Published by Kauders Portfolio Management, Authorised and regulated by the Financial Services Authority
All the hype over the closure of Equitable Life to new business has missed three fundamental issues.
1. The Equitable "With Profits" funds may actually outperform many others over the next 20 years. Yes, policyholders will face lower returns for the certainty of investing in Gilts. But other insurance companies are likely to produce even lower returns still as a great bear market gets under way. Policyholders who are locked in should therefore be thankful that a prudent and careful investment strategy will be forced upon them. And Equitable will no longer have to keep an expensive sales force or advertising campaign going, leaving still more for the residual policyholders.
2. The era of raiding the reserves for windfalls is drawing to a close. Those without reserves may be in a more difficult position as financial stress develops. Most people in the financial services industry have little or no experience of handling difficult financial conditions. Happy outcomes are no longer an automatic result of any misjudgements.
3. So what, really, do you need an insurance company for? Insurance, that is risk spreading, yes. Investment? Questionable.
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