The sale of Equitable Life, the world's oldest mutual life assurer, dramatically collapsed after the last remaining potential buyer, its UK rival Prudential, pulled out of talks to buy the company.

Equitable yesterday closed its doors to new business and said it would gradually "run off" its existing business, although it stressed it had not gone bust and was still solvent.

Mr Alan Nash, managing director, resigned and was replaced by Mr Chris Headdon, the mutual's finance director.

Mr John Sclater, the society's president, said: "This is a very sad day for all in the society - members and staff - but the board decided that closing the society to new business is the only realistic option now available."

Analysts said this was the worst possible outcome for Equitable's with-profits policyholders, who are now likely to receive lower bonuses in future. The mutual has 650,000 policyholders, of whom 450,000 have with-profits policies.

Equitable provides group pension schemes, including additional voluntary contributions (AVCs), to more than half of the UK's 500 largest companies.

The need to strengthen its solvency will force Equitable to shift the balance of its investments towards gilts from equities, which traditionally provide a higher return.

Equitable also said that the loss of growth in with-profits policy values in the first half of 2000 was unlikely to be restored to policyholders.

Mr Vincent Nolan, spokesman for Equitable Members' Action Group, which represents policyholders, called on the entire Equitable management board to resign.

Equitable said it would now seek to break up the business and sell off assets such as its 350strong salesforce.

The Financial Services Authority, the City regulator, said it would continue to monitor Equitable but said there had been precedents of mutuals which had opted for "run off".

Prudential pulled out of the bidding late yesterday after a board meeting decided that a deal would not benefit its shareholders.

Equitable put itself up for sale after losing a test case over its controversial treatment of holders of guaranteed annuity policies. The ruling by the House of Lords left the group with liabilities of £1.5 billion sterling (€2.45 billion).

Around 15 bidders indicated interest in Equitable but one by one companies such as CGNU and Aegon pulled out because of uncertainties surrounding Equitable's liabilities.

Earlier this week, Eureko, the European insurer, withdrew after Equitable refused it exclusive negotiating status.

A spokeswoman for the Pru yesterday said about its decision to withdraw: "We looked at it very hard, but we couldn't make the numbers work."