Minutes of EMAG AGM, 5^th June 2002

Held at: the Royal Automobile Club, Pall Mall, London

Present: About 65 members including committee. Also Professor David Blake (speaker). Paul Braithwaite chairing.

1. Apologies: Many apologies were received and notices of attendance, both of which were useful.
2. Professor David Blake spoke for about 15 minutes on his second report for EMAG - entitling his talk ``The cost of a Certain Amount of Mystique''.
   
   
   • The title was based on a recommendation by the President of the Society of Actuaries that actuaries needed to retain a certain mystique.
     
   • The cost of the actuaries's mystique showed up two ways:
     1. poor and opaque design of products, e.g. with-profits and endowment mortgages, equities and guaranteed returns were not compatible. As with Axa-SunLife enormous orphan funds are built in good times with uncertain ownership. Annuities have fallen out of date because of lack of hedging against falling interest rates.
     2. High charges result from lack of clarity. Trackers and stakeholder pensions have charges around 1% and for with-profits and endowment mortgages the charges are around double.
   • Equitable Life members have been victims of an intellectual battle between traditional actuaries and financial economists and radical actuaries who have understood financial risk. The radical actuaries have been influential in the new accounting standard FRS 17 and in Boot's pension funds switch to bonds.
   • Financial economics tells us that we need to recognise and price risk, not to smooth it away as actuaries have done. Adequate compensation for risk is needed; there are no free lunches. The difference is shown over whether or not to borrow to invest in equities. The radicals say NO.
   • In Equitable Life we now have the non-GIRS providing unpaid insurance to the 75% by value that hold GIRs of 3.5%. Last year the fund lost 6.4%, the GIRs got 3.5% guaranteed, the non-GIRs got a meaningless non-guaranteed 3.5%.
   • The investment freedom of the fund is now heavily constrained since the fund is 75% in bonds. This is not what a with-profits fund should be about. The fund is close to technically insolvent. The fund could not take many more years of negative returns. The exit penalty was raised to 14%.
   • Two possible solutions - convert to a unitised fund or create the unitised fund alongside and give up the GIRs -- or recognise that the fund is a closed fund and convert it to a closed non-profit fund (effectively a run-off fund).
   • But the Board is trying to build up a smoothing fund so that it can become an equity dominated fund again. But in my view the fund is trapped by being closed, by equity volatility and the GIRs.
   • The Compromise Scheme documents failed to indicate that the fund could be close to technically insolvent even if the Scheme was approved or that there was a GIR problem looming. The actuaries have again been revealed as not understanding the problems. The non-GIRs, in my view, have a case for mis-selling in that they were not warned about the GIR policies.
   • The point of pooling investors is to get economies of scale and valid insurance where different outcomes are possible (e.g. mortality). It cannot work if there are different guaranteed claims on the fund. This is a fundamental point that public policy must recognise.
   • Retail customers in the UK are poorly served by the UK financial services industry - either dealing with badly trained intermediaries or with well-trained but arrogant direct employees of financial offices who insist on retaining their mystique.
   • Question: are the conditions in the USA similar?
     Answer: The UK is the only country in which buying an annuity is compulsory - our annuity market is several times larger then that in the USA. However, in Australia it was common that the pension money was spent and the pensioner went back to Social Security.
   • Question: Is the issuing of pooled policies without information not a case of Fraud?
     Answer: I think you have a strong case. We may be waiting for Penrose.
   • Question: How to convert? Could the GIRs be abrogated?
     Answer: The only honest thing for the Board to do would be to convert to a run-off fund since bond rates are (still) above 3.5% - and the guarantees would be provided to everyone - this is a copper-bottomed guarantee except when mortality is overestimated.
   • Question: Supposing one had a 12,000 guaranteed pension with 8,000 non-guaranteed with-profits element?
     Answer: (A Member): My annuity was based on an assumption of at least 6% return, I believe that 3.5% returns are guaranteed.(Professor Blake) Non-guaranteed returns will be eroded whenever the fund is struggling to meet the guarantees to some of the members.
   • Question: Is the fund saleable?
     Answer: No. You must save yourselves. Only the members can sort this out.
   • Question: If the nonGIRs are compensated isn't this at the expense of the with-profits fund?
     Answer: Yes, but this is just the premium for the risk taken - otherwise they are providing free insurance to the GIRs.
   • Question: What is the position of the unit-linked funds?
     A member comments: I determined that the unit-linked funds were safe unless the with-profits funds became insolvent.
     Chair: Nicholas Oglethorpe explored this and seemed to reach a similar position about the exposure in extremis.
     Jeremy Lever QC: The difference seems to be between holding units, and holding a unit-linked policy which latter could theoretically be exposed to claims by creditors. The insolvency is unlikely to be a substantial one given the fund's assets.
   • Question: Does the Equitable have enough to meet its guarantees if it put all its assets into bonds.
     Answer: Yes.
   • Question: With the 4% adjustment they have gone as far as they can towards a unitised fund? i.e. following markets up and down.
     Answer: Well, there are still the guaranteed minimum returns (GIRs). I would suggest it is nearer to being a non-profit fund.
     Colin Slater: I think we have the worst of both worlds at present - no transparency but the volatility of direct holdings.
   
