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Only £20bn in life office coffers as assets plunge

The life industry as a whole has only £20bn in excess capital to support with-profits business, plummeting from the £130bn which was available at the end of 1999.

Some companies have negative excess capital, such as Equitable Life, Alba Life, and Royal & Sun Alliance Life & Pensions. Friends Provident has marginal excess capital despite the £1bn raised by its flotation in July.

The figures, calculated by Cazalet Financial Consulting, show with-profits liabilities for the industry at the end of 2000 at £325bn,up from £300bn at the end of 1999.

The excess capital life offices have above that needed to meet liabilities at the end of 2000 was £75bn but is now down to around £20bn because of market falls this year. Cazalet principal Ned Cazalet estimates most of this £20bn is needed for terminal bonuses and that, in reality, the industry has no spare capital. The money is also used to finance new business. Cazalet predicts some companies will have to stop writing new business as well as cut bonuses.

Money Marketing&#39s latest Focus survey shows that free-asset ratios, which can include future profits and reinsurance deals to bolster financial strength, have also come down.

Cazalet says: “Running the index against their asset mix as at the 2000 year-end, it appears the assets of these companies are well below their liabilities. More than £50bn has gone up in smoke this year alone, at a time when companies are writing stakeholder, which is a huge strain on new business costs.”

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