Equitable Life's Irish with-profit policyholders will have to wait until next Wednesday to find out what their policies are now worth.
The revaluation of policies follows the House of Lords' decision which leaves the mutual life assurer with liabilities of an estimated £1.5 billion sterling. Equitable Life has been put on the market as a result of the decision.
The operation has some 20,000 to 25,000 Irish policyholders out of a total of about 800,000. About 70 per cent of its Irish customers have with-profit policies. The values of unit-linked or fixed rate annuity policies are not affected.
Equitable's head of international operations Mr Paul Murphy said yesterday that the most likely outcome was that the effective values on statements sent to the policyholders in February would be honoured. That statement set out the value of each customer's policy at December 31st 1999. But he said there was unlikely to be any increase in the value of policies for the first six months of the current year.
"The effective values on the statements as at December 31st 1999 are likely to be honoured. We have sufficient assets to meet our liabilities. It is a question of what the liabilities will be from January 1st 2000," he said.
Policy values comprise three elements - the capital invested, the annual or reversionary bonus and the final bonus. Mr Murphy said the capital invested by policyholders and all annual bonuses declared up until December 31st 1999 will be honoured. But the amount of the final bonus - paid out by most companies when a policy terminates but Equitable adds a portion of the final bonus each year to the value of each policy - will be decided by the Equitable board on Wednesday. The final bonus accounted for two thirds of the total bonus last year. Over time up to 50 or 60 per cent of the return on with-profit policies can come from final bonuses.
Mr Murphy said he expected final bonuses declared for each year up to December 1999 to be honoured, but policyholders would lose out by not getting any annual or terminal bonuses for the months of January to July this year. The combination of annual or reversionary and terminal bonuses has added about 10.5 per cent to 11 per cent to the value of policies each year over the last few years, he said. Policyholders may benefit financially from the demutualisation but this will depend on what a purchaser is prepared to pay for the operation. Asked what members could expect, he said "Your guess is as good as mine. The demutualisation is aimed at ensuring that policyholders will not lose out. As for extra . . . we will work to achieve the best possible deal . . .," he said. But he pointed out that the costs arising out of the House of Lords decision must be covered first in any sale. Equitable has provisions of some £200 million as well as some technical reserves - the exact amount is being assessed in advance of the Wednesday board meeting - against the costs.
Equitable has been put on the market because of the huge liabilities it now faces after losing its appeal to the House of Lords over its decision to reduce bonus payments to holders of guaranteed annuity policies. No guaranteed annuity rate policies were sold in the Irish market where Equitable opened in 1991 - the assurer stopped selling this type of policy in the UK in 1988. But because the House of Lords decision has left Equitable with a bill estimated at £1.5 billion which it has not provided reserves to meet, all the group's with-profit policy holders will be affected.
Mr Murphy said he was "sad and disappointed at the turn of events". But he said the liabilities the assurer faced if it continued with its current status would mean "considerably lower returns for all its policyholders, not just those with guaranteed annuity rates". "We have had no option but to look for capital to make up the shortfall," Mr Murphy stressed. On the sale he said that the offer document would be available to potential purchasers by the end of August and Equitable hoped to have a decision on a deal by the end of December. Members of the mutual - about 500,000 with-profit policyholders - must approve any move to demutualise and sell.
For the Irish operation it is be business as usual pending the outcome of the sale process, according to managing director Mr Noel Creedon. The operation, which has 25 staff, offered an attractive opportunity for an acquirer to expand its interests in the Irish market with its low-cost operation and strong brand, he said. But Equitable's Irish operations will not be sold separately, Mr Murphy insisted.
