15th Mar 2007 07:05
Equitable Life Finance PLC15 March 2007 NEWS RELEASE For immediate release 15 March 2007 Equitable Life agrees to transfer £1.8 billion of with-profits annuity policies to Prudential The Equitable Life Assurance Society ("Equitable Life" or "the Society")announces today that it has entered into an agreement with The PrudentialAssurance Company Limited ("Prudential") for the transfer of its with-profitsannuity policies, representing about 20% of the with-profits fund with anestimated value of approximately £1.8 billion at 31 December 2006. Under the terms of the agreement, which is conditional on certain matters, themost important of which are referred to below, all of the Society's with-profitsannuity policies will be transferred to Prudential by the end of the year.Equitable Life's members will have the opportunity to vote on the transfer andthe completion of the transaction will be subject to the approval of votingmembers at an Extraordinary General Meeting (EGM) in the autumn. If membersvote for the proposal (as the Board expects to recommend), the transfer willthen be subject to the approval of the High Court. The income payments from a majority of Equitable Life's with-profits annuitiescurrently reduce each year. This is partly because the Society must keep most ofits assets in fixed interest investments, which limit the bonus earningpotential of the fund, whereas in many cases the rates of bonus anticipated whenthe policies were set up reflected higher investment returns at the time.Furthermore, it is not possible to surrender annuity policies, so with-profitsannuitants are currently not free to leave the Society should they wish. Theproposed transfer to Prudential will substantially improve both bonus earningprospects and investment flexibility for the Society's with-profits annuitants. At the same time, the strategic opportunities for the Society will besignificantly improved once the transfer of the with-profits annuities iscompleted. The Society's with-profits annuities are a relatively unusual productand only a few third parties such as Prudential currently have the experienceand capability to operate them. When completed, the agreement with Prudential will see approximately 62,000with-profits annuities (representing some 50,000 annuitants) transferred into anactively managed fund which is one of the largest and strongest in the UK andwhich has much greater bonus earning potential than the current Equitable Lifefund. Prudential's with-profits fund generated an investment return of 12.4% in2006, 63.8% over the last 5 years and 161.9% over the last 10 years. Prudential has committed to maintain expense charges for with-profits annuitiesat the level currently levied by Equitable Life and its profits will result fromits management of its costs. This provides reassurance for transferringpolicyholders regarding future levels of charges. As part of the legal process of completing the transfer, an Independent Expertwill consider the potential impact of the transaction on with-profitsannuitants, the remaining Equitable Life policyholders and Prudential'spolicyholders. The Independent Expert, whose findings will be published infull, will be asked to confirm whether any group of policyholders will be worseoff as a result of the transaction. The proposal will also be assessed by theFinancial Services Authority (FSA). Vanni Treves, Equitable Life's Chairman said: "The proposal, which will benefit all policyholders, to transfer with-profitsannuity policies to Prudential is a further major success arising from theSociety's ongoing review of strategic options. The Board has been very consciousof the particular difficulties faced by with-profits annuitants and we arepleased to have negotiated this excellent proposition for them. Our agreementwith Prudential represents the next phase of our plan to improve prospects forall with-profits policyholders and to simplify further the Equitable Life bookof business." Charles Thomson, Equitable Life's Chief Executive said: "The proposal from Prudential represents an excellent opportunity forwith-profits annuitants to transfer to a fund where they will enjoy far greaterinvestment flexibility and which has a much better recent bonus record. Theywill become part of an actively managed fund, which is one of the largest andstrongest in the U.K. It will also help us in the search for the best strategicsolution for the remaining 80% of policyholders." Nick Prettejohn, Chief Executive, Prudential UK, added: "This transaction demonstrates Prudential's ability to grow its with-profitsbusiness to create value for its policyholders and shareholders while providingEquitable Life policyholders with improved prospects and greater security bybeing part of one of the largest and financially strongest funds in the UK. Thefund has delivered excellent investment returns over many years and as a resultof this transaction, Equitable Life's with-profit annuitants will benefit fromPrudential's considerable experience in the annuities market where we are amarket leader." - ENDS - Equitable Life media enquiries:Alistair Dunbar James Leviton07967 564 039 Finsbury 0207 251 3801 Prudential media enquiries:Steve Colton020 7150 3136 Notes to Editors: 1. Letters are being sent to policyholders to explain the implications ofthe transaction for them. Copies are available on the Society's websitewww.equitable.co.uk 2. Equitable Life has established a special number for policyholders withquestions about the proposed transfer on 0800 408 0097. 3. Prudential is a leading life and pensions provider to approximately 7million customers in the United Kingdom. Products: Bulk and Individual Annuities, Corporate Pensions, With-Profits andUnit-Linked Bonds, Savings and Investments, Lifetime Mortgages, Healthcare andProtection. Distribution Channels: Direct-to-customers/PruDirect (telephone, internet andmail), Financial Advisers, Business to Business (consulting actuaries andbenefit advisers), and Partnerships (affinities and banks). The Prudential Assurance Company Limited's (PAC) long-term fund remains verystrong and is rated AA+ by Standard & Poor's, Aa1 by Moody's and AA+ by FitchRatings. The Prudential with-profits sub-fund, which had total assets of £71.9billion as at 31 December 2006, delivered a pre-tax return of 12.4 per cent in2006, and over the last five years the fund has achieved a total return of 63.8per cent against 41.1 per cent for the FTSE 100 total return and 50.2 per centfor the FTSE All-Share (Total Return) index (figures are to 31 December 2006,before tax and charges). Much of this excellent investment performance wasachieved through the active asset allocation of the fund. 4. Prudential will receive a large block of business from which they expectto make a profit (with no increase in current levels of administration charges)and which will create opportunities for synergies within Prudential in terms ofcosts, investment management and administration. The transaction represents asignificant increase in Prudential's with-profits business, which is an area ofits strategic focus. 