borrowers.

Ben Gunn, Friends' chief executive for life and pensions, said the insurer had based its forecasts for 2008 on protection sales on 5 per cent annual growth in the mortgage market, but a slowdown in home-loan sales meant the estimates could prove overambitious. "The protection market remains key to our plans," Mr Gunn said. "[The market] remains challenging and the impact of this will become clearer as the year progresses."

Sales of protection policies during the first three months of the year increased 8 per cent to £100m, representing one-tenth of total new UK business for the quarter. Overall in the UK, Friends Provident's new business improved by 22 per cent, year-on-year to £1.042bn.

The group's total figures were dragged down by a disappointing performance from its international businesses, where new business at both Friends Provident International and Lombard, its European investment management operation, fell slightly. Total international new business fell 4 per cent to £455m in the first quarter.

Mr Gunn said the underlying growth in these businesses remained good, but that last year's first quarter results had been particularly strong. Friends Provident shares, which have been the worst performing in the life assurance sector so far this year, fell 3p to 189.25p yesterday.

Raghu Hariharan, an analyst at Fox-Pitt, Kelton, said Friends' figures presented investors with mixed news. "If you view [the results] in the context of the new profit targets they have set out, there are challenges ahead."