Equitable Life up for sale after Lords ruling

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The Independent Online

Axa, the French insurance group, and Aegon, the Dutch group that owns Scottish Equitable, are expected to head the queue of likely bidders for Equitable Life, the mutual life and pension group that was yesterday forced to put itself up for sale after losing a landmark case over pension rights in the House of Lords.

Axa, the French insurance group, and Aegon, the Dutch group that owns Scottish Equitable, are expected to head the queue of likely bidders for Equitable Life, the mutual life and pension group that was yesterday forced to put itself up for sale after losing a landmark case over pension rights in the House of Lords.

Other big insurers who would be keen to land the Equitable Life business include Prudential and CGNU, now Britain's biggest life insurer. A lively auction that could send the final price above the £3.5bn valuation analysts have placed on the business looks to be guaranteed.

Alan Nash, Equitable's chief executive, said that the phone had started ringing within minutes of the announcement that the group had asked its advisers, Schroder Salomon Smith Barney, to find a buyer for Britain's oldest mutual. He said it hoped to have identified a preferred bidder by the end of this year and to complete the sale by the middle of next year, thus minimising the impact of the Law Lords' ruling on existing policyholders.

The decision will force Equitable to increase payments to 90,000 pensioners to whom it sold guaranteed annuity policies in the 1960s, 1970s and 1980s.

"Because of this need to address the adverse capital position, we have decided that it is in the best interests of our members to seek a partner," Mr Nash said.

Bankers yesterday warned that anyone expecting Scottish Widows-style windfalls for Equitable's 600,000 well-heeled policyholders is likely to be disappointed.

A big slice of the purchase price will have to go towards plugging the £1.5bn gap left by the ruling that Equitable Life should not have cut bonus rates to those who had bought these guaranteed annuities because of falling investment returns.

Equitable is also likely to insist that policyholders receive any windfalls in the form of bonuses that will have to kept within the life fund in order to keep solvency rates up.

Ned Cazalet, an independent life insurance analyst, said: "I see precious little in the way of shopping-voucher bonuses. The board is going to meet next week to adjust terminal bonuses as a result of this decision. They are not going to go up, are they? I don't understand why people are dancing in the streets because of this."

However, Mr Cazalet admitted that Equitable, which has £33bn under management, is "miles more efficient in terms of administration" than anyone in the UK life business, and has an attractive customer base.

The 238-year old life insurer has turned down repeated takeover approaches in the past because of its determination to remain mutual.

The House of Lord's judgment went further than an earlier Appeal Court ruling that had overturned a High Court decision backing Equitable's handling of the guaranteed annuity issue.

The five Law Lords ruled unanimously that Equitable was not entitled to differentiate in setting bonus rates between policyholders holding guaranteed annuity policies and those who did not, neither was it entitled to offer higher bonus rates to policyholders who agreed to waive their guaranteed rights.

Guaranteed annuities, which promised pensioners a certain level of return irrespective of market rates, were widely sold in the 1970s and 1980s when the threat of inflation eroding the value of pensions was real. However, falling bond yields have made them ruinously expensive to honour in the low-inflation environment of the 1990s.

The ruling relates to a test case brought with Equitable's support by David Hyman, a retired former stockbroker, two years ago in an attempt to resolve the issue once and for all.

Mr Hyman said after the judgment that he had little sympathy for the company's plight. "It is unfortunate for the non-guaranteed annuity rate members, but the fact is that we were made promises. It is not our fault that the company did not take account of the possible shortfall."

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