Equitable rethinks compensation

Equitable Life, the mutual insurer that has been teetering towards collapse after it was forced to honour guarantees it could not afford, said yesterday it remains solvent and would not need to cut policies again this year.

But the society said it would scrap the compensation scheme it set up to help 60,000 investors with guaranteed annuity policies two years ago on the grounds that "it may not be fair to continuing members". It plans to send members details of a replacement scheme within a few months. A scheme for former non-guaranteed annuity policyholders will also be reassessed on a "case by case basis".

Policyholders will not receive an annual bonus for 2002, but the society is planning to pay an interim bonus, albeit not guaranteed, of 3.5 per cent on pensions and 2.75 per cent to life policies. Equitable is also able to keep making its bond repayments.

Vanni Treves and Charles Thomson, the chairman and chief executive respectively, said real progress had been made in stabilising the fund, and it held a cushion of £356m in assets above the margin required by the regulator.

Exit penalties have been increased sharply in the past two years to prevent an exodus of customers, but Equitable yesterday said it would not raise the penalty further this year. Policyholders withdrew £3.8bn from Equitable last year, on a par with 2001. The fund is now 80 per cent invested in bonds, sheltering it from the volatile equity markets.

"Equitable Life is gradually coming out of intensive care. Although responding to treatment, we are still some way off declaring a clean bill of health," Mr Treves said. "There are a number of difficult issues that still need to be resolved but I am cautiously optimistic about the society's outlook."

Equitable was crippled financially by a House of Lords ruling in 2000 that ordered it to honour guarantees on pension policies sold in the 1970s and 1980s. It was slapped with a bill of £1.5bn and, having failed to find a buyer, closed to new business.