Chief executive Chris Wiscarson said the potential sale of Equitable Life, which was founded in 1762, was part of a wider review process.
The insurer closed to new business in December 2000 after it made guarantees to policyholders it couldn’t meet. Equitable has been in run-off since then and currently administers £6bn of assets for more than 300,000 policyholders.
Wiscarson said: “The big strategic issue facing Equitable is how to distribute capital in a low interest rate environment.”
Capital gains distributions must be made by mutual fund managers as tax law dictates that the substantial portion of investment income and capital gains must be paid to investors.
When Equitable Life customers close their policies, they are paid 35% of the value in capital gains.
Wiscarson said the company would look at ways to make the 35% distribution “more secure or increase it”.
“If someone could do it better than we could, we’d be very interested.”
Life consolidation
The life insurance industry has long been a sleeping giant, but significant M&A activity by consolidators in recent years has had a big impact.
Global life insurers have carried out strategic reviews and made substantial changes to their footprints and pulled out of some markets.
They have also streamlined their business operations and sold books of business to other open book providers, but also to closed book consolidators.
A lot of this activity has been driven by regulations, with the capital adequacy rules in particular forcing firms to hold a lot of cash in reserve.
M&A
As reported by International Adviser, Standard Life is selling its insurance arm to consolidator Phoenix Group, which has been touted as a possible acquirer of Equitable Life.
The sale includes Standard Life’s Irish, German and UK operations – with the exception of the UK retail platforms and advice business and its Hong Kong operations, which are being sold to another firm.
Standard Life’s offshore bond will continue to be available via Phoenix.
Currently, Phoenix Group has just one open book, SunLife, which provides whole-of-life cover for the over 50s. So, while the acquisition of the Standard Life business is not a game changer, per se, for the consolidator, it could signal an intention to look at buying more open books.
In 2017, Axa Wealth International was sold to Life Company Consolidation Group (LCCG). The Isle of Man-based insurer was rebranded Utmost Wealth Solutions and continues to provide life insurance products to the UK market.
The decision to keep Utmost as an open book was a departure for LCCG, which had previously closed all of the books its acquired. The company has also acquired Generali PanEurope, which will be combined with Utmost and kept open.
In a social media post, Utmost’s head of sales, proposition and marketing, Simon Woolnough, wrote that there is a “wealth of difference between companies with a highly active open book acquisition strategy and those that are simply looking to add business to their already closed book”.
“So beware of anyone who tells you all consolidators are the same.”
His post followed comments from Canada Life International managing director Sean Christian, who warned that “the ownership structures and less well-known brands of these [consolidator] companies can be an issue for adviser firms in our market”.
Equitable Life
Following financial difficulties, Equitable Life launched a court bid in 1999 to allow it to cut bonus payments to policyholders. It won the initial court case but lost in the Court of Appeal and, subsequently, the House of Lords.
Unable to pay the £1.5bn ($2.1bn, €1.7bn) cost of losing, Equitable Life was forced to put itself up for sale in July 2000.
A buyer failed to emerge, and the company closed to new business in December 2000.
The UK Government had to pay more than £1bn in compensation to members as a result of regulatory failures linked to the insurer.
In March 2015, Canada Life agreed to take on the firm’s annuities in a bid to release capital for distribution to Equitable’s with-profits policyholders.
