Equitable Press Release 15 March 2007

Last Updated: Thursday, March 15, 2007 04:38 PM

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 Prudential Assurance Company Limited (“Prudential”) for the transfer of its with-profits annuity policies, representing about 20% of the with-profits fund with an estimated value of approximately £1.8 billion at 31 December 2006. Under the terms of the agreement, which is conditional on certain matters, the most important of which are referred to below, all of the Society’s with-profits annuity 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 and the completion of the transaction will be subject to the approval of voting members at an Extraordinary General Meeting (EGM) in the autumn. If members vote for the proposal (as the Board expects to recommend), the transfer will then be subject to the approval of the High Court. The income payments from a majority of Equitable Life’s with-profits annuities currently reduce each year. This is partly because the Society must keep most of its assets in fixed interest investments, which limit the bonus earning potential of the fund, whereas in many cases the rates of bonus anticipated when the policies were set up reflected higher investment returns at the time. Furthermore, it is not possible to surrender annuity policies, so with-profits annuitants are currently not free to leave the Society should they wish. The proposed transfer to Prudential will substantially improve both bonus earning prospects and investment flexibility for the Society’s with-profits annuitants. At the same time, the strategic opportunities for the Society will be significantly improved once the transfer of the with-profits annuities is completed. The Society’s with-profits annuities are a relatively unusual product and only a few third parties such as Prudential currently have the experience and capability to operate them. When completed, the agreement with Prudential will see approximately 62,000 with-profits annuities (representing some 50,000 annuitants) transferred into an actively managed fund which is one of the largest and strongest in the UK and which has much greater bonus earning potential than the current Equitable Life fund. Prudential’s with-profits fund generated an investment return of 12.4% in 2006, 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 annuities at the level currently levied by Equitable Life and its profits will result from its management of its costs. This provides reassurance for transferring policyholders regarding future levels of charges. As part of the legal process of completing the transfer, an Independent Expert will consider the potential impact of the transaction on with-profits annuitants, the remaining Equitable Life policyholders and Prudential’s policyholders. The Independent Expert, whose findings will be published in full, will be asked to confirm whether any group of policyholders will be worse off as a result of the transaction. The proposal will also be assessed by the Financial Services Authority (FSA).


Vanni Treves, Equitable Life’s Chairman said: “The proposal, which will benefit all policyholders, to transfer with-profits annuity policies to Prudential is a further major success arising from the Society’s ongoing review of strategic options. The Board has been very conscious of the particular difficulties faced by with-profits annuitants and we are pleased to have negotiated this excellent proposition for them. Our agreement with Prudential represents the next phase of our plan to improve prospects for all with-profits policyholders and to simplify further the Equitable Life book of business.”


Charles Thomson, Equitable Life’s Chief Executive said: “The proposal from Prudential represents an excellent opportunity for with-profits annuitants to transfer to a fund where they will enjoy far greater investment flexibility and which has a much better recent bonus record. They will become part of an actively managed fund, which is one of the largest and strongest in the U.K. It will also help us in the search for the best strategic solution for the remaining 80% of policyholders.”


Nick Prettejohn, Chief Executive, Prudential UK, added: “This transaction demonstrates Prudential's ability to grow its with-profits business to create value for its policyholders and shareholders while providing Equitable Life policyholders with improved prospects and greater security by being part of one of the largest and financially strongest funds in the UK. The fund has delivered excellent investment returns over many years and as a result of this transaction, Equitable Life’s with-profit annuitants will benefit from Prudential’s considerable experience in the annuities market where we are a market leader.”