UK's Equitable Life wins rescue vote

January 28, 2002 Posted: 1747 GMT

LONDON, (Reuters) - Equitable Life policyholders threw the 240-year-old UK life assurer a lifeline on Monday, voting overwhelmingly to give up rights to guaranteed investment returns that threatened to sink it and the savings of a million Britons.

“This marks an important milestone in the society's journey for stability,” Chairman Vanni Treves told a news conference.

But approval of the rescue plan may not be the end of Equitable's troubles. Many policyholders are still threatening to leave, weakening its investment fund. It is also embroiled in a number of costly legal battles, which could take years to resolve.

The UK's oldest mutual company ran into financial difficulties in 2000 after losing a legal battle over guaranteed pension policies which were sold in the 1970s and 1980s when interest rates and investment returns were higher.

In one of Britain's biggest financial scandals, Equitable revealed it faced a funding shortfall of more than a billion pounds ($1.4 billion) as these guaranteed pensions became too costly to honour. It was forced to close its doors to new business and negotiate a compromise with its members.

Declaring the result of a members' vote, Equitable said 97.3 percent of guaranteed annuity policyholders, representing 98.1 percent of policies, backed the rescue plan -- comfortably clearing the 50 percent and 75 percent hurdles respectively.

Some 99 percent of policyholders without guarantees, representing about the same value of policies, also voted 'yes'.

The result clears the way for a 250 million pound ($352 million) payment promised by bank Halifax, depending on agreement over the guarantees, when it bought some of Equitable's assets last year for 500 million pounds.

As part of the rescue plan, Equitable is offering members a one-off boost to their pensions in return for giving up a guaranteed investment return. Other policyholders are being asked to waive rights to sue Equitable for mis-selling pensions and life assurance.

Equitable had said the future would be bleak if policyholders rejected the plan, while a “yes” vote would cap the firm's future liabilities and give it more freedom to invest to get higher returns for its members.

The deal still needs the blessing of a British court.

Hearings will start next Monday and are expected to last four or five days. Agreement must be in place by March if Equitable is to qualify for the Halifax money.

Yet there may be more trouble ahead.

Members may be tempted to jump ship once they have received the money from the rescue deal, although they would have to pay a 10 percent penalty for prematurely leaving. Many have already transferred investments to rival players, shrinking Equitable's fund to 20 billion pounds from 32 billion in 1999.

“There is no doubt there will be a huge number of people who will want to get their money out,” said Stuart Bayliss, chairman of the Equitable Life Action Group.

Ron Bullen, chairman of the Equitable Policyholders Action Group which also represents a section of members, said Equitable would try to prevent such an exodus by raising the exit penalty.

Equitable said it had no plans to do so at present.

Some members who have already left could sue Equitable on the grounds they were not warned of its huge liability from guaranteed pensions when they joined the firm.

Equitable has already set aside money to cover any such claims, but believes it would be “extremely difficult” for them to succeed.

“We don't believe they have potential to destabilise the society,” said Treves.

Equitable is also likely to sue former directors, auditors and accountants for compensation. Policyholders are also trying to recover money from the government after a report revealed regulatory failures.