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19 January 2001 - Meeting of EMAG with Equitable Board Members

Preliminaries

1. Information Update on Current Developments
   
   
   1. Capping of Liabilities
      
      What is the state of negotiations with GAR group (Stuart Bayliss)?
      
      Reponse
      
      An internal ELAS group is working on a proposal (including input from Bayliss and other parties). ELAS is looking at ways it might involve members in the development of the proposal.
      
      EMAG expressed in interest in close involvement with these proposals
      
      
   2. State of the selling process
      
      Are we looking at sale of `substantially the whole of the operations' (Chris Headdon) or `we are not talking about selling the whole package again' (Alistair Dunbar)?
      
      EMAG is particularly concerned about the sale of the investment management operation for short-term gain at long-term cost to the policyholders (see 4. below). Also, is the `capping' proposal linked to a renewed attempt to sell the business as an (ongoing) whole (as suggested in Press reports)?
      
      Reponse
      
      Could be anything from sale of whole of business (including demutualisation) to sale of individual functions - sales force, investment management, policy administration.
      
      Sale of whole business will depend on a capping agreement. Sale of all the operations (without demutualisation) could happen without capping.
      
      It is hoped to announce the sales transaction in February.
      
      Comment
      
      EMAG favours separation of the capping proposals from sale proposals. Once the liabilities are capped and the board reformed there may be no need to put the business in the hands of shareholders.
      
      
   3. FSA
      
      What is the role of the FSA in 'brokering' a sale?
      
      Reponse
      
      It is not the role of the FSA to broker a sale. ELAS is keeping FSA informed and FSA will review any proposals.
      
      
2. Appointment of New Chairman
   
   Issue: how can member representatives be involved in the process of selecting a new Chairman, prior to the AGM at which he is presented for confirmation?. What would be the process by which member representatives could put forward an alternative candidate for Chairman if they were not satisfied with the candidate selected by the current (departing) Board?
   
   Reponse
   
   We hope to announce the preferred chairman in February. Non-executive director Jonathan Dawson (also of Lazards and at the time of meeting out of the country) is leading the selection panel.
   
   Comment
   
   EMAG is pursuing with Jonathan Dawson the process of selecting a new Chairman
   
   
3. Appointment of new Non-Executive Directors
   
   Issue: How can member representation on the Board be achieved in both the short and long term. EMAG believe that the Board would be strengthened by the immediate co-option of 3 or 4 member representatives, including one representing the interests of group schemes, to replace a corresponding number of current (departing) members. The co-opted Directors would be either confirmed or replaced by elected member representatives at the AGM.
   
   Reponse
   
   Intention is to focus on the appointment of the Chairman, who will then recruit new non-executive Directors, until the AGM.
   
   
4. Investment Management
   
   Issue: EMAG believe that investment management is the `core business' of a closed company and should be under the direct control of the Board (whether in-house or out-sourced) with the aim of maximising performance at minimum cost to members. Alex Henney's paper proposes a rigorous audit of ELAS investment performance on a regular basis and a careful examination of the merits of active vs. passive management of funds
   
   Reponse
   
   ELAS will supply back data on investment performance to EMAG (AH) and compare it against appropriate indices for each main category of investment. ELAS does contribute relevant data to an independent survey (WM) which is confidential to contributors and cannot therefore be reported to ELAS members.
   
   Comment
   
   EMAG has proposed a regular independent audit of investment performance which can be reported to members.
   
   
5. Transparency
   
   EMAG welcomes the Policyholder Updates advertised in the national press and the use of the ELAS website to keep members informed and to rebut misleading Press reports. We were promised (Dec.1st) a briefing document to accompany the recommendation of the sale of the business, with a further more detailed account of the Society's situation in Feb./March 2000. With the collapse of the sale process, this information has not been forthcoming. There is still a great deal of information the Board could usefully share with members, including the following:
   
   
   1. The methods by which the £1.5 billion liability has been estimated, including the range of scenarios considered and assumptions made, especially about interest rates. (It is still widely believed and reported that the 'true' liability is still substantially greater than estimated and that prospective bidders withdrew because they believed the potential liabilities were much greater - in spite of Chris Headdon's denial that this was the case, at EPHAG's Dec.19th meeting). We propose that the Society should commission a truly independent study of the liabilities (including confidential discussions with bidders who withdrew) and publish the results of the study.
      
      Reponse
      
      Details of the calculation of liabilities will be disclosed with the 'capping' proposal to be announced probably next month.
      
      
   2. Reinsurance of Liabilities:Was/is there reinsurance covering the guaranteed annuity liability? There has been much press comment in relation to the Irish subsidiary of GE Capital.
      
      Reponse
      
      Details are/will be given as required in the statutory annual accounts.
      
      
   3. The costs incurred by the Society in legal expenses, advertising and sales promotion in the period July-Dec. 2000, loyalty bonuses to the sales force and other staff, staff performance bonuses for 2000, cost of sales force salaries and expenses since the HoL decision. While these would normally be left to the internal management of the Society, these are not normal times.
      
      Reponse
      
      Information about legal costs, advertising expenditure etc., and other information requested by policyholders, will be disclosed in the Annual Report and Accounts.