September 2007 - Pru Deal Press Coverage

“It is time for members to have their say”

Paul Farrow, Sunday Telegraph 30th September 2007

Equitable Life’s Vanni Treves wants to sell the stricken insurerer’s with-profits annuities to the Pru. But should policyholders approve the offer”

Paul Farrow investigates

Nearly 400,000 Equitable Life policyholders are to get their chance to vote on the proposed transfer of £1.8 billion of with-profits annuity policies to Prudential. If the deal goes ahead, it will free Equitable to "go out to the market" in a bid to find a buyer to bail out the remaining policyholders stuck in its with-profits fund. Equitable Life wants to transfer to Prudential all of its with-profits annuity policies, representing about 20 per cent of the with-profits fund with an estimated value of about £1.8bn. If approved, around 62,000 with-profits annuities will be transferred into an actively managed fund that has greater bonus-earning potential than the current Equitable Life fund.

Over the next few days, all Equitable policyholders will receive information on the deal ahead of an extraordinary general meeting due to be held on October 26.

All voting members of the society will have the opportunity to vote on the proposed transfer either at the EGM or by post. The deadline for postal voting is Wednesday October 24.

Equitable Life with-profits annuitants were the worst hit of all policyholders because they were not allowed to move and so have been stuck with the beleaguered insurer.

They have seen their retirement income plummet as bonuses have slumped. At the moment, the income from Equitable Life’s with-profits annuities is cut each year, partly because the society must keep such a large part of its assets in bonds in the hope of safeguarding returns.

Prudential has committed to maintaining the same policy terms, benefits and charges to Equitable’s with-profits annuity policyholders if they agree to the transfer.

Advisers says the decision for Equitable’s policyholders boils down to whether they are likely to get better investment returns from Prudential or Equitable.

There is no doubt that the Prudential with-profits fund is one of the very strongest in Britain, and typically holds around 70 per cent in equities and property. By contrast, the Equitable fund is at the weaker end of the scale and holds around 20 per cent in equities and property, with the rest predominantly in fixed-interest securities. This is why Vanni Treves, Equitable’s chairman, and Charles Thomson, its chief executive, believe that the holders of with-profits annuities stand a chance of getting better returns from Prudential’s ownership.

Treves says: "It is time for the Society’s members to have their say on the transfer of with-profits annuity policies to Prudential. This transaction represents a critical milestone in the recent development of the Society and I very much hope that policyholders will decide to support it."

The Pru’s £75bn with-profits fund is one of the few to have delivered decent growth; it has returned 10.5 per cent a year, compared with the Equitable’s return of 6.5 per cent over the past five years.

Over the past decade the Pru fund has returned 10 per cent a year versus the Equitable’s return of 7.5 per cent a year.

But the Equitable Members Action Group (Emag) doubts that the deal is in the interest of all policyholders and reckons that the remaining 80 per cent of investors will bear the brunt of the extra costs.

It also highlights comments made by Nick Prettejohn, the Pru’s chief executive, that its with-profits fund "may be more volatile" than a fund more heavily invested in fixed-interest assets.

"The Pru articulates the downside risk, which is very real, the chief executive uses the word volatility but Equitable glosses this over and talks only of potential better returns," says John Newman, the chairman of Emag.

"Why? The new Prudential fund has no smoothing kitty from elsewhere or in it already. So there is every prospect of most annuities for with-profits annuitants continuing to go down.

"The remaining policyholders are to bear all remaining risks and overheads on fewer shoulders. Isn’t it asking the with-profits policyholders to be altruistic and self-sacrificing to allow the with-profits annuitants to move?

Newman says that "any clever deal was beyond Treves", who he claims has failed to deliver what annuitants want – the ability to covert their with-profits annuity into a fixed annuity.

"The one aspect we have heard from with-profits annuitant policyholders is convertability: some want to be back in equities and have the product they bought into some years ago. Others would like to opt out for security, so would the Pru allow with-profits annuitants to convert into fixed annuities?

Equitable rejects Emag’s suggestion and says it is not glossing over the facts.

