Tumbling share prices have pushed down the value of Friends Provident's with-profits fund by �1.4bn, or 7.5% of its total value, in the past year.

The loss is equivalent to around three quarters of the �1.6bn which Friends made from its flotation in July last year.

Market uncertainties after 11 September affected the value of the fund, and reflect a downturn across much of the insurance sector.

Friends stressed that the value of business assets owned by shareholders was little changed at about �1.6bn.

AA rating

Friends' with-profits fund fell from �18.9bn to �17.5bn over 2001, a loss of �1.4bn, or 7.5% of its total value.

Despite the fall in value of the fund, Standard & Poor has retained its AA credit rating on the insurer.

Friends also announced this week that it planned to purchase the majority of the offshore life operations of competitor Royal & Sun Alliance (RSA).

Brian Wilkinson, head of group communications, said the firm was committed to long-term shareholder value.

"Understandably, it is a worrying time for investors," he said.

"But our job is to build the business. We are doing that through good quality acquisitions and delivering on areas of strength, such as the group pension market. "

The stockmarket punished the company on the news, with its share price down 7.6% on Friday afternoon.