   Chair thanked Professor Blake for a stimulating talk setting out the present position which got the meeting off to an excellent start.
   
   
3. Summary of the Equitable AGM - Alex Henney
   
   The AGM was very well stage managed, and Treves successfully played to the majority of members who were in attendance and who were probably there to seek comfort. This they received when they were advised that the Society was solvent and would remain solvent - but it was not explained that this may be at the expense of further reducing policy values. We learnt a few new facts:-
   
   

   • claims (i.e. withdrawals) have reduced to £300m/month

   • the split of assets held by the with-profits fund, namely equities 25%, 56% bonds, 13% property, 6% cash

   • the value of the annuitants part of the fund is about £7.9bn

   • any compensation will go into the WP fund of the benefit of the members

   • we cannot go after the regulators until after Penrose because we do not have the facts in our files

   • Jeremy Lever persisted (see below) with his request for a reasoned explanation of why the Society did not consider it appropriate to unit link the fund. Subsequently Charles Thomson agreed to prepare a paper on the issues within 6-9 months.
   • Colin Slater presented the results of our petition seeking change in the Memorandum & Articles of Association to be ratified at an EGM. But that was brushed aside with the false claim that the petition result was "old news", and that the Board would bring forward proposals to next year's AGM because an EGM would cost £1m to stage. (This is not correct - it should cost no more than £¼m).
   • Regrettably Treves, Thomson, and Belringer continued their policy of generally not answering questions and/or giving misleading or incorrect answers. Thus I received either no answer or an incorrect answer to the following questions:-

     1. please provide in laymen's terms an analysis of the with-profits fund's available assets together with a comparison between the available assets and aggregate policy values, where the latter are differentiated between guaranteed and non-guaranteed elements. No answer

     2. provide a proper analysis of the fund's performance i.e. return by asset class. No answer

        The clear intentions of the FSA in its recently published "Feedback Statement on the With-Profits Review" is that the above information will be required in future.
        