"The downside risks are clearly mentioned in the Q&A. There will be a increase in administration costs because we will be a smaller society, but it has been taken into account. We plan to hold back some of the funds that will go to the Pru to compensate for the loss of the with-profit annuitants," says a spokesman.

"With-profits annuities are complex but once they are out of the way our with-profits fund will be similar to the rest of the industry – this will enable us to seek a better deal for our members."

Patrick Connolly of Towry Law, says: "While there are no guarantees, the proposed transfer does represent a good opportunity for policyholders to improve their investment prospects."

Geoff Tresman of Punter Southall, another adviser, says:

"I urge policyholders to vote in favour of the proposal. Equitable Life has demonstrated its incompetence consistently since 2000 and before in managing with-profits funds and the Prudential option represents a good opportunity to escape."

IFA Online (quoting ELTA group scepticism), by Scott Sinclair

Equitable Life transfer vote worries action group

Friday 28th September 2007

An eleventh-hour bid to encourage Equitable Life with-profit annuitants to vote in favour of transferring their policies to Prudential will do little to quell scepticism over the move.

That is according to a source at the Equitable Life Trapped Annuitants (ELTA) action group, who has seen documents the firm is sending out to policyholders today.

The documents include ‘Key Features’ of the transfer, FAQs and a Policyholder Circular, all fronted with a letter encouraging policyholders to vote at the firm’s Extraordinary General Meeting (EGM) on 26 October.

The letter states: 'Your Board unanimously recommends that you vote FOR the resolution.'

But a spokesman for the ELTA, set up to represent the with-profit annuitants at Equitable Life, says there is little the firm can do to put a positive spin on the proposed move.

“I just don’t know how anyone can come to a reasonable conclusion over this and say: ‘Yeah, this is a good deal for us’,” he says.

“There is an attraction to leaving Equitable Life behind us but there is always that feeling: ‘Are we jumping out of the frying pan and into the fire?’”

The spokesman says one of the biggest concerns over the move is that policyholders haven’t been able to afford for an independent actuary of their choice to run the rule over the benefits of the transfer.

Equitable Life points out the proposal has been reviewed by an independent expert, S J Sarjant FIA, a consulting actuary with Watson Wyatt, adding his appointment was approved by the FSA.

But the ELTA says: “A judgement is being made by an actuary who has been chosen by Equitable Life.

“We can not afford to pay for our own independent actuary to look at whether this is likely to be a good deal for us or not. Effectively, we are relying on them.”

The spokesman adds another gripe is the lack of a ‘grandfather clause’ in the proposed deal.

He says any bonus rates policyholders would have accrued by being with the Pru over the same amount of time they have been with Equitable Life will not be carried over.

“Maybe that’s not a reasonable expectation,” he says. “But it is important when we are being told we’re going to be better off.”

Equitable Life says the transfer, should policyholders give it the green light, will not only benefit those annuitants being transferred to Prudential, but also those remaining at Equitable Life with other policies.

The letter to policyholders states: “We unanimously recommend that you vote for the resolution because the Prudential will put your with-profits annuity policy(ies) into an actively managed fund which is one of the largest and strongest in the UK and which has greater bonus earning potential than the current Equitable Life fund, although increases to bonuses are not guaranteed.”

Pru strikes £1.8bn Equitable Life deal

The Times, Miles Costello

The second-largest insurer stays in the UK and seals a bulk-annuities deal but reviews 2,000 jobs in Britain

Prudential struck a landmark deal today to take control of Equitable Life's £1.8 billion with-profits annuities fund as it committed its future to the UK, beat profits forecasts and rolled out a string of new initiatives — putting at risk 2,000 jobs in Britain.

Pru shares rose almost 4 per cent, up 25p at 668p, as shareholders welcomed operating profits of almost £2 billion that were 8 per cent ahead of consensus. An increase in the cost-cutting target to £195 million by 2010 also went down well among investors.

The bulk-annuities deal with Equitable Life, representing about 20 per cent of its outstanding book of business, marks the largest agreement of its kind in recent years and will entail 60,000 policyholders transferring to a Pru-run combined book.

The insurer, led by Mark Tucker, the group chief executive, said today that it should generate annual premium equivalent income of about £180 million and a one-off profit of about £50 million as a result of the agreement.

