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Equitable shows signs of life

One of the great ironies of the market turbulence is that Equitable Life is now outperforming other life funds following its switch out of equities and into bonds at the beginning of 2002.

Chairman Vanni Treves, says Equitable is stabilising and out of intensive care although it still has some way to go.

Equitable says it has been relatively well served by selling nearly all its equities at FTSE levels above 4,800. Its investment performance of 4.8 per cent compares with -12 per cent for Standard Life.

After projecting a series of potential scenarios, Equitable says the possibility of not being able to meet its contractual guarantees is “not significant”.

It has restarted making bonus payments and is rethinking its compensation scheme.

Equitable is also considering a bulk transfer of all its annuitants to another insurance company “if appropriate commercial terms could be agreed”.

With the fund now relatively stable and with-profits annuities slashed by 30 per cent last year, this could be a feasible move.

A number of product providers are understood to have looked into a bulk transfer. Now Prudential has said it has had discussions with Equitable.

Analyst Ned Cazalet suggests that another possible solution to some of Equitable&#39s problems is the unitisation of the with-profits fund.

But Equitable has dismissed unitisation as “not a viable option” due to the costs the move would incur.

Drawing a line under the recent traumas, Equitable is going to reset to zero policies that have had maturity values adjusted down last year by 10 per cent. This will also mean a reduced stated surrender value adjustment, which is now 11.1 per cent.

But Equitable says that while it can start awarding bonuses again, none of these will be guaranteed.

As of April 1, policies start to attract an interim bonus of between 2.75 and 3.5 per cent. They will be announced annually but will only be added at the same time as the terminal bonus. This will increase policy values on both maturity and surrender but Equitable is keen to stress it is not an immediate uplift but that the 3.5 per cent award is accrued over the year.

Less welcome will be Equitable reconsidering compensation to people missold income drawdown who lost guaranteed annuity options.

Spokesman Alistair Dunbar says: “We have had another look at the compensation scheme. It is so complex and complicated and there is still a long way to go after two years. We want to find a new way to find quicker and fair results.”

Dunbar says the FSA has been kept informed about this development which could see a cut in future compensation. “There are some concerns that, because of changes in the markets, it may be too generous,” he says.

The move has left some of the action groups and IFAs seething. Alan Steel Asset Management director Graeme Currie says: “People are fed up to the back teeth with the way Equitable has been dealing with rectification. There are too many broken promises. Can people trust anything it says?”

But Equitable&#39s preliminary statement for 2002 contains some sobering facts. Annuity reserves have been bolstered by £179m following guidance from the Continuous Mortality Investigation Bureau, after similar moves at Legal & General and Norwich Union. Then there are litigation expenses totalling £5.1m last year. But most notable are the outflows from the with-profits fund. Last year saw surrenders running at £3.8bn, slightly up from £3.7bn in 2001.

Maturities saw another £3bn leaving the fund compared with £3.1bn the previous year. The with-profits fund is now valued at £13bn compared with £18.6bn last year.

At the end of 2000, just after Equitable was forced to shut to new business, the with-profits fund was worth £26bn – double what it is now.

Equitable must be hoping that the outflow will be stemmed. But Currie does not believe the upturn in fortunes at Equitable will change opinions. “More people will want to leave. It will be a brave man who is last out,” he says.

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