Equitable Life, the troubled mutual life insurer, halted the sale of its £6 billion with-profits fund yesterday after a year of trying to find a buyer for the business. Equitable, which is the UK's oldest mutual insurer, blamed its change of heart on the economic downturn.

A policyholders' spokesman said he was relieved that Equitable was not pressing ahead with a sale in the present poor market conditions.

The society, which has 500,000 policyholders, said it had received several approaches to buy its remaining assets. “Given the current financial and economic climate the board decided that none of the various proposals received would be certain to provide improved prospects for policyholders,” the society said.

Equitable will now focus on putting the fund into “run-off”, which is where an insurer continues to run policies until they mature. The insurer offered its assets for sale after transferring £1.7 billion of with-profits annuities to Prudential and £4.6 billion of non-profit pension annuities to Canada Life.

However, Vanni Treves, chairman of Equitable, said: “Having carried out this important test of our options for improving prospects for our policyholders, we will now focus on a stable and secure run-off of the society.”

Equitable suffered a heavy blow in July 2000 when the House of Lords ruled it had to honour expensive guarantees made to 90,000 policyholders, leaving it with a £1.5 billion hole in its finances. In December 2000 it closed its doors to new business and has since made a series of savage cuts in the value of its with-profits policies.

Earlier this year the Parliamentary Ombudsman found that the Government was guilty of repeated regulatory failure and called on it to set up a compensation scheme for policyholders.

Paul Braithwaite, general secretary of Equitable Members Action Group, said he was not surprised the mutual had been unable to find a buyer and he was relieved at the decision to halt the sale.

Mr Braithwaite said: “It's actually quite a relief that Equitable have halted the auction process because any deal that would have been made in the current market conditions would have been a fire sale.”

He said policyholders had also been concerned at the type of bidders that might have emerged. He said: “We are a mutual society - the UK's oldest mutual - and we would not have been happy at any proposals that would have ended our mutual status unless there was a very definite upside.”

He added that policyholders were “currently much more interested in the Government's response to the Parliamentary Ombudsman's report, which recommended that the Government should compensate Equitable policyholders”.

A spokesman for Equitable Life said that, in the current economic downturn, it was unlikely that any takeover proposals would provide a better deal than the society's option of a run-off.

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