Financial Times - article by Oliver Ralph 15 June 2018
Equitable Life is to sell itself for £1.8bn, drawing the curtain on the long and troubled history of the UK’s oldest mutual life insurer. Equitable came close to collapse in 2000 in one of the UK’s biggest financial scandals, costing its policyholders millions of pounds and prompting a raft of inquiries from the government, regulators and the European Parliament. The UK government ended up paying more than £1bn in compensation to members because of regulatory failures relating to the insurer.
Equitable, which was founded in 1762 and counts Samuel Taylor Coleridge, William Wilberforce and Walter Scott among its former customers, closed to new business 18 years ago. Since then it has slowly been running itself down. Chris Wiscarson, Equitable’s chief executive, put the company up for sale earlier this year, and has now agreed to sell it to Life Company Consolidation Group, which specialises in buying up old books of life insurance business. He said the EU’s Solvency II capital rules, introduced in 2016, made it increasingly difficult to run the company and return excess capital to policyholders. “Under Solvency II, you have to reserve for a one in 200-year event. For a company that has only 20 years to go, that’s an odd notion.”
Equitable still has just under 400,000 policyholders, the majority of whom will receive some of the proceeds of the sale. Those customers who have with-profits policies will get a big jump in the bonus level that is applied to the underlying value of their policies, from 35 per cent to between 60 and 70 per cent. However, as part of the deal they will have to convert their with-profits policies, which carry investment guarantees, to unit-linked policies which are more sensitive to movements in financial markets. Nevertheless, Mr Wiscarson is not expecting a lot of opposition. “I’ve met many policyholders to talk about this and they get the proposition and are very supportive of it,” he said. Paul Thompson, chief executive of LCCG, said that the transfer from with-profits policies to unit-linked was a crucial part of the deal. “We wouldn’t have been interested in acquiring the mutual as a mutual,” he said. “They are difficult to run in run-off . . . there’s a huge amount of capital to be distributed to the last remaining policyholder.” Mr Thompson said that LCCG, which is backed by US-based Oaktree Capital, would have to raise fresh capital for the deal.
Equitable’s near collapse in 2000 was prompted by guarantees it had given to its customers on the returns they could expect from their investments. According to the 2007 European Parliament report: “Equitable did not correctly predict the increase in life expectancy of the general population nor the historical fall in interest rates; thus, a time-bomb started ticking the moment [guaranteed annuity rates] were introduced, with the firm consistently under-reserving for the guaranteed annuities throughout the whole period and creating an ever-increasing asset shortfall.”
Policyholders will be able to vote on the deal in the middle of next year, and High Court approval will also be needed.