No payment is involved in arrangements such as this, which effectively involve the transfer of risk from one party to another.

It came as the Pru generated more than £1 billion of customer money for the first time last year, 20 per cent growth on the previous year.

New business profit margins improved to 42 per cent.

Equitable Life seeks approval for annuities transfer

Press Association
Friday September 28, 2007

Troubled mutual, Equitable Life, began writing to policyholders today for approval for the £1.8bn transfer of its with-profits annuities.

The group hopes to transfer the policies to insurance giant, Prudential, by the end of the year, but it needs the backing of members to go ahead.

The move would be a key step towards the possible eventual sale of the remaining business, as it is thought many potential buyers of Equitable have previously been put off by the complex with-profits annuity book.

The group said it would be sending its nearly 400,000 policyholders detailed information on the transaction during the coming week, ahead of an extraordinary general meeting on October 26.

The Chairman, Vanni Treves, said the deal represented a "critical milestone" in the recent development of the society, with the board arguing the move would benefit both with-profits annuitants and remaining policyholders.

It said the transfer of the annuities to Prudential could lead to higher bonuses for pensioners as Prudential would have more flexibility to invest in equities, while the terms, charges and minimum payouts of the policies would remain unchanged.

Many with-profits annuitants have seen sharp falls in the income they receive from the policies in recent years as a result of the problems at Equitable Life. The group added that the policies were "relatively unusual" and only a few third-parties would have the expertise to run them.

As a result, the prospects of a sale of the rest of the business would be "significantly improved" once the transfer was completed.The with-profits annuity book represents around 20% of Equitable's with-profits fund and consists of 62,000 policyholders.

If it went ahead it would leave the society with around 180,000 with-profits policyholders and a £7 bn with-profits fund.

Charles Thomson, the chief executive of Equitable Life, said: "We firmly believe that the transfer will benefit all policyholders and that is why the board is recommending that they vote in favour of it.

"The policyholders that are transferring will become part of an actively managed fund, which is one of the largest and strongest in the UK.

"At the same time, the transfer will simplify the structure of the society, substantially improving the prospects of finding a strategic solution for the remaining policyholders."

If members vote in favour of the transfer, the High Court will be asked to approve it on November 28, and the deal will be completed by December 31.

The transfer would be the second major deal for Equitable this year, after it completed the transfer of its £4.6 billion non-profit annuity book to Canada Life in February.

In 2000, Equitable Life was bought to its knees when it lost a legal battle in the House of Lords over the rights of its policyholders, forcing it to close to new business and put itself up for sale.

Policyholders at the group are still waiting for a report by the Parliamentary Ombudsman to see if they are entitled to Government compensation over its role as regulator in handling the crisis.

Equitable Life calls members to vote on with profits annuity policies

28th September 2007
Sharon Flaherty, Financial Adviser

Equitable Life Assurance Society is writing to all policyholders to update them on the transfer of £1.8bn of with profits annuity policies to Prudential Assurance Company Limited.

The company said that around 400,000 policyholders will receive information on the planned transaction next week and voting members can either vote at the Extraordinary General Meeting on 26 October or via post by the 24 October deadline.

The High Court will also be asked to approve the transfer on 28 November, 2007 and if approved, it will be due for completion on 31 December, 2007.

The board of Equitable Life said it strongly recommends policyholders vote in favour of the proposed transfer.

"The policyholders that are transferring will become part of an actively managed fund which is one of the largest and strongest in the UK. At the same time, the transfer will simplify the structure of the Society substantially," said chief executive of Equitable Life, Charles Thomson.

Equitable proposes £1.8bn annuity sale to Pru

Ellen Kelleher in the Financial Times, 28th Sept 07

Equitable Life took another step towards a sale of its remaining business this week when it sent its members details of the transfer of £1.8bn of its with-profits annuity policies to Prudential.

Vanni Treves, Equitable Life's chairman, described the deal - which has yet to receive approval from members - as favourable on two fronts.First, annuitants may see higher bonuses as Prudential is capable of investing more heavily in equities. The offloading will also make Equitable Life more attractive to those buyers previously deterred by the complexity of the annuities business.

