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Cazalet says Equitable should unitise fund

Unitisation of the with-profits fund should be the next step for Equitable Life once it has offloaded its annuity book to Prudential, says independent consultant Ned Cazalet.

Pru, which still has 770m of its 1bn war chest from its rights issue, is believed to be close to making an offer for Equitable’s 7bn annuity book, which is split between 5bn conventional and 2bn with-profits annuities.

Cazalet Consulting proprietor Cazalet says that selling the annuity book could free some of Equitable’s capital required for regulatory purposes, take longevity risk out of the business and make it a “cleaner” operation.

Equitable’s with-profits fund is unlikely to be attractive to buyers, particularly since its admin and fund management are outsourced to HBOS and Insight, meaning that firms would not be able to put the fund together with other closed books to build scale. The level of regulatory capital needed to back the business would also affect the price and Prudential and Equitable are likely to have different views on this sum.

Cazalet says this position makes unitisation the sensible option, with the with-profits fund being divided up bet- ween policyholders and inv- ested in a managed fund.

Equitable chairman Vanni Treves and his board went on a brainstorming break following the collapse of its 1.7bn compensation claim against former auditor Ernst & Young.

Cazalet says: “Selling the annuity business would make Equitable a cleaner business but the question is what price would Prudential pay for it. Unitising the with-profits funds should be the next step and would provide a brighter outlook for existing policyholders.”

Both Prudential and Equitable decline to comment on the issue.


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