Equitable moves to reassure savers on solvency

Equitable Life, the stricken insurance company, yesterday moved to try head off another exodus of policyholders by insisting it remained solvent and dismissing suggestions it has drawn up secret plans for going into administration.

The company denied that it had approached the accountants Deloitte & Touche to become "administrator in waiting", and said discussions on its possible insolvency were part of prudent contingency planning. "Equitable Life has not drawn up any plan for administration," Charles Thomson, chief executive, said. "Furthermore, it has no plan to appoint Deloitte & Touche or any other firm as administrator. The society continues to meet its regulatory requirements. Equitable Life is and always has been solvent."

Equitable would be forced into administration if its investments were no longer enough to cover guaranteed pay-outs to its pensioners and savers. But the life insurer said that it had sold the bulk of its remaining holdings in equities, so its exposure to turbulent stock markets was now negligible. The bulk of its £15bn funds are now invested in government bonds and property.

It said it was confident high exit penalties ensured that any savers who gave up on the company would not jeopardise the solvency of the fund by taking out their money. People cancelling their policies automatically lose one-fifth of their investment.

The Financial Services Authority, the City regulator, would have okayed the assumptions behind the exit penalties, but Equitable indicated yesterday it would be willing to raise them if they proved inadequate. Policyholders have been deserting Equitable with every new twist in its financial drama. Last year, £6.2bn was withdrawn.

In the event of a firm going bust the industry-funded Financial Services Compensation Scheme (FSCS) pays out 100 per cent of the first £2,000 payable under any policy and up to 90 per cent of the value of the policy.

FSA sources were yesterday backing Equitable's claims that it has stayed within the required levels of solvency. The regulator has been monitoring the situation since a hole in Equitable's finances opened up two years ago. The House of Lords decided then that it must meet its guaranteed policyholders' claims, although in February this year policyholders voted to waive those claims in return for one-off bonuses.

Equitable is today expected to set out measures to deal with policyholders who left the society early and who consequently never agreed the compromise deal. They claim they were mis-sold pensions because they were not told they would bear the cost of paying guaranteed policyholders' claims. The company has already set aside £120m against such claims of mis-selling and further provisions may have to be made.