Equitable Life raises £150m with fire sale of Permanent

Author: By Andrew Garfield, Financial Editor

The fire sale of assets of Equitable Life, the troubled life insurance mutual, yielded its first buyer yesterday as Liverpool Victoria, Britain’s biggest friendly society, agreed to buy Permanent Insurance for £150m.

The news came as the Financial Services Authority announced that its internal inquiry into the Equitable Life debacle will be headed by Ronnie Baird, the FSA’s director of internal audit, supported by external experts in accountancy and law.

The FSA said that it expected the report to be completed within the next few months. The Government has already said that it will be published.

The terms of reference will include a full account from the FSA’s executive management of its regulation of Equitable Life. It will cover the period from 1 January 1999 until the Equitable’s closure to new business on 8 December 2000, although the FSA said it would inevitably take into account events in late 1998 when the Equitable was still under the supervision of the Department of Trade and Industry.

It has subsequently emerged there was some concern among officials as long ago as autumn 1998 about Equitable’s reluctance to provision fully for its guaranteed annuity liabilities. The money raised by the Permanent sale will be used to bolster the life fund at Equitable Life which was badly holed by the House of Lords decision in July that it was obliged to pay guaranteed annuity holders in full.

Attention now switches to the Equitable Life sales force, which the company is under pressure to sell while it still remains intact. Equitable is also trying to sell its asset management business, and part of its back-office.

Potential buyers are said to include GE Capital, and Eureko which yesterday agreed the £414m purchase of a controlling stake in Foreign & Colonial, the UK asset management group.

Malcolm Berryman, Liverpool Victoria’s chief executive said yesterday that the acquisition of Permanent “makes great strategic sense for us given our ambitious growth plans and the positive outlook for the UK protection market”.

Permanent is one of the most efficient players in the fast-growing market for health protection insurance. It sells mainly through independent financial advisers (IFAs). Net profits were £12.4m in 1999. The company had total in-force income of £60.1m.

Liverpool Victoria said no redundancies were planned. Permanent employs 225 of whom 210 are based in Exeter. Liverpool Victoria is based in Bournemouth, has one million members and £5bn assets under management. It employs 2,300 staff and has more than two million customers.

Chris Headdon, chief executive of Equitable Life was keen to stress that despite the crisis which has led to Equitbale closing its doors to new business, the terms “represent a substantial return to Equitable Life members on their investment”.

Equitable bought a majority of Permanent in 1995 and acquired full control on 1997. The total cost including subsequent investments was £82m.

Liverpool Victoria said yesterday that the acquisition of Permanent filled an important gap in its portfolio. The group was one of several that looked seriously at Scottish Provident and Scottish Life, which both announced demutulisation deals this year. Scottish Provident was bought by Abbey National while Scottish Life went to Royal London.

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