Lloyds TSB has paid £174m to rescue subsidiary Abbey Life from a solvency crisis caused by the guaranteed annuities and the pension review.
Abbey Life suffered a massive increase in liabilities in 1998 brought about by the cost of meeting annuity guarantees and the increasing cost of the pension misselling review.
The scale of the crisis came to light in Lloyds TSB's recently released Treasury returns. The bank is currently in the process of buying Scottish Widows, which also has a high guaranteed annuities liability.
The returns show that as the annuity liability grew, solvency was eroded until Abbey Life had no solvency left
At the end of 1997 Abbey Life free assets stood at £102m. But by the end of 1998 the annuity provision meant that the life office's balance sheet was £68m in the red.
This was in direct contravention of the insurance companies act and forced Lloyds to step in.
Abbey Life appointed actuary Michael Green says: "The solvency position for Abbey Life changed because of the Government actuary's view that additional resources were need to cover aunnuity guarantees and the higher cost of the pesion review."
Industry analyst Ned Cazalet of Cazalet Financial Consulting says: "What with Abbey Life's exposure to pension misselling too, Lloyds have had to bite the bullet quite a lot with its subsidiary over the last year."