Equitable Life policyholders suffered another blow on Monday, with the announcement that the troubled mutual was increasing early exit penalties and cutting surrender values.

This is appalling. The news at Equitable goes from bad to worse

Paul Braithwaite Equitable Members' Action Group

The assurer said that anyone moving a policy away from the society before it matured would lose 20% of its value, instead of the current early exit penalty of 14%.

It also said that the maturity values for policyholders choosing to take their benefits would be cut by 10% (previously 4%), unless this took the value below the guaranteed value, in which case the guaranteed value would be paid.

Equitable has reduced its exposure to shares to 15% of its holdings, but it said the stock market falls were affecting the value of the fund and it "would be failing in its duty" if it didn't act.

'It's wrong'

Members' representatives reacted angrily to the news.

Paul Braithwaite, chairman of the Equitable Members' Action Group, said: "This is appalling. The news at Equitable goes from bad to worse."

We must ensure... that the policyholders choosing to leave the fund do not take more than their fair share

Vanni Treves Equitable Life

Liz Kwantes, of the Equitable Members' Help Group, said: "We were expecting them to put up the MVA (financial adjustment)."

She said it was unfair that people who wanted to take their benefits should lose 10% of their policy's value.

"I just can't believe they can do that. I think it's wrong."

Equitable will write to policyholders this week to explain the changes.

Unwelcome news

Policyholders who are in the process of taking benefits or surrendering, and whose completed forms have already been received by the society, will have the previous surrender or maturity values applied.

Vanni Treves, Equitable Life's chairman, said that it was "unwelcome news for those who choose to go now", but the Board needed to act.

"The Board's primary objective is to act in the best interest of continuing policyholders. To do this we must ensure the Society remains solvent and that the policyholders choosing to leave the fund do not take more than their fair share."

Equitable will make available updated surrender and maturity values from Tuesday, 2 July.

Beleaguered assurer

Equitable is hoping to emerge 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.

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.

But Equitable members are not the only ones worrying about their policies - the whole of the insurance industry is being battered by stock market turbulence.

Customers of Legal & General, for example, who surrender their with-profits bond early will see up to an 18% reduction in its value, following changes announced last month.

Many other insurers have cut bonus rates.