Aegon backs out of Equitable Life bidding

Aegon, the Dutch insurance giant, has dropped out of the running for Equitable Life - the UK's oldest insurer - which is up for sale.

Aegon, the Dutch insurance giant, has dropped out of the running for Equitable Life - the UK's oldest insurer - which is up for sale.

The decision leaves just two serious contenders. These are the Prudential, the life insurer, and CGNU, the composite insurer formed from the merger of CGU and Norwich Union earlier this year.

Analysts have put a price tag of up to £4bn on Equitable. However, bankers say that it will be hard for any bidder to justify that price.

Equitable was forced to put itself up for sale after losing a House of Lords judgment that will force it to make more than £1.5b of pay-outs to pensioners who were sold so-called guaranteed annuities policies in the 1970s and 1980s.

The company has also seen sales slide because of the adverse publicity surrounding the handling of the guaranteed annuities issue.

However, the company has a blue chip customer base and one of the most effective sales forces in the business. It is also seen as one of the most efficient producers at a time when the ability to manufacture pensions products at minimal cost is going to be crucial in the battle to win business in the new low cost stakeholder pensions environment.

The Pru has long been regarded as favourite. It has £7bn in its life fund which it can use to bolster Equitable's financial position without needing to tap shareholders or raise extra debt.

Aegon was having difficulty structuring a transaction that would offer more in headline terms than any of the British contenders, The Pru and CGNU can also point to potential synergy benefits from taking out overlaps in their back offices.

Allianz, the German insurer, is also understood to have had a serious look at Equitable but decided not to bid. Barclays Bank and GE Capital are understood to have registered interest but do not appear to have made formal offers.