EQUITABLE LIFE TO STOP WRITING NEW BUSINESS
8 December 2000 Summary
The Equitable Life Assurance Society announces today that it will stop writing new business with immediate effect. The Society remains solvent and will continue to pay out benefits and accept premiums under existing policies.

What does this mean for policyholders?
Closure of the Society to new business leaves the existing with profits fund and existing unit-linked funds intact. Regrettably, however, the loss of growth in with profits policy values from 1 January to 31 July 2000 is unlikely now to be restored. All policyholders' benefits will continue to be paid out in line with the contractual obligations under their policies. Growth will accrue to with profits policies in the normal way in line with the investment performance of the with profits fund. This investment performance is now likely to be impaired by the fact that the with profits fund will need to be invested to a greater extent in bonds and gilts rather than equities which historically have generated higher returns in the longer term. The with profits fund will be re-balanced to this effect over an extended period lasting at least several months. The Board has no reason to change its best estimate of the likely cost of the Guaranteed Annuity Rate ("GAR") liability arising from the House of Lords' decision, however, the actual cost of the GAR liability could be more or less depending on a number of factors, most importantly future interest rates. Were the actual GAR liability to exceed the current best estimate, there would need to be a further transfer of value from non-GAR policyholders. Unit-linked funds are invested separately from the with profits fund and therefore the investment strategy for these investments will be unchanged as a result of the Society's closure to new business. Because the Society will not be writing new business, those of its operations involved with new business will be sold or reorganised. These and other measures will, over time, lead to reduced costs for the Society. Policyholders who are making regular contributions to their policies, or who are entitled to make additional contributions to their policies, can continue to do so. However, in the case of with profits policies, policyholders should consider the impact of the likely lower investment returns on their savings over time.

Background
In July, the Board of The Equitable announced that, as a result of the House of Lords' ruling on GARs, it had decided that it was in the best interest of members to commence a process to find a purchaser for the Society. Following that announcement, the Society received a large number of expressions of interest and received indicative proposals from three companies. The Society then held more detailed discussions with these three companies, who were invited to make firm proposals by the end of November with a view to announcing a formal offer for the Society before Christmas. No firm proposals have been received and, yesterday, the last of the parties who had submitted an indicative proposal withdrew from the process.

The Society and its advisers continue to have discussions with a number of parties who have expressed an interest in acquiring some of the operations of the Society. However, these discussions are of a preliminary nature. The Board has concluded that it is unlikely that these or other discussions will result in sale proceeds and/or capital support sufficient to restore the capital strength of the with profits fund. Without this, the investment freedom of the with profits fund will be constrained with a consequent impact on long term performance. In view of this, the Board has decided that the Society should stop selling new business. The Board's decision has the full support of the Financial Services Authority.

The Society remains solvent and also continues to satisfy the statutory requirements as to capital strength. The decision to stop selling new business is as a result of the constrained investment freedom referred to above, and to avoid the additional financing demands on the with profits fund which would arise from writing new policies.

Continuing sale process
The Board has tried to sell the Society in its entirety, including the transfer of the with profits fund. The Board believed that this was likely to achieve the best immediate value for members and the best long term security for policyholders. The Board and its advisers will now explore the sale of some of the Society's operations, including the Society's highly regarded sales force and the Permanent Insurance Company, but it is expected that there will be no transfer of the with profits fund which will be closed to new business and continue on a mutual basis.

Impact on the with profits fund
The Board has no reason to change its best estimate of the likely cost of the GAR liability arising from the House of Lords' decision of around £1.5 billion. The actual cost of the GAR liability could be more or less depending on a number of factors, most importantly future interest rates. To meet the estimated cost, there was a reduction in policy values equivalent to seven months' growth-hence, were the actual GAR liability to exceed the current best estimate, there would need to be a further transfer of value from non-GAR policyholders. It was hoped that a sale of the Society would restore the lost growth. Regrettably, it is now extremely unlikely that the continuing sale process will achieve this.

In addition to increased reserving for GARs the recent tightening of regulatory reserving requirements and poor returns in investment markets in the year to date are likely to mean that the capital strength of the with profits fund at 31 December 2000 will be weakened. As a result, it will be necessary to reduce investment in equities and increase holdings in fixed interest securities through an orderly re-balancing of the investment portfolio over an extended period of time. Policyholders should be aware that bonuses for the current and future years are likely to be lower than in previous years.

In order to protect the interests of continuing policyholders, the Society has increased the financial adjustment made on with profits policy transfers and surrenders to 10 per cent of current policy values. The previous financial adjustment represented approximately 5 per cent of policy values. Policies that mature on normal contractual dates will suffer no such adjustment. There is no impact on guaranteed values at contractual events (e.g. retirement or death). Those values are not guaranteed at any other time and therefore the amount realised on transfer or surrender may be lower.

Advice for policyholders
The Society will not write new business but will continue to accept premiums that policyholders are entitled to make under existing policies and issue new policies arising from options under existing policies (such as the purchase of an annuity at retirement). Policyholders should consider their individual circumstances when considering whether to pay additional premiums under their existing policies. Those policyholders who may need to take early decisions are those who have taken out a policy within the last fourteen days, those who pay regular premiums or those who have an option to make additional payments within the next few days. Those policyholders who have effected policies within the preceding 14 days, and are therefore within the statutory cooling off period, have the option of cancelling their new policies. The Society will extend this period to 22 December 2000 to allow such policyholders time for proper consideration of the impact of this announcement on them. Where policyholders require advice as to what action they should take, they should contact their usual Equitable representative at their local branch or telephone 0870 900 8020. For general information policyholders should telephone 0870 600 2272. This announcement has been posted on the Society's website. All policyholders will receive a letter as soon as possible detailing this announcement and containing further information.

Management Changes
Given that a sale restoring members' benefits has not been achieved, Alan Nash, the Society's Managing Director, has tendered his resignation and that has been accepted by the Society's Board. Chris Headdon, currently the Society's Finance Director, has been appointed as Chief Executive, subject to regulatory approval.

The Society's President, John Sclater, said: "This is a very sad day for all in the Society - members and staff - but the Board decided that losing the Society to new business is the only realistic option now available. The intention of the sale process had been to make good the transfer of value from non-GAR policyholders which resulted from the House of Lords' judgement. In the event, this loss of value is unlikely to be restored to policyholders." "I apologise most sincerely on behalf of the whole Board to members, policyholders and staff that this has come about. We remain committed to generating the greatest possible value from the sale of some of the Society's operations and providing the best possible service to policyholders."

Useful links :

A full copy of the Appeal Court judgment can be downloaded, in pdf format, by following the link below. 

• Appeal Court Judgment on Guaranteed Annuity Rates

A full copy of the original judgment can be downloaded, in pdf format, by following the link below. 

• Court Judgment on Guaranteed Annuity Rates

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