Friends Provident set aside £217m last year for potential losses on corporate bonds as the recession threatened to take a heavy toll on borrowers. The extra reserves on the life insurer's £2.1bn of corporate bonds took those provisions to £500m, it said yesterday.
Concerns have mounted about insurers' exposure to company defaults as the recession deepens. Charles Bellringer, Friends' finance director, said research showed that recoveries are far lower on bond defaults than in past recessions and that Friends was conservative compared with rivals.
"We don't want to swing to the other end of the spectrum, which is where everybody else is," he said.
The provisions helped to take Friends to an IFRS loss of £817m. The result was also hit by writing down £264m on its 52 per cent stake in F&C Asset Management, which it will distribute to shareholders after a buyer could not be found.
The insurer's capital surplus was £800m at the end of February, down from £850m at the end of 2008.
Trevor Matthews, the chief executive, said Friends could capitalise on its sound financial position when markets revive.
The company's shares fell 4.75 per cent to 66.2p.
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