Adviser warns: stop RSA policy payments

One of Britain's biggest financial advisers yesterday told policyholders at Royal & Sun Alliance to consider urgently pulling their cash out of the troubled insurer, warning of "clear parallels" with Equitable Life.

Hargreaves Lansdown yesterday told RSA's one million pension and endowment customers that they should halt any further payments to the company, obtain quotes on the value of their policies and then "seriously consider" switching to alternative companies.

RSA has nearly £20bn in its with-profits funds, but they are already among the weakest in the life insurance industry and widescale defections could place the company under increased strain.

The latest blow to RSA comes only a day after it was fined a record £1.35m for "serious failings" linked to pensions mis-selling, and will intensify pressure on chief executive Bob Mendelsohn and fellow board members.

Tom McPhail, head of pensions at Hargreaves Lansdown, said: "We have seen Equitable investors suffer death by a thousand cuts, and while RSA's present position is not as bad as Equitable's, there are clear parallels."

Another large financial adviser, Chartwell Investment Management, revealed that in the last few days it has also written to clients advising them to quit RSA unless their policy is close to maturity or burdened with exit penalties.

Hargreaves Lansdown says its chief concern is not imminent insolvency but the prospect of poor long-term returns following a dramatic shift by RSA out of equities and into gilts and bonds.

RSA has two with-profits funds and in one, the £10bn Sun Alliance & London fund, the proportion invested in equities has fallen to just 17% for pension policyholders and 27% for endowment holders. The figures are on a par with the Equitable Life with-profits fund and contrast with stronger insurers such as Standard Life, which holds more than two thirds of its assets in equities.

This month RSA also announced a surprise cut in annual bonus rate on 200,000 "unitised with-profits" policies, and further bonus cuts are expected.

Mr McPhail said: "If stock markets recover, and it could be any time over the next few years, the current asset mix in RSA's funds means that policyholders will fail to participate in most of the gains.

"You can't help but reach the conclusion that anyone invested in RSA is not going to get much in the way of returns going forward."

RSA closed its life and pension arm to new business this month with the loss of 1,200 jobs after plans to sell it for £1.5bn collapsed amid concerns about its financial strength. But it plans to continue managing cash already invested in its policies and taking monthly top-up premiums.