Bloomberg News

Resolution Falls in Trading After Missing 2011 Estimates

March 27, 2012

Resolution Ltd. (RSL), Clive Cowdery’s insurance investment firm, said full-year profit missed analysts’ estimates after stripping out a one-time accounting gain. The shares fell the most in four months.

The company’s Friends Life division’s operating profit rose to 681 million pounds ($1.1 billion) in 2011 from 275 million pounds a year earlier, the Guernsey, Channel Islands-based firm said today in a statement. Excluding 404 million pounds of one- time gains, that missed the 559 million-pound estimate of six analysts surveyed by Bloomberg.

An accounting change allowing the firm to book “profit that would have otherwise been recognized in later years” made up about half of the exceptional gains, Finance Director Jim Newman said on a call with reporters today. The rest of the gains were due to cost-cutting and lower claims, he said.

Resolution, which was started in 2008 to buy and merge financial firms using money raised from money managers, built Friends Life by acquiring life insurers Friends Provident, Axa SA (CS)’s U.K. life operations and Bupa Health Assurance Ltd.

The stock dropped 2.4 percent to 268.2 pence in London trading, its biggest fall since Nov. 23., valuing the company at 3.7 billion pounds.

“At first glance a slightly worse than expected set of results,” Marcus Barnard, a London-based analyst at Oriel Securities Ltd. with a hold rating on the stock, wrote in a note to clients. Operating profit “benefited from 404 million pounds of reserving changes and one-off items, which compares with expectations of 229 million pounds.”

Loss After Tax

The company made a loss after tax of 31 million pounds, compared with a profit of 820 million pounds a year earlier, it said in the statement. Profit in 2010 was boosted by so-called fair value gains on its acquisitions, which are reduced in subsequent years, Newman said.

The European debt crisis and uncertainty about the European Union’s solvency rules have hampered Resolution’s ability to sell the combined firm, which it plans to offload in the next two years.

Resolution may divide Friends Life into a company writing new policies and another managing its books of old policies in run-off by early 2014, it said in the statement today. The two publicly traded companies would be separate, it said.

“We are determined to realize an exit for our shareholders and we don’t want to rely entirely on market driven events so we need to have self-managed option,” Chief Executive Officer John Tiner said on the call with reporters.

The plan is “hardly earth-shattering,” Eamonn Flanagan, a Liverpool-based analyst at Shore Capital Group Ltd. (SGR) with a hold rating on the stock, wrote in a note to clients today. It contributed to a “subdued results statement” with “the merger and acquisition market hardly conducive to the group’s plans to drive the acquisition strategy,” he said.

To contact the reporter on this story: Kevin Crowley in London at

To contact the editor responsible for this story: Edward Evans at;

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