Friends Provident, the embattled life and pensions firm, is preparing to axe its dividend in half this year as it slashes costs and prepares for a trio of non-core asset sales, according to a respected insurance analyst.

Tim Young at Collins Stewart has predicted that Friends will pay shareholders a full-year dividend of 4.3p this year, down from the 8p that has been formally announced for the 2007 financial period.

Mr Young, an outspoken veteran of the insurance industry, pronounced today that there was little reason to buy Friends Provident shares beyond the bid speculation that has surrounded the group for more than a year.

He said Friends Provident was "entirely wrong" to reject a 150p a share cash bid worth £3.5 billion from JC Flowers, the American buyout firm that abandoned its bid interest earlier this month after the insurer's management refused to engage in talks.

"If a cash bid of 150p substantially undervalues the business, why is the share price at 117p - even with some evidence that progress is forthcoming on the 'strategic review' - essentially a fire-sale of assets that are superior to the core operations and a withdrawal of some of the more exciting products in UK life and pensions," Mr Young said.

He added: "Almost two decades in insurance research tells me that insurers' dividend policies are the most accurate lead indicator of their share prices."

It came as Friends reported an 11 per cent increase in life and pensions sales of £247 million for the first quarter today, sending its shares up 2.1p to 119.3p.

Friends, led by Sir Adrian Montague, currently executive chairman, said it was making "solid progress" with implementing the findings of its strategic review, which concluded that wealth management was non-core.

Numerous expressions of interest have come in for Lombard and Pantheon, put up for sale along with the 52 per cent stake in F&C Asset Management, the separately quoted fund manager, Friends said.

It is expected that all three management teams will have explored buying out their business lines.

The insurer said it had well-developed plans to succeed with its £40 million a year cost-cutting drive, likely to lead to about 300 job losses.

Friends noted that, at the time of the review in January, it had said that the dividend cost would be rebased in line with its new-look cashflows as a smaller company.

It said it expected to be able to allocate £90 million to £100 million a year to the dividend payout. Contained within this was a ig signal that the dividend would be dramatically smaller in the future.

Friends has been under intense pressure since it was dumped at the alter by Resolution, its proposed merger partner in an £8 billion tie-up unveiled last year.

After rival interest from Standard Life, Resolution opted for a merger with Pearl, a similar closed life fund operator.

This cost the job of Philip Moore, Friends boss at the time, and effectively put the business in play.

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