Troubled mutual assurer Equitable Life is preparing for tough questioning from policyholders amid criticism over its accounting methods.

Documents submitted to the Financial Services Authority (FSA), the UK financial regulator, showed that the company counted �500m in future profits as capital for the year to December 2001, the Financial Times reported.

The news prompted criticism from analysts, who said the measure was designed to flatter the ailing company's financial position.

Equitable said the accounting technique, which is permitted under FSA rules, is widely practiced within the life assurance industry.

Scrutiny

But the news, which comes ahead of Equitable's annual general meeting next week, is expected to add to concerns over the assurer's solvency.

Equitable executives are expected to face tough questions from policyholders over the company's financial health when they meet on Monday.

Earlier this month Equitable's chief executive, Charles Thomson, admitted that the company's solvency margin was "relatively thin".

Equitable is emerging from a prolonged crisis which began in 1999 when the company said it could no longer afford to pay guaranteed bonuses to policyholders, blaming lower interest rates.

Sell-off

Equitable settled a two-year court battle with aggrieved policyholders in February by offering them lump-sum payments in return for waiving their guaranteed bonus payments.

Other members received smaller payments on condition that they signed away their right to sue for mis-selling.

The affair has severely dented confidence in Equitable, with many policyholders trying to sell their policies early despite hefty exit penalties.