Equitable funds fall £1.7bn as policyholders exit

Equitable Life lost £1.7bn in funds under management in the three months to 30 September due to unprecedented numbers of policyholders leaving the stricken life assurer.

The sum was published in the final compromise proposal, which Equitable yesterday began to send out to members. The size of the loss will do little to convince policyholders that their society could be made more stable and financially strong by voting yes to the compromise.

The £1.7bn loss represents an almost doubling of the number of people leaving Equitable in the first half of the year. Between January and June policy closures totalled £2bn, which was already far higher than historic losses to the with-profit funds.

Charles Thomson, the chief executive of Equitable, admitted the reduction of the with-profit fund was "dramatic", but stressed that it included policies maturing as planned as well as policyholders who decided to cut their losses and move their money elsewhere.

There has also been a sudden fall in the fund which is used to pay final bonuses. The fund, which is known as the Fund for Future Appropriations (FFA), plummeted from £2.3bn at the end of last year to just £300m at the end of September.

Mr Thomson said that the value of this fund fluctuates significantly because it has a high exposure to the stock market. But he conceded that the trend could have a negative impact for policyholders, who have already seen policy values sliced by up to 16 per cent this year.

"If the FFA keeps going down we could not afford to pay out the current levels of bonuses," Mr Thomson said.

Equitable's new board is trying to stem the tide of policyholder desertions by proposing a scheme to cap unmanageable liabilities which loom due to expensive pension contracts and the possibility of legal action by aggrieved policyholders.

The 239-year-old life assurer ran into trouble last July, when the House of Lords ruled that it could not pay smaller bonuses to those with guaranteed annuity rate policies (GARs), leading to liabilities of £1.5bn.

Vanni Treves, the chairman of Equitable since March, said the board unanimously backs the compromise. "Equitable has been in a snake-pit in the last year and a half. We have presented members with a ladder and if members climb it we will be in a much safer place. If not, we will remain in the snake-pit," Mr Treves said.

The final version of the scheme was largely the same as the draft proposals published on 20 September. The society is offering GARs and non-GARs an uplift in the value of their fund in return for them giving up certain rights.

GARs will receive an average rise of 17.5 per cent, while non-GARs are in line for a 2.5 per cent rise. Equitable warned that if the compromise is not ratified by 1 March next year, the rises will be smaller because Equitable will not receive £250m from Halifax. Halifax offered the money on the condition that a compromise was achieved when it bought most of Equitable's assets in February.