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Equitable to cut to the bone, warns Cazalet

Leading life analyst Ned Cazalet is warning that Equitable Life could be forced into cutting benefits to its conventional annuitants, as the prospect of insolvency looms ever closer.

He says the stricken life company&#39s “wafer-thin” solvency margin means that even slight movements could push it over the edge, and says this could be caused by having to account for its subordinated debt, its own pension scheme liabilities, fewer policyholders or even small movements in its investment portfolio.

However, he says insolvency would not lead to a collapse in the value of policies. “It would be unlikely that this would be accompanied by a catastrophic fall in policyholder values. Crossing the solvency line would be a small step for the society, with a concomitant impact on policy values,” says Cazalet.

For regulatory purposes, life companies are obliged to have 4 per cent more in assets than liabilities which Equitable has already admitted it is finding difficult. Insolvency is triggered under company law if the total assets are less than the liabilities.

Cazalet has also reiterated his call for Equitable&#39s with-profits fund to be unitised, arguing that the life office is incapable of doing the things that should define with-profits, such as smoothing or delivering bonuses. He says this move would also release a significant amount of capital as the amount of reserves required for unitised business is considerably lower.

Cazalet says: “Equitable has been hacking through the fat and the muscle and getting ever nearer the bone and we suspect that the scope for further such action without hitting the guaranteed elements is very limited.”

Equitable Life spokesman Tony McGarahan says: “There are no plans to do so.”


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