Equitable given £1bn reprieve
Equitable life has been given special permission by the Treasury to use £1bn of future profits in its balance sheet to remain within the industry's solvency requirements.
Without the concession, Equitable would be £590m short of the minimum safety margin required by the industry in the Insurance Companies Act, according to the Sunday Business.
The insurance company has lost more than 8% of its with profits fund – worth £24bn – in the first half of the current financial year.
Speaking on BBC radio Charles Thompson, Equitable Life chief executive said the situation was not unknown. ‘It is part of insurance regulations and allows that you bring into account future profits.’
Despite this, business analysts say the £1bn concession may be the biggest allowed to date.
Thompson added: ‘Not only is the company solvent now, it also exceeds the minimum margins that we need to have above solvency in order to comply with insurance regulations.’
Earlier this year, the life insurance company was hit by a house of Lords ruling which forced it to pay the annuity it had guaranteed policyholders when insurance rates were over 10%.
But as interest rates were cut and business slowed, Equitable found itself losing money. Although it is not insolvent, the company is now faced with unexpected liabilities and falling profits.
Equitable has also undergone a financial review, published on 16 July, which policyholders are claiming is not informative enough. The day after the review’s publication, the company announced it was slashing bonuses on pension funds by 16%.
The first thing the board had done during the summer was fix the financial position of the company so that not only are we solvent, but that policyholders leaving the society only take a fair share of the funds and that means there is no damage for future policyholders.
Links
Call for Equitable to publish review