View more on these topics

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.”

Recommended

MPs take a hard line on softly softly Opra

The Conservatives and Liberal Democrats are accusing Opra of dodging its stakeholder responsibilities by failing to prosecute the 14,000 firms which have yet to designate a scheme.The opposition parties are warning that the Government&#39s endorsement of Opra&#39s softly softly approach to stakeholder could spread employer apathy over the initiative.The deadline for employers designating stakeholder schemes […]

You haven&#39t given trees a chance, says FSA&#39s Severn

Stakeholder pension decision trees cannot be written off as a failure just because most of the industry has chosen not to use them, according to the FSA.Writing in this week&#39s issue of Money Marketing, FSA head of retail projects David Severn says that although, “on the whole”, the industry has opted not to employ decision […]

Buy-to-let yields starting to slide

Returns on buy-to-let properties fell slightly in the last quarter of 2002, says the Association of Residential Letting Agents.Its second quarterly analysis of buy-to-let lending by Arla members, Birmingham Midshires, GMAC-RFC, NatWest, Paragon and Standard Life Bank shows that the rate of return on the total cost of a buy-to-let investment fell to 9.52 per […]

NDF bond goes for simplicity

NDF Administration has established the protected income & growth plan 1, a guaranteed equity bond that enables investors to invest for income or growth. The bond provides annual income of 6 per cent or monthly income of 0.46 per cent for five years. There is also a growth option of 35 per cent after the […]

Why your clients need some tough love

In any relationship that matters, professional or personal, you should be upfront with someone if you think they’re making a decision or doing something they might later regret. Being honest with someone and having their best interests at heart, however hard the message, is key to building trust in any relationship. So how does this […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment