The transfer is subject to the approval of the regulators, the opinion of an independent expert appointed to look after policy holder’s interests, and the approval of the High Court but is expected to be formally approved before the end of 2015.
“We are delighted to announce this transaction with Equitable Life. We look forward to welcoming the transferring annuitants to our company,” Douglas Brown, chief executive of Canada Life said.
Once the transfer is complete, the responsibility for the ongoing administration and payment of the policies will pass to Canada Life. In the interim Canada Life will manage the underlying investments but Equitable will continue to make the annuity payments.
“This transfer is one more important step in releasing capital for distribution to our with-profits policyholders,” said Chris Wiscarson, Equitable Life’s chief executive.
The annuity portfolio consists of UK and non-UK annuities. The bulk of the annuities are non-profit and index-linked. There are also some unit-linked annuities.
Equitable Life said the deal was needed as it no longer sells new policies and the run-off of its annuity book was considerably longer than its with-profits business so it was facing the prospect of having to pay for annuities long after the with-profits business closed.
“As with-profits policyholders provide the capital to support non-profit annuities, the Equitable Life board has concluded that the long term interests of all its policyholders are best served by transferring the annuity payment obligations to Canada Life,” it said in a statement.
“This way, we can ensure that annuities will continue to be paid in the long term by an organisation that is one of the UK’s leading annuity providers and is already making regular payments to over 400,000 annuitants.”
Equitable Life almost collapsed in 2000 after it had sold a large number of pension policies with guaranteed annuity rates which it could not honour when increased life expectancy and falling interest rates caused its liabilities to balloon.
The UK House of Lords ruled that Equitable had to honour the guarantee and, as it could not afford to do so, it was forced to close its doors to new business in 2001. It then repeatedly cut the value of many client’s investments affecting the pension savings of around 1.5 million customers.