Equitable Life will have to secure a parent company by the end of this year if it is to retain its s...
Equitable Life will have to secure a parent company by the end of this year if it is to retain its salesforce and customer base.
That is the view of independent financials analyst Ned Cazalet following last week's House of Lords ruling on guaranteed annuities. He believes the mutual will have to act far more quickly than its stated timescale of finding a parent by the end of this year and having the deal go through next summer.
Cazalet believes interest from several rival providers will mean the deal could be settled within 10 weeks, especially as Equitable has admitted its policy of fully distributing profits to policyholders means it has effectively no reserves to absorb the £1.5bn in increased benefits that will have to be made available following the judgement.
He said: "The most important factor for Equitable is speed. It needs to act quickly to quell investor uncertainty and keep its highly productive direct sales force from being poached by other companies."
Cazalet believes the main attraction of Equitable for a bidder will be its administrative and operational strength rather than its profitability, despite the company's £33bn book value.
He said: "As a shareholder you would find it very difficult to make profit on Equitable but this is a golden opportunity to get hold of a systems and admin that is far above the industry average in terms of efficiency."
Cazalet estimated Equitable was worth £3-4bn excluding the guaranteed annuity rate issue. In the present circumstances he said any such valuation was unrealistic as any buyer would have to strengthen Equitable financially.
This may include ringfencing Equitable's long term debt inside its own funds and absorbing the £1.5bn deficit through its own free asset ratio.
Potential bidders will also take into account the marketing costs of restoring Equitable's brand image, retaining existing policyholders.
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