Equitable Life With Profits
RYWP Research Findings, Overview and Comments
In considering any company and its with-profits RYWP will look to assess a range of factors which will include: the company’s management record; its transparency of information, its financial strength; its prospects for providing future returns and the nature of its with-profits approach.
In this regard we believe that Equitable Life is almost unique in the with-profits arena. Its problems manifested over a decade ago and ever since there has been a long and protracted effort at sorting out the ensuing mess. It is fair to say, in our view that this has now – in the main – occurred. The fund is now managed according to strict principles of avoiding further problems and administering a fair pay-out to remaining policyholders.
There is no doubt that policyholders would, more often than not, have been better off investing elsewhere and in this respect Equitable Life, given all the problems and troubles, would have to be classed as a basket case. However in contrast those policyholders remaining in the fund today may have better prospects than many other companies because of the way that the remaining With Profits Fund pay-outs will be organised. With aspects to consider around guarantees and a capital distribution pay-out, any individual policyholder looking at their position could be faced with some tricky decisions as to their future position.
In this regard there is possibly no better example of where generalised statements are of limited value and a policyholder should seek out an individual appraisal.
We feel that there is no alternative but to give Equitable Life a negative review for its with-profits, the difficulties for policyholders have been extreme and the basic return prospects into the future look limited.
However there will be notable circumstances at an individual level where policyholders, despite the dire history, would be better off sticking with the Company through to the end date or point of their product. It is only by taking a case specific approach that a proper assessment can be made.
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Company ownership position
The Equitable Life Assurance Society is a mutual company; an unusual status today.
This means it has no shareholders - its policyholders are the members or owners. However not all policyholders have member status, so beware of this if you have an Equitable Life with profits policy.
Equitable Life’s history can be traced back to 1762. It is one of the oldest insurers in the UK, with a largely untroubled and successful track record right up until the end of the 1990s.
In particular, Equitable Life was favoured as the home for the professional – lawyers, doctors and even politicians were the customer of choice for the Society, which made great play around its standard of not operating through intermediaries and not paying commissions.
However in the late 1990s Equitable Life – which had a substantial with-profits ‘book’ – started to experience problems and troubles with its solvency and ongoing promises/commitments began to surface.
Since then there has been a long standing effort to unwind the book of business and Equitable Life has been closed for new business since 2000.
The Equitable Life with-profits problems have been the subject of all sorts of campaigns, parliamentary inquiries, and independent reviews and have involved compensation being offered to policyholders. In the years since 2000 Equitable have offloaded their annuity business in two deals, to Canada Life and Prudential. With the remaining bulk of their With-profits funds they operate a matching policy of matching the funds’ assets to its assessed long term liabilities, using gilts to meet this requirement. This means that the fund is essentially run to avoid any further losses and to pay out according to future liabilities; investors do not benefit from any management, smoothing or any other component part of the with-profits concept which they would have originally been persuaded to invest upon.
Equitable Life With-profits funds
The With-Profits fund run by Equitable Life has probably had more written about it than any other because of the considerable problems suffered by with-profits holders. Today the fund is run to a very strict regime, intended to oversee the long term pay-out of the funds’ assets to those policyholders that remain in the fund. First and foremost the management of the fund is constructed (a) to avoid any further difficulties and (b) as far as possible to ensure a fair pay-out to each remaining policyholder based on their policy terms, whether they wish to stay with the fund or exit it. Regular returns are negligible because the fund has no scope to manage returns over and above meeting its basic liabilities.
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For information on how equitable Life approach the management of their with-profits please click here:
Please remember that any of our summary findings or conclusions are general; an appraisal of the general position for that company. There will be situations where an individual policyholder with a company that is ‘good’’ may want to look at surrendering or transferring their policy (for example to secure a guarantee or because it does not suit their risk position), likewise there will be situations where policyholders with a ‘poor’ company want to stick with what they have (for example because the penalty of exiting will be too great). Nothing can replace getting a report based on your unique circumstances; it is only this unique, personalised report which will provide the information that will instruct you on your circumstances regardless of the company and our general comments.
Please note the information on these pages should not be used in any way or form as the basis for any decision about your with-profits investment or plan. RWP makes every attempt to ensure that all information is up to date and accurate but RWP cannot be held responsible for any of the detail provided. The information above is published to act as a broad guide to the Company’s position, history and future prospects. However any decision about your own with-profit plan should only be taken after you have sought and received qualified advice from an appropriate regulated advisory source and should be based entirely on that advice.