Equitable Life, the world's oldest mutual life assurer, has put itself up for sale after losing a long-running legal battle in Britain over its decision to reduce bonus payments to holders of its guaranteed annuity policies.
The House of Lords yesterday ruled that the directors of Equitable Life had acted unlawfully in reducing final bonuses paid to 90,000 policy holders.
Equitable imposed the reductions because falling interest rates in recent years caused its guaranteed annuity policies to exceed available market rates.
The Lords decision leaves Equitable with a bill estimated at £1.5 billion sterling. The group has not maintained any surplus capital for such a contingency, as it has distributed investment gains in full to members. Thus, it has been left with little choice but to seek outside support.
Equitable has between 20,000 and 25,000 Irish shareholders, many of whom would stand to gain in any demutualisation. Equitable Life has been operating in the Republic, where it employs around 25 people, since 1991. Equitable said: "Despite the society's long commitment to mutuality, the board has concluded that members' interests will be best served by the sale of the business."
Schroder Salomon Smith Barney was appointed three months ago to look at selling Equitible Life if the case were lost.
Early indications are that the company, which has funds under management of £33 billion sterling could be valued at between £2 billion - £4 billion. A potential buyer may need to inject capital into the company, which said it did not anticipate "any significant cash windfalls".
Equitable would be an obvious acquisition target for the big European insurers such as Aegon, Axa and Allianz. Axa is known to have seriously considered bidding for Equitable earlier this year. However, Equitable would also be a useful addition to one of the big British life assurers, such as Prudential or CGNU.
For Equitable, the Lords ruling is the disastrous culmination of an 18-month legal fight. The high court backed the assurer, the Court of Appeal was divided but gave an overall thumbs down, while the five Law Lords yesterday were unanimous.
Equitable must now meet guaranteed annuity payments through a transfer of value from other with-profits policy holders.
It is anticipated that this will result in a loss of value for with-profits policy holders for part of this year. Equitable plans to use the proceeds of a sale to mitigate this loss.
Equitable has 600,000 high-value customers, with a strong position among professionals. But the long legal battle has damaged the Equitable brand, and new business fell 8.8 per cent last year.
Equitable plans to put a demutualisation resolution to members once it has a specific proposal.
