Trevor Matthews today unleashed a flood of red ink in his first full-year results as chief executive of Friends Provident, but insisted the insurer is turning around.

The chirpy Aussie reckons Friends is clawing back market share it lost last year and is strong enough to withstand even another tumultuous plunge in equities.

Friends made a dramatic operating loss of £871 million in the year to the end of December, a number that reflects writedowns on assets and increased reserves to cope with possible corporate bond defaults.

The underlying loss of £190 million was roughly what the market expected.

The Insurance Group Directive, the best measure of solvency, stands at £850 million, down from £1.3 billion a year ago. Matthews, who arrived from Standard Life last July, says this surplus will be enough to persuade the City of Friends' strength.

Friends is still paying a dividend despite this turmoil of 3.9p - a total of £60 million - down from 8p last time. Insurers have been in the firing line for months, buffetted by growing concern that a big player could go bust, and by short-selling by hedge funds looking to drive down already-battered share prices.

Said Matthews: "We are on a journey. This is a turnaround story. We've made some significant changes and there are more to come."

About 10% of staff, 425 people, have gone as costs are cut.

Private-equity house JC Flowers last year toyed with a bid at 150p a share. Friends shares have tumbled since then, and today they moved down 3.7p to 65.9p.

The management team at Friends has been completely overhauled. Evelyn Bourke has come in as chief financial officer, replacing Jim Smart, while the board has been strengthened with the addition of old hands David Rough and Robin Phipps.

Matthews said: "2009 will be a tough year for economies worldwide, but we will continue to enhance our product range and build a business primed to broaden our distribution and grow market share."