INVESTORS reacted badly to news that insurance firm Resolution plans to split itself in two, pushing shares in the FTSE 100 firm down by over five per cent.
Resolution also shelved a promised £250m handout to shareholders because falling bond and stock prices had dented its finances.
The developments signal a change in focus for the firm which was set up in 2008 with the aim of generating fast cash returns by forcing consolidation in the UK life insurance market.
“The whole of Europe has been struck by severe headwinds in investment markets,” chief executive John Tiner told reporters.
“What we’re doing in the first half of this year is to study whether that capital can continue to come back to shareholders bearing in mind market volatility.”
The group, which owns the Friends Provident brand, BHA and most of AXA’s UK business, says that it would be a more attractive proposition if it were split into two companies.
Under the plan Resolution will divide its business into a life insurer open to new customers called OpenCo and a separate “closed book” business of existing policies which would be managed for cash which will be called HeritageCo.
Resolution’s founder Clive Cowdery was a pioneer of the second business model and has already made one fortune by proving that cash can be easily extracted from similar so-called zombie funds.
The company announced the plans alongside its results for 2011, which showed an operating profit of £681m up from £275m a year earlier, although this included £404m of one–off gains.
Investec analyst Kevin Ryan said the results suggested the company’s outlook was worrying, adding that “the relative weakness of the embedded value and the cash emerging from the business is now an issue”.