     3. report the number of members in the with-profits fund end of year. No answer

     4. set out clearly the nature and implications of the GIR issue. Treves alleged that information about GIRs was included in the Compromise document. In fact there is no reference to GIRs in the document. Furthermore Treves (or one of the others) made the claim that GIR and non-GIR policyholders were treated equally, which is impossible - one group has a guarantee while the other does not
   • Treves/Belringer/Thomson made the following incorrect statements:-
     1. One of them claimed that the policy of bringing profits forward to share up the reserves was "used industry wide". On 5/6 the FT carried a piece which reported Ned Cazalet as saying that only seven other companies out of 44 used the practice
     2. Treves blamed the stock market for the further MVA announced on 15 April. In fact in April the FTSE was more or less where it was a year ago. The recent increase in the MVA conflicted with Treves' statement on Moneybox on 6/10/2001 that "Our MVAs are a function of the market conditions, and nothing else"
     3. Belringer incorrectly claimed that the reason for the delay in providing the solvency return was due to some story about the FSA providing it to Companies House from where members could request it. In fact under the Financial Services Market Act, via Rule 9.7 of the interim "Prudential Source Book: Insurers" policyholders have a right to receive "deposited documents" once they are deposited. There was thus nothing stopping the Society putting the return on its website the day after it was deposited with the FSA, nor providing it to any policyholder or journalist who asked for it. I subsequently learnt that he tried to fob off a number of professional actuaries who sought the solvency return, and the Association of Consulting Actuaries sent him an e-mail asking him to stop playing games. My informant commented that it was clear that the objective was to keep the return under wraps until after the AGM
     4. misleading statements were made about the format of the Annual Report & Accounts. Namely it was insinuated that 1) the policy that asset values should be within ­+5% of liabilities, and 2) discussion of the GIR issue could not be mentioned in the Annual Report. In fact the Companies Act prescribes a minimum that has to go in the accounts, but does not prescribe a maximum. Directors can put what they like in the Report and the Notes to the Accounts
   • Treves lost his composure a little at my question as to when the Society would stop "obfuscation and spin", and blamed the press for the Society's bad press because good news does not sell newspapers. But in reality he, Thomson, and Belringer have, through their reluctance to provide information and their willingness to provide incorrect or sloppy answers, have created the mistrust which came through in some of the press comment the following day.
     
     
4. Jeremy Lever gave a supplementary report:
   
   I had asked whether in the opinion of the Board there were insuperable obstacles to a conversion to unit-linked fund. Charles Thomson gave an explanation at the AGM which probably lived up to the advice of the President of the Institute of Actuaries. At his invitation I spent about 90 minutes with him on the Friday. I pointed out that no Life Office would start today on a with-profits basis and that we were in the same position - with no reserves. This would make the fund unattractive to those who could get out. He did not say that there were insuperable obstacles. He said that they would investigate the matter carefully and publish a conclusion in about 6 to 9 months. For those with GIRs it would mean giving up a GIR policy in favour of a unit-linked policy. They are committed to producing a green paper.
   
   With regard to annuitants and their possibility of taking out their capital there is a problem of selectivity. Those who were in poor health could leave and get a better annuity on the basis of their poor health leaving the more expensive long-lived annuitants. I urged an imaginative approach. Those who had recently retired might better take out a top-up policy, benefitting from tax relief, than rebase their policy. I also urged them to benefit from the advice and understanding available in the action groups, but they seem still to see the action groups as hostile.
   
   
5. Chairman's Review
   
   From the start EMAG sought primarily to provide information. But this did not inhibit it from pressing for legal investigation where we suspected important unheard cases. We do not take a position on whether members should stay or go but seek to obtain the information which will allow informed decisions.
   
   After the Compromise Scheme was approved we found ourselves in a different situation. After much consultation EMAG decided to make a priority of the campaign for Government Compensation. This is why we are seeking to change our rules to allow ex-members to join in this campaign.
   
   In a personal capacity I stood as a candidate for the Board. Adrian Howard-Jones and I achieved about 44% of the vote but with the Chairman's proxies cast against me we still had negative votes of around 40,000.
   
   The committee has worked very hard - I believe that I have worked harder on this than Vanni Treves who has about two dozen other active directorships - some taken on after the Chairmanship of Equitable Life. we are not remunerated, of course. We are now seeking to raise the profile of our campaign with a larger membership and will ask for more involvement from the members.
   
   
6. EMAG Mailshot Report - Colin Slater:
   We tried to mail everyone on the EMAG policyholders list as of the close to new business. Of course we could not finance that ourselves. So we forged a deal with the Accountants Financial Planning Group. We had our mail shot, they were given space to advertise in that, and we used our influence as far as we could to improve the products offered to allow Equitable members to benefit from a bulk buying advantage as far as possible.
   
