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Equitable Members Action Group
Equitable Members Action Group Limited, a company limited by guarantee, number 5471535 registered in the UK
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Best Media Stories: 12/05/2006 - Financial Times reports on disposal of annuity book.
Equitable transfers annuity book
By Andrea Felsted, Insurance Correspondent
Equitable Life has moved closer to breaking itself up with the transfer of a £4.6bn annuity book to Canada Life.
Charles Thomson, chief executive of Equitable, said the transfer removed the "biggest single risk" that the society faced.
Vanni Treves, chairman, said the deal "established a platform for possible future strategic options".
These could include the sale of Equitable's closed £10bn with-profit fund, which could be attractive to specialist investors.
Mr Treves said Equitable had had "at least half a dozen conversations" with interested parties.
Hugh Osmond, the entrepreneur, could potentially be interested in Equitable's closed-life fund. However, rival Resolution Life, which is in talks to acquire Abbey's life assurance operations, is unlikely to show an interest in Equitable's closed fund.
Equitable said the transfer of the non-profit annuities removed most of the risk of annuitants living longer than expected. It also reduces investment risk and capital requirements.
But Paul Braithwaite, general secretary of the Equitable Members' Action Group, branded the deal a "distraction" from a management team that "peddled dreams".
He added that the timing, days before Equitable's annual meeting at which criticism is set to be heaped on Mr Treves and Mr Thomson, was "highly suspect".
The sale of the closed with-profit fund, which includes about £1.7bn of with-profit annuities, could also be complicated by the fact that Equitable is a mutual and outsourcing contracts have already been put in place, reducing the potential return to a purchaser.
Under the Canada Life deal, Equitable will transfer to Canada Life £4.63bn of assets in return for Canada Life agreeing to make future pension payments.
Mr Thomson said the assets being transferred were "broadly the same as the reserves that we held at the end of 2005", for the future commitments.
Mr Treves said the terms of the deal had been improved by there being a high level of interest in the annuity book, with a shortlist comprising two other large organisations alongside Canada Life.
But Mr Braithwaite said: "One needs to look very carefully at the detail, particularly in terms of indemnities."
Equitable said there were some indemnities and securitisations as part of the transaction but these were normal and applied to both Equitable and Canada Life.
Equitable Life survivors deserve to go on and on
By Dan Roberts
Live long and prosper while annuities last.
If there is one thing we have learned about Equitable Life's long-suffering customers over the years, it is that they are a feisty old bunch. Betting that this angry crowd of lawyers, accountants and other assorted professionals will shuffle off this mortal coil sooner than Mr Average therefore seems a risky proposition.
For this reason alone, Equitable's decision to sell its £4.6bn annuity book to Canada Life makes sense. These promises to pay out a steady income become more expensive the longer policyholders live.
Fortunately, or unfortunately, depending on your point of view, the well-fed customers of Equitable present what is charmingly known as mortality risk. Without much capital left anywhere else in the business to absorb any further miscalculations, the company matches its liabilities with extremely conservative assets, mainly low-yielding bonds.
By handing both assets and liabilities over to Canada Life, Equitable therefore rids its remaining customers of another potentially painful headache but also gives the new owners a chance to do something more interesting with the investment strategy. With $182bn (£96.6bn) in assets under administration, Canada Life and its parent may not want to stick all the money on the horses but they can probably afford to be a bit more adventurous than Equitable. Who ultimately got the better deal? We may not know for decades.
Another potential advantage is that it makes valuing Equitable's remaining with-profits fund just a little simpler. This £10bn fund - closed to new business six years ago after it made unsustainable promises in the 1990s - could now be passed to a bigger and more stable institution to run off. Who knows, there may even be some scant compensation left over in the shape of a demutualisation windfall. This would probably be considerably less even than that on offer to Standard Life's long-suffering members. It is also easier said than done. All in all, do not hold your breath. In fact, keep breathing as long as possible.
TREVES AND THOMSON TO STAY ON 'FOR A LITTLE WHILE LONGER'
By Andrea Felsted
The transfer of Equitable's £4.6bn non-profit annuity book will not hasten the departure of Vanni Treves, Equitable's chairman, or Charles Thomson, its chief executive, they insisted yesterday, writes Andrea Felsted.
Mr Treves and Mr Thomson have been criticised for their handling of multi-billion pound legal cases brought by Equitable against its former auditor Ernst & Young and 15 former directors. Both cases settled without recouping a penny for policyholders and leaving Equitable shouldering a £45m legal bill.
Last year, Mr Thomson indicated that he and Mr Treves could step down towards the end of this year, or at a point when their job of restructuring the mutual was largely complete.
However, yesterday Mr Thomson said: "The job is not finished and therefore it seems appropriate we are still here for a little while longer."
He added that it could take between six and 18 months to complete the transfer of the non-profit annuity book.
However, Mr Thomson and Mr Treves are expected to be further berated at Equitable's annual meeting on Wednesday.
Paul Braithwaite, general secretary of the Equitable Members Action Group, said John Newman, its deputy chairman, was standing as an independent candidate to the Equitable board again this year.
"The signs are he is going to get considerable support," said Mr Braithwaite.