Reliance Mutual is on the brink of insolvency according to a top industry analyst.
The small life office was forced to shut its doors to new life and pensions business last week because of the cost of pensions misselling.
And the same misselling liability, which is set to grow further into “tens of millions” could place such a strain on the mutual's capital base that it will eventually go bust according to analyst Ned Cazalet of Cazalet Financial Consulting.
Reliance Mutual says it has had to pay out around 10 per cent of funds under management to misselling victims.
But while its total funds under management are nearly £500m, the non-linked funds which bear the brunt of the costs are tiny. The with-profits fund was only £15m in 1998.
No life office has gone bust for 15 years as they are usually bought out when in dire straits.
Cazalet says: “There are no shareholders so who pays? It will go insolvent. The scale of the misselling issue means it not worth buying. Other companies such as Abbey Life had a parent to bail them out but Reliance is the baby nobody wants.”
Merrill Lynch analyst Roman Cizdyn says: “No-one will be interested because of its small scale and customer base.”
Reliance Mutual refused to comment.