Equitable Life returns solid, stable but unspectacular

SIMON BAIN in The Herald March 31 2006

http://www.theherald.co.uk/business/59217.html

Equitable Life's with-profits fund, held almost entirely in bonds following the society's near collapse five years ago, made a weak 5.6% net return in 2005, compared with returns of between 16% and 21% for its former competitors in the pensions market.

The society yesterday reported "another year of solid progress in bringing stability back to the society", adding it was "confident that, with careful management, the society can operate securely as a closed fund, paying policy benefits as they fall due".

It admitted that "even with our greater stability, a limited outlook is implied for policy returns because the fund remains primarily in fixed interest investments" and said it was "exploring options... which could improve longer-term prospects".
Chairman Vanni Treves has dropped regular hints that bigger insurers have approached the society, particularly during the humiliating legal climbdown in the £3.7bn actions against its former auditors and directors last year.

Yesterday's report, however, refers ambiguously to Equitable's "approaches" to the problem, and then to unspecified "discussions" of the issues, concluding: "It is by no means certain that any such discussions would lead to a positive answer."

It goes on: "It is, of course, policyholders who would ultimately decide whether to accept such a strategic change."

It is understood that policyholder opinion is being canvassed by the society ahead of its annual meeting – usually a stormy affair – in May, and that one of the questions asks whether "policyholders would support a sale of the company if it meant higher returns".

However, the report does confirm what the society has said previously about the risks inherent in its annuities book.

"Like some other funds, we are exploring the possibility of transferring the bulk of our non-profit annuities to another provider in order to remove that risk. This step could make sense for Equitable provided that the financial terms are satisfactory."

Meanwhile, Equitable has reported an apparent improvement in its solvency.
It admits that its Fund for Future Appropriations, used as the measure of solvency hitherto, dwindles to zero on the new realistic reporting basis, from some £560m a year ago. However, it says the new key measure of solvency is excess realistic assets, which were only £455m a year ago but which have risen to a healthier £669m, or 6.6% of the surviving £10.1bn with-profits fund.
It said with-profits pension policy values had been increased by up to 4.5% in respect of 2005, but with-profits annuitants with policy values higher than their guaranteed benefits would see 0.5% lopped off their policies each year for the next six years.

The society said its major policyholder reviews were essentially complete, removing a major area of uncertainty; and policy surrenders had continued to fall, down from £835m in 2004 to £482m last year.

The market value adjustment or surrender penalty for exiting the fund was cut on October 1 last year from 11.1% to 8%.

Equitable refused to back the Equitable Members' Action Group when in 2004 it asked for help to bring a case against the UK government to the European parliament.

Last month, the parliament decided to set up a committee of inquiry, and yesterday Equitable said it would "give all possible assistance to the committee".