Translation:My friend says that he loves you a lot.
Actually, "il mio amico" is masculine (otherwise it would be "la mia amica"), so if the subject pronoun refers to "il mio amico", then "he" is the right answer. By the way, the sentence could actually mean that "my friend says that someone else loves you a lot"... in this case, even "she" should be an option.
Only if you have a contest. Grammatically it could be also "she" or "it". Because it's not obviously that "il mio amico" speaks about himself.