   We have had most of the response so far. We had 17,790 responses - mostly signing the petition on changes to the articles only. We also got 5,081 new members. We have just over £ 100,094 in subscriptions. We will end up with about 7,000 members in EMAG. In this sense it is very encouraging. On the other hand about 96% didn't respond and of those we have no contribution from most of the rest. Most of the members are not prepared to do anything.
   
   A battle for compensation will be a long haul. We can't expect committe members to run the organisation on an unpaid basis. I think Paul has spent most of his time on it, I have spent several days a week on it. We need to know whether we are strong enough to support a secretariat and to support the taking of legal advice. Personally I believe that we need about 15,000 members. At the Equitable AGM about 35,000 people vote - we need about 18,000 votes to carry the AGM - with 15,000 members we could carry the meeting. Similarly with an annual sub of about £ 10 per year we could spend appropriately on a general secretary.
   
   My instinct says that we should keep plugging away. But professionally I think we do not yet have sufficient support. I would like to hear other peoples' opinions. We could try to double our support by appealing to those who indicated support but didn't join. My view is that we should go back to them when we have a workable strategy for getting compensation. We could get counsels opinion on our claim -- Vanni Treves says we need to show bad faith -- which would be very difficult to prove.
   
   (A Member: Are people aware that Vanni Treves is a major Labour Party donor? and may not wish to be seen to attack the Government? )
   
   Secondly, the subject of pensions is very much on the agenda, there is an aging population, we could take advice from professional lobbyists and see whether we can devise an effective campaign.
   
   Thirdly, we could approach the other action groups, there are good people in the other groups, but we have been trying to amalgamate for many months. EPHAG claims very many members, but appears to have no resources of its own. ELMHG does a wonderful job but appears to be a looser structured group.
   
   (A Member: Do the other groups have similar objectives? If not, joining would be useless, but having several groups is damaging).
   
   ( A Member: we need to get the Board to act for government compensation - Counsel's opinion is useful step towards that).
   
   We have about 13,000 people whom we could re-approach with a message based on a decent worked_out strategy, and strengthen our membership. We will need volunteers to help us - we need sub-committees to steer the legal process and the campaigning process.
   
   I say to members everywhere, let us know if you are prepared to participate, let us know how you are prepared to help.
   
   Paul Braithwaite: in eighteen months of campaigning about the most significant response that I think that we have elicited, was in the period after the 16 July 2001 devaluation of policies. After weeks of effort by members and official stone-walling during which nothing appeared to be happening, Ruth Kelly, Financial Secretary to the Treasury at the time, came up with the Penrose inquiry, a delaying tactic, but one which may still be very useful to us.
   
   That leads me to think that the political approach ( not party-political) can be productive.
   
   
7. Minutes
   
   The Minutes of the general meeting held on 18th^rd June 2001 were approved. They had been on the web site for more than eleven months.
   
   
8. Treasurer's Report - Betty McCann. In the bank - £ 92,000 at present. John Newman said that he had reviewed the figures, but not in a formal audit, and thanked Betty for her hard work. Report approved - proposed Betty McCann, seconded Vincent Nolan, approved nem. con.
   
   
9. Constitution: There are three motions. (see below)
   
   1. Chair: The first extends membership to ex-members. Only current members to vote on this. Proposed PB, seconded: B McCann, Carried nem. con.
   2. Motion 2 on committee : Proposed PB, seconded CS, approved nem.con.
   3. Motion 3 on committee : Deletion of formal auditors. Proposed PB, seconded AH, approved nem. con.
   4. Reappointment of existing officers and committee: Proposed PB, Seconded CS, approved nem. con.
   
   
   
10. AOB - General Discussion
    1. John Newman: Within Equitable everyone with £ 10,000 or more has equal voting power. But those with a small AVC account may be dominating the voting within the Society. This is a force against change and resolution of problems.
    2. A Member : I cannot help but applaud the adversarial style of EMAG, which I think has helped members. The problem may come when we seek to renew subscriptions, will we receive good returns? Note that becoming a company limited by guarantee might mean that our list will become public.
    3. A Member: