SIMON BAIN EQUITABLE Life made a return of 2.6% on its with-profits fund last year, and is increasing the values of policies without guarantees by 5% compared with 4.5% a year ago.

Equitable's excess realistic assets, the best measure of solvency, improved from £669m to £884m, helped largely by a £281m drop in liabilities for guarantees, on the back of rising bond yields. However, it is paying no annual bonuses, maintaining the exit penalty from the fund at 8%, and paying holders of guaranteed return policies only their minimum guarantee. Even the 5% rise in policy values is not guaranteed, and could be reversed in future.

Equitable stressed that its solvency had improved by more than 30%, and that the transfer of major parts of its business to Canada Life and Prudential would further stabilise the society.

The UK's oldest mutual insurer, which closed to new business after it almost collapsed in 2000, agreed last year to transfer most of its non-profit pension annuities to Canada Life, reducing the longevity risk attached to that business.

Earlier this month, Equitable announced a deal to transfer a £1.8bn with-profits annuity portfolio to Prudential, in a deal set to be completed this year and give annuitants a chance of sharing in better investment returns. But Equitable, which said it received "a number" of expressions of interest in the portfolio transferred to the Pru, said a deal for the remaining £7bn to £8bn with-profits book of business would not come this year.

Chief executive Charles Thomson said: "We have a transaction to work on and to establish. To have another transaction running at the same time would be complex and inappropriate. We talk to a variety of people from time to time, but for the rest of this year, our focus is on the Prudential transaction."

Equitable said excess realistic assets were now 9.4% of the with-profits fund against 6.6% at the end of 2005. "The society is now stronger and more stable than it has been for many years," Thomson said.

Regulatory restrictions have kept Equitable's with-profit fund heavily invested in fixed income assets, with only around 5% in equities. Thomson said those constraints meant there was "not a lot of capacity" for the bonus rate to rise much beyond current levels.