Now everything's equable at the Equitable

No doubt Equitable Life pensioners are breathing a sigh of relief now that they finally know where they stand. After months of debate, last week's House of Lords ruling came only after policyholders argued their case in the High Court and then the Court of Appeal.

No doubt Equitable Life pensioners are breathing a sigh of relief now that they finally know where they stand. After months of debate, last week's House of Lords ruling came only after policyholders argued their case in the High Court and then the Court of Appeal.

Not only was a decision reached but, more importantly, it was the right one. Going back as far as 1963, in some cases, the mutual life assurer sold policies with guaranteed annuity rates - a profitable move in the days when annuity rates were far higher than the guarantees.

But when the market turned in the early 1990s and annuity rates fell, kicking in the guarantees, claims flooded in. The Equitable panicked and cut those rates. The Law Lords, however, agreed with aggrieved policyholders that the life insurer couldn't be allowed to do this.

Even though it's the right decision, it is sad that our oldest mutual assurer, with a long and honourable history, should be brought down for failing to honour its word to policyholders. But how could it have gone on anyway once it had betrayed their trust by going back on a promise?

Those guaranteed annuities were good business for the Equitable during the 1970s and 1980s. The flipside is that it has to pay up when the market goes the other way. How it wasn't protected against the risks involved - the guarantees it had given - is an oversight with far-reaching implications.

The Equitable's mutuality has not helped either; if anything it has been "too mutual", too determined to be transparent in all its dealings. No matter what benefits mutuality offers, it has been partly responsible for the undoing of the Equitable.

Unlike a plc, there are no shareholders to call on in times of need. And unlike other mutual life assurers, such as Standard Life, it hasn't got large cash reserves because it redistributes profits to its members. It is this which has made the company weak and vulnerable.

So who will come and pay those bonuses and honour the promises the Equitable tried to renegade on? Given Equitable's élite customer base from the professional classes, there should be plenty of bidders, even though it is going to cost the buyer billions in compensation to policyholders.

The smart money is on French insurance giant Axa that has made no secret of its desire to acquire a significant foothold in the UK insurance market. Equitable would certainly give it that.

Other foreign interest could come from the Dutch group, Aegon, which already owns Scottish Equitable, or closer to home from the Prudential or CGNU.

Not surprisingly perhaps, Skipton Building Society's decision to pay £500 windfalls to 2.5m savers and borrowers, has been hailed as a boost to mutuality in a week that saw Bradford & Bingley members vote for converting to a bank and the Equitable stick up a "For Sale" sign.

But this is a one-off rather than the start of a trend - the direct proceeds from the sale of Skipton's share dealing business. Demutualisation has already picked up too much momentum to be stopped, and within five years I bet that only a handful of mutuals will remain.

* m.bien@independent.co.uk