These results show Equitable Life is gradually coming out of intensive care Vanni Treves, Equitable chairman

The troubled insurer said it was "cautiously optimistic" about its future, and said it was making real progress in stabilising the fund.

The insurer, which was reporting its 2002 results, said no further reductions to maturity or surrender payouts were needed.

And, in slightly better news for its policyholders, it said bonuses could increase from 1 April.

The rate at which Equitable has paid bonuses has been frozen since July last year, and has not increased since December 2001.

Equitable Life found itself in dire financial straits after losing a high court battle in July 2000 on whether it must pay bonuses to 90,000 policy holders.

Bonus payments

The bonus rate will be set at 3.5% a year or 2.75% a year for life assurance policies and will be offered from Tuesday to both guaranteed interest rate (GIR) and non-GIR polices.

However, the bonus will not be guaranteed, and will be given on a discretionary basis depending on the future health of the fund.

There will be no change in maturity and surrender payouts.

Vanni Treves, chairman, said: "I believe that these results show that Equitable Life is gradually coming out of intensive care."

"Although responding to treatment, we are still some way off declaring a clean bill of health."

Pulling out of shares

In the year to 31 December 2002, Equitable gradually reduced its exposure to equities.

On 31 December 2001, it held 25% in equities. A year on, only 4% of its fund was invested in the stock market.

As much as 80% of the society's total investment was invested in fixed-interest securities and bonds, while 9% was in property and 7% was in cash.

The bulk of the sales were carried out at FTSE levels of about 4,800 points, Equitable said.

"The society's relatively early withdrawal from equities in order to protect policyholders and limit any further downside was good news for policyholders," the insurer said.

Legal action

Liz Kwantes of the Equitable Life Members Help Group gave a cautious welcome to the results, but said there would have been "uproar" if they had not given a bonus payment on non-GIR policies.

"The results look a lot better than we thought. They have not done as badly as other insurance providers because its investments were not in equities," she told BBC News Online.

However, the insurer said it faced "significant uncertainties", as a result of the number of claims.

It is facing action from former policyholders, and is pursuing its own claims against Ernst & Young, its former auditors, and from previous directors.

Seeking damages against Ernst & Young cost �5.1m in 2002 alone, the results has revealed.

"I'm sure those are correct for 2002, but the Ernst & Young case did not happen until January. I think the final costs are going to be a great deal higher - and it could double the five million pounds," said Liz Kwantes.

Equitable also said it was scrapping its compensation scheme, which it set up to help 60,000 investors with guaranteed annuity policies two years ago.