Stewart Lyon, an independent actuary asked to report on Scottish Equitable's pounds 240m deal with the Dutch Aegon group, said the company could face a significant loss of business and be forced to write off much if not most of the value of its unit-linked insurances.
The deal will give Aegon an initial 40 per cent share of the profits from Scottish Equitable's unit-linked business. With-profits policyholders will receive a special bonus at a total cost of pounds 35m.
In a document sent to with-profits policyholders, who must approve the deal, Mr Lyon says: 'Unless fresh capital such as the (Aegon) scheme will provide is brought in, the society will be forced to restrict the growth of its new business in order to protect its statutory solvency margin.'
Mr Lyon says it is reasonable to believe that the consequent withdrawal or partial withdrawal from the market could result in a significant loss of existing business. Such a course 'would be tantamount to writing off much if not most of the value which the society and Aegon have placed on the future profits from non-profit business'.
Scottish Equitable's free assets have dropped from 3.5 times its required minimum margin in 1988 to only two times at the end of last year.
Mr Lyon said the Aegon deal would fully maintain the security of the guaranteed benefits of existing policies and would safeguard reasonable expectations of policyholders.
The document said professional and other costs incurred as a result of the deal would be pounds 3.5m, to be borne by with-profits policyholders.
Scottish Equitable's directors said restricting new business would have damaged the company's standing with independent financial advisers.Reuse content