Equitable facing break-up call

12 April 2012

CITY institutions are pressing for the break-up of Equitable Life after the mutual admitted that it may not have enough cash to repay bondholders.

The insurer, which owes bondholders £346m, blames falling stock markets and says it has been forced to raise provisions for paying some policyholders. The price of its bonds plummeted, with its 8% sterling bond, callable in 2006, priced at just 35p in the pound. That's down 19p since Friday.

Some bondholders say the mutual should be broken up and its policies sold to other insurers to raise the cash to repay the bonds.

'The bond is now trading at the sort of levels we usually see for companies that the market expects to go under,' said one London-based bondholder. 'There is a lot of pressure in the wake of the latest results to just shut Equitable and sell off its policies now.'

Equitable is required by regulators to have 4% more cash on hand than it owes policyholders. But it said last week that it would not be able to repay bonds if it failed to meet this requirement - because all cash would have to go to policyholders first. The mutual stressed it was still solvent but also slashed payments to some holders of pensions that use with-profits annuities.

Equitable's problems stem from losing a legal battle over pension policies with guaranteed returns sold in the 1970s and 80s. This pushed it to the brink of collapse two years ago. The 239-year old mutual was subsequently forced to close to new business and cut payments to policyholders.

'It is now a realistic possibility that Equitable could become insolvent. If it misses bond payments I think that investors will call for its death,' said another bondholder. 'Our patience is at an end. We've given it two years but the problems are getting worse not better.'

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