Troubled life insurer Equitable Life is to transfer all its policies to Reliance Life, in a bid to boost capital distribution by £1.8bn.
The move is expected to complete at the end of next year, after being voted on by members in mid-2019, and is estimated to increase the current 35 per cent capital distribution on with profits policies to between 60 and 70 per cent.
For this to happen eligible policyholders will also be asked to vote in favour of removing policy guarantees, including guaranteed annual raises, and the High Court will need to approve any deal reached.
This is because the with profits fund will be closed and policies converted to unit-linked funds selected by policyholders.
About £1.8bn in capital will be released by the move, which equates to an average windfall of £6,900 for the 261,000 remaining policies.
It had already emerged in March the life insurer, which had almost collapsed in 2000 due to mismanagement at the firm, was looking to raise the capital it paid out to its members.
Chris Wiscarson, Equitable Life’s chief executive said: “When the Equitable closed to new business in 2000, it was inevitable that at some point the society had to come to an end.
“The benefit of bringing Equitable to an end sooner rather than later is that we can capture for with-profits policyholders the near record high values of the investments backing their policies.”
Equitable Life had found itself locked into paying out high interest rates promised at a time of high inflation - in the 1970s - at a time of low inflation and interest rates, when it found it hard to fund those commitments.
The debacle led the UK government to pay back £1bn to eligible policyholders by the end of 2014.
The Equitable Life payment scheme closed to new claims on 31 December 2015.
Ian Brimecome, Equitable Life’s chairman, said: “While it will be sad to bring an end to the oldest mutual assurer in the world, the potential to enhance with-profits policy values to the extent made possible by a transfer to Reliance Life is fundamentally helpful in distributing capital to our policyholders as fairly and as soon as possible.”
Reliance Life is part of the Life Company Consolidation Group (LCCG), a specialist European life assurance group seated in London.
Its principal businesses are Reliance Life and Utmost Wealth Solutions, which together hold £24bn of primarily unit-linked policyholder assets for more than 250,000 customers.
Paul Thompson, LCCG’s chief executive said: “We are delighted to have been selected by Equitable Life to be its partner in providing ongoing service, fund choice and security to its policyholders.
“As a group, we have significant experience in delivering policyholder value through well-managed runoff processes and our expertise in unit linked assets.”
Danny Cox, chartered financial planner at Hargreaves Lansdown, said the capital distribution was made possible by loose monetary policy, which helped to boost the value of fixed income assets, which the portfolios had been shuffled into as a way to reduce risk.
He said: “This is a wonderful windfall for Equitable Life policyholders, who now stand to pick up a nice bonus as the with profits fund and Equitable Life shuts up shop for good.
“There’s still a bit of a wait, but the uplift is so substantial it’s well worth hanging on for.”
Equitable Life came close to collapse in 2000 in one of the UK’s biggest financial scandals, costing its policyholders millions of pounds and prompting a raft of inquiries from the government, regulators and the European Parliament.
The UK government ended up paying more than £1bn in compensation to members because of regulatory failures relating to the insurer.
Equitable Life, which was founded in 1762 and counts Samuel Taylor Coleridge, William Wilberforce and Walter Scott among its former customers, closed to new business 18 years ago.
Since then it has slowly been running itself down.
carmen.reichman@ft.com