Equitable Life members are to vote on the deal at the society's extraordinary meeting on October 26.

Mr Treves said: "If this deal happens, it will lay the groundwork for us being able to do better things for remaining policyholders."

Under the terms of the agreement, the 50,000 annuitants affected would see no changes to the terms of their policies as the level of previous charges and minimum benefits would be guaranteed.

If the deal is approved, Equitable Life would have 350,000 policyholders remaining and a £6bn with-profits fund.

The move represents the latest phase of restructuring for the mutual.

Earlier this year, Equitable Life transferred a £4.6bn non-profit annuity book to Canada Life.

The announcement of further details of the transfer came on the same day that the Financial Services Authority revealed it had sent a warning to insurers that it would take action against unfair treatment of with-profits customers following its review of the sector.

Sarah Wilson, FSA sector leader for insurance, wrote: "Some firms are not doing enough to provide independent input into the management of with-profits funds, or are not devoting enough attention to running off closed funds." She added: "We will continue to assess firms on these issues and will take action where we find that customers are not being treated fairly."

Equitable Life seeks policyholders' approval

Paul Farrow in the Daily Telegraph, 27th Sept 07

Nearly 400,000 Equitable Life policyholders are to get their chance to vote on the proposed transfer of £1.8 billion of with-profits annuity policies to Prudential,

Over the next week, all Equitable policyholders will be sent information on the deal ahead of an Extraordinary General Meeting, due on October 26.

All voting members of the Society will have the opportunity to cast their vote on the proposed transfer either at the EGM or by post. The deadline for postal voting is Wednesday 24 October.

Equitable Life wants to transfer to Prudential all of its with-profits annuity policies, representing about 20 per cent of the with-profits fund with an estimated value of approximately £1.8 billion. If approved this will see around 62,000 with-profits annuities transferred into an actively managed fund which has greater bonus earning potential than the current Equitable Life fund.

Equitable Life with-profits annuitants were the worst hit of all policyholders because they were not allowed to move and so have been stuck with the beleaguered insurer. They have seen their retirement income plummet as bonuses have slumped.

At the moment, the income from Equitable Life's with-profits annuities are cut each year, in part because the society must keep such a large part of its assets in bonds in the hope of safeguarding returns.

Equitable believes that the holders of with-profits annuities stand a chance of getting better returns from the Pru's ownership. The Pru's £75 billion with-profits policy is one of the few to have delivered decent growth in recent years, returning more than 150 per cent in the ten years to June 30 – 50 per cent greater than Equitable.

The Board of Equitable Life is urging policyholders to vote in favour of the proposal. Vanni Treves, Equitable Life’s Chairman, said: "It is time for the Society’s members to have their say on the transfer of with-profits annuity policies to Prudential. This transaction represents a critical milestone in the recent development of the Society and I very much hope that policyholders will decide to support it."

Some relief in sight for Equitable members

David Budworth
From The Sunday Times
September 30, 2007

Tens of thousands of pensioners who have been trapped in Equitable Life’s ailing with-profits fund for years will come a step closer to leaving the life insurer this week.

Letters are being sent out to members of the beleaguered society calling on them to approve the transfer of Equitable’s £1.8 billion with-profits annuities business to Prudential.

If a majority of policyholders vote yes, and the scheme gets court approval, about 62,000 of them will see their annuities transferred to Prudential by the end of the year.

Charles Thomson, chief executive of Equitable Life, said: “We firmly believe that the transfer will benefit all policyholders . . . Those that are transferring will become part of an actively managed fund, which is one of the largest and strongest in the UK.” Policyholders’ income payments won’t be immediately affected by the transfer: someone receiving £10,000 a year from Equitable will get the same from Prudential.

Once the funds have been moved, the Equitable members will qualify for Prudential’s with-profits bonus payments. These schemes invest in an underlying fund and each year the annuity is adjusted in the light of returns, announced as bonuses.

Equitable’s returns have been poor because most of its with-profits fund is invested in bonds, which are less volatile than shares but have lower growth prospects. At Prudential 70% of the fund is in shares and it has returned an average 10.5% a year since 2001. Eligible members have until October 24 to vote by post, or they can vote at a special meeting in London on October 26.