5. Alternatives: The Board has considered a number of internal strategiesand external approaches relating to with-profits annuities and compared them tothe proposal from Prudential. The Board is clear that the Prudential proposalrepresents the best approach for all policyholders - giving with-profitsannuitants something closer to what they originally purchased (a pension whichdepends on the returns from a broadly based investment fund), whilst providingto the remaining with-profits policyholders the benefits of a simplifiedbusiness and improved prospects for strategic options in the future. Based onour discussions and research with thousands of policyholders over several years,none of the other alternatives which the Board has considered would have been asattractive to policyholders as the Prudential proposal. In particular,effecting changes which would allow significantly greater investment freedomwithout involving a third party would be much more complex, involve significantchanges to policy terms, create greater risks for policyholders and would beexpected to be much less likely to appeal to a broad range of policyholders thanthe Prudential proposal. Policyholders have told us that they have littleenthusiasm for options involving converting with-profits annuities to non-profitpolicies (for example, to provide fixed reducing pensions). The Board alsoconsidered rejecting strategic change in favour of continuing to run all of theSociety's business within the current framework. That would leave with-profitsannuitants in a fund with continuing limited bonus earning potential and wouldincrease the difficulties of finding a strategic opportunity which might benefitthe other policyholders. 6. Safeguards: • The Board believes strongly that the proposal represents the bestway forward for the Society. To reach that conclusion the Board has taken legaladvice from Lovells, actuarial advice from Deloitte and financial advice fromLexicon respectively. In due course, the Board expects to recommend thatmembers vote in favour of the agreement with Prudential. • The Financial Services Authority (FSA) is the regulator for bothEquitable Life and Prudential. Part of its remit is investor protection. TheFSA has a right to be heard by the Court before a transfer can be sanctioned. • An Independent Expert will be appointed with a duty to advise theCourt of the potential impact of the proposal on policyholders, including thosewho will transfer to Prudential, those who will stay with Equitable Life andalso Prudential's policyholders. The FSA will approve the appointment of theIndependent Expert and will also approve the form of his report to the Court.Although the Independent Expert will be approved by the FSA and his fee will bepaid jointly by Equitable Life and Prudential, his duty is to the Court alone. • The Board will not implement the transfer unless the membersapprove the proposal at a vote which will be arranged for later in the year.Finally, the Court will not sanction the transfer unless it considers that theproposal as a whole is fair to all those involved. Anyone who believes thescheme may adversely affect them has the right to be heard by the Court in duecourse. 7. The total pre-tax cost of the transfer covering the data audit, thesystems development, the legal process and the communications is estimated to bein the region of £35 million which will be met from the Society's ExcessRealistic Assets. The majority of the costs will be covered by the with-profitsannuitants' share of Excess Realistic Assets as they will see the mostsignificant benefits if the transfer proceeds. 8. There is unlikely to be any noticeable effect on the Society's bonusrates. With-profits annuitants may receive a small special bonus addition totheir policies if the transfer proceeds because their share of the Society'sExcess Realistic Assets will no longer be required to support their part of theSociety's business. Part of these Excess Realistic Assets will be used to covercosts arising from the transfer and any balance will be available in the form ofa special bonus. The special bonus, if any, is not expected to be significant.The remaining policyholders' share of the Society's Excess Realistic Assets willcontinue to support the Society's remaining business. 9. Lexicon Partners Limited ("Lexicon"), which is authorised and regulatedin the United Kingdom by the Financial Services Authority, is acting exclusivelyfor the Society and no-one else in connection with the transaction describedherein and will not be responsible to anyone other than the Society forproviding protections afforded to clients of Lexicon or for giving advice toanyone other than the Society in relation to the transaction described herein,the contents of this announcement or any other matter referred to herein.Lexicon have placed reliance on the directors' commercial assessments of thetransaction and on advice received by the board of directors from the Society'sactuarial and legal advisers. 10. Deloitte & Touche LLP ("Deloitte") provided actuarial advice to the Board ofDirectors of the Society ("the Board"). Deloitte's advice is exclusively to theBoard in connection with the transaction described herein and Deloitte is notadvising any other person or treating any other person as its client in relationthereto and will not be liable to anyone other than the Board for the adviceprovided, the contents of this announcement or any other matter referred toherein. In providing advice to the Board, Deloitte has placed reliance on thedirectors' commercial assessments of the transaction and on advice received bythe Board from the Society's other advisers. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Prudential