Equitable Life is still looking at selling off parts of the business despite increasing its key measure of solvency by 17% during the first half of 2006.
In its interim results the insurer says it Excess Realistic Assets, its key measure of solvency, have increased from £669m at the end of 2005, to £786m at the end of June 2006, to put it in its strongest financial position for five years.
And while the company says the improvement in its financial position makes them confident it can, with careful management, continue to run the Society as a closed fund, paying benefits to policyholders as they fall due, they are still searching for “strategic developments which will benefit policyholders”.
It warns that despite its improved solvency, increased regulatory standards for the industry mean it does not expect to be able to increase its exposure to equity and property markets for some time, which is one reason why it is continuing to look at other options.
Equitable Life says the position of with-profits annuitants remains “an important priority”, as these members feel the impact of the Society’s financial position most acutely, however it warns as “any practical solution will be complex, it is likely to be some way off”.
So far this year the company has transferred around 90% of its non-profit pension annuity business to Canada Life, which it says has removed around £4.6bn of liabilities from the company, significantly reducing the risk the with-profits fund will suffer from unexpected improvements in longevity.
The transfer is still waiting for approval from the High Court, which Equitable expects to receive early in 2007, however in the meantime the full life expectancy and investment risks for this part of the business have already been undertaken by Canada Life from 1 January, under a reassurance agreement.
In addition the organisation has also sold £578m of indirect property holdings during the first half of 2006, in an attempt to improve the liquidity of its property portfolio, and as a result it is looking for “attractive opportunities in which to reinvest the proceeds”.
The results also reveal the with-profits assets provided a gross return of just 0.6% in the first half of the year, compared with 5.3% in the same period in 2005, although it says after adjusting the figures for bond yield movements, the return, before charges and tax, is 3.8% compared to 4% in 2005.
Meanwhile the report provides an update on the continuing inquiries by the Parliamentary Ombudsman and the European Parliament, with it offering its support in both cases.
It notes the Ombudsman’s report is expected by the end of the year, while the European Inquiry has delayed its final report until April 2007, to allow it time to study the Ombudsman’s report and to hear further evidence from Charles Thomson, the chief executive of Equitable Life, later this year.
In addition the report reveals Equitable has come to an agreement with HBOS over the initial premium on a reassurance arrangement from 2001, which after consulting an independent umpire, means Equitable has been able to reduce the amount of money set aside for this liability.
The results statement also highlights the fact a case management conference has been conducted in relation to the litigation started by 413 with-profits annuitants, with the case continuing to progress towards a trial which is now expected to take place early in 2008.
And the report states there remains a possibility “further complaints and claims could be made against the Society, alleging fraud or mis-selling or otherwise seeking compensation”.
But while it is continuing discussions with eth Financial Services Authority (FSA) on the appropriate level of capital the company needs to hold under the individual capital adequacy regulatory framework, the Board says after considering the potential risks and actions, it believes it is still appropriate for the company to be considered as operating on a “going concern” basis.
Vanni Treves, chairman of Equitable Life, says the steady, continuing work on the fundamentals of the business together with the strategic agreement with Canada Life has brought the company “appreciably closer” to the financial condition of other closed with-profit funds.
He adds: “Our continuing success in removing the special and serious risks which have threatened the well-being of our policyholders increases the confidence with which we can face the future and assess the strategic options for the benefit of our policyholders.”
And Thomson says while the business continues to need careful financial management, most of the challenges it now faces are similar to those facing the rest of the with-profits industry.
He adds: “All the while, our progress in removing the exceptional issues from the business goes on steadily. If a strategic alternative is not available, we will have prepared the ground for a stable and secure run-off.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
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