Equitable to sue as bonuses cut

EQUITABLE Life today announced plans to sue its former auditor Ernst & Young as it revealed more pain for its long-suffering policyholders. The beleaguered life assurer said it had not received a substantive reply from E&Y after seeking explanation for its past actions. 'We have therefore started legal proceedings against them,' it said.

The move came as Equitable announced a reduction in its non-guaranteed final bonus for 2001 from the originally indicated 6% to 4%. That meant the full-year bonus would be only 2%, not 3%, it said.

Adding to the gloom, it also decided against its normal practice of announcing an interim bonus at this time of year. 'Instead we will wait to see how the fund performs during the year,' warned chairman Vanni Treves in a letter to policyholders.

In a bid to stop more policyholders bailing out, he lifted the penalty for early surrender of policies from the already raised 10% to 14%. 'Continuing policyholders should be reassured that these changes announced today are designed to protect them from the damaging effect of excessive value leaving the fund,' Treves said.

The decision to sue E&Y follows an investigation by solicitor Herbert Smith, which is also questioning former directors to establish any possible liability for Equitable's problems. Equitable said it had been advised it had no legal case against former director Jonathan Dawson. It was still examining cases against other former directors. It has also decided against taking legal action for the present against its former lawyers Denton Wilde Sapte.

The torrential outflow of funds has slowed. In March Equitable received requests for early surrender relating to £237m of policies, compared with £777m last October.

Equitable was forced to close to new business and seek a rescue from HBOS after an adverse House of Lords ruling that it honour promises made to guaranteed annuity policyholders.