Equitable Life is stabilising and looking at options to improve policyholders' fortunes, says chief executive Charles Thomson.
In an interview with Money Marketing, Thomson says the strategic review announced as part of its full-year results will look at all the options says the company is prepared to restructure parts or all of the business to do so.
Moving back into equities is one of those options. Thomson says: “It is about unlocking the constraints really rather than about the investment backing. We need to try to get policyholders more freedom in deciding what sort of equity backing they want. When they joined the with-profits fund, it had a much higher equity-backing ratio and some of them still need that for the future.”
He also says that Equitable or parts of the business could be put up for sale. In 2000, it was impossible to sell Equitable but Thomson says it now has greater stability and it could be possible to sell parts or all of it at some stage once the “uncertainties” have been reduced.
Thomson says the society has seen a major reduction in the number of maturities and surrenders, especially in the second half of last year, which he believes is a sign of the increasing stability.
Restructuring could take varying forms, with one route suggested in the past to transfer the with-profits business to unit-linked to free up the fund, an option he describes as having advantages and disadvantages.
“It has not been possible over the last three years because of the uncertainties surrounding the fund and the level of provisions that we have mean that we would not be able to carve up the fund and unitise it in that sort of way. But again, as the uncertainties reduce, as the provisions are dealt with, the possibility comes back on to the radar.”
He is confident that the FSA's new realistic reporting regime involves only a “tweaking at the margins” for Equitable but says the company is conscious that it needs to hold on to “a little bit more capital” over the next few years to distribute later. “What that meant is that instead of having a 2.6 per cent bonus in respect of 2003, we have allocated 2 per cent and, instead of rolling up at 3.5 per cent per annum, it is rolling up at 2 per cent.” He believes this is likely to happen for between one to three years.
On the subject of Government compensation for policyholders, Thomson says that the hurdles are still high for Equitable to pursue any kind of legal case against the Government either in the UK or European courts. The company has pinned its hopes on the Parliamentary Ombudsman reopening her inquiry and Thomson remains optimistic.
“There is a lot of Parliamentary activity, with Parliamentarians wanting to see an inquiry happen. Since the Parliamentary Ombudsman is a servant of the House, then we believe it should happen.”
It is also still considering a policyholders' action group request for Equitable to provide £2m for policyholders' own pursuit of the Government, with a response expected in preparation for the AGM next month.
“In many ways, my greatest pleasure when the Penrose report was published was that I did not believe that he raised any issues that were new to us and that is why we were able to say we did not believe there would be any material financial effect on the company.”