EMAG

The independent action group for current and ex Equitable Life policyholders, funded by contributions.

Equitable Members Action Group

Equitable Members Action Group Limited, a company limited by guarantee, number 5471535 registered in the UK

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Documents: 09/03/2001 - Halifax deal comparison


The following is the text of the analysis made by the Board of the relative merits of accepting the deal offered by the Halifax to carrying on independently.

Appendix 2
Halifax deal v. carrying on independently

Component of the business Halifax deal Carrying on independently

Reassurance of unit-linked and non-profit business 300m paid Value remains with members but higher level of terminations and poorer premium persistency are likely to reduce any profits made. The future value may be in the range 320 - 350m.

Business assets and subsidiaries 200m paid, and up to a further 500m payable (see below). No value received and fund bears cost of redundancy for new business staff, closure of branch premises etc. (likely costs around 50m).

Administration Continues at cost and scope to benefit from economies of scale and systems improvements going forward.
  • Diseconomies of scale which could emerge quite quickly if lack of a successful sale and a move to run-off the business led to large scale withdrawals.
  • Unable to afford significant system enhancements to improve service.
  • Difficult to retain and motivate high quality staff (eg: key IT/computer staff) in a closed fund run-off leading to reduced cost effectiveness.
  • Some possibility of taking on administration from third parties, but those parties may be reluctant to commit to an administrator facing diseconomies of scale.
  • The additional cost of the above may be up to 60m in total.

Investment Management Provided under contract by Clerical Medical at commercial rates. This is an increase in costs compared to current costs. Internal fund management uncertain in the long term, as a closed fund run-off would be unexciting for fund managers, who are likely to leave. Outsourcing possible on commercial terms. Current low costs are thus likely to be lost in any event.

GAR/non-GAR compromise Deal structure provides a powerful incentive for a positive outcome.

250m will be paid in addition if the scheme completes with up to a further 250m payable in 2005 depending on sales and profitability.
It may be harder to achieve a compromise without an external incentive and, therefore, more likely that a compromise will not be achieved and that the interests of policyholders in general will be damaged by the continuing division of with-profits policyholders into two groups with opposing interests.

Policy returns The additional funds of up to 1bn paid by the Halifax will allow greater investment freedom going forward. The degree of investment freedom will depend on whether a GAR/non-GAR compromise is also achieved. These factors will reverse the lower returns resulting from a more constrained investment policy (in the region of % per annum depending on the relative performance of equities and gilts in the medium term). Investment freedom improved if a GAR/non-GAR compromise achieved but still significantly more constrained than under the Halifax deal.

Future advice Sales-force continues to be available to advise current policyholders on future financial planning. Sales-force could not be retained; no advice available for current policyholders.