Equitable gives up on plan to sell £7bn with-profits fund

Equitable Life has been forced to shelve the sale of its £7bn with-profits fund, blaming turmoil in financial markets for its inability to secure a deal.

The stricken mutual insurer received a number of proposals from bidders and had narrowed the field to three but decided none was better for policyholders than allowing the fund to run off. Equitable had been working on the deal since late 2007 and had hoped to reach an agreement before the end of the year.

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Equitable has officially put the sale on "hold" and will still listen to offers if markets improve but it now expects to proceed with winding down the fund.

Approaches, which included one from the giant reinsurer Swiss Re, were said to have fallen short because bidders had tightened their belts amid grim economic conditions. Old Mutual also abandoned the attempted sale of its South African general insurer yesterday because suitors walked away.

Equitable will now look at cost cuts that could lead to redundancies among dozens of contract staff who have worked on the with-profits sale and other disposals. The insurer will also review its contract with HBOS, which administers Equitable's policies, to see if it can get a better deal elsewhere.

Last month, Prudential pulled out of the running to buy the fund, saying there were more attractive opportunities elsewhere. The Pru is mulling a bid for AIG's Asian businesses.

The collapse of talks is a blow to Equitable members, who are also waiting on the Government's response to a report by Ann Abraham, the Parliamentary Ombudsman, calling for compensation for the more than a million members who lost money when the mutual society nearly collapsed in 2000.

The Government had promised to respond to the report by the autumn. Equitable said it would continue to lobby the Government to implement the ombudsman's recommendations.

Any deal would have had to pass a policyholder vote. The Equitable Members Action Group said it accepted that with markets in turmoil, a deal that would have been in policyholders' interests was highly unlikely.

Equitable has already transferred £4.6bn of annuities to Canada Life and £1.7bn of with-profits annuities to Prudential. It put the with-profits fund up for sale to see whether a larger bidder could give policyholders a better deal by lowering costs.

Vanni Treves, Equitable's chairman, said: "Having carried out this important test of our options for improving prospects for our policyholders, we will now focus on a stable and secure run-off of the society."

The society closed to new business at the start of the decade after the House of Lords ruled that it could not cut final bonuses paid to the holders of policies that guaranteed minimum annuity rates on retirement.

The policies became unaffordable as falling interest rates and inflation made them too expensive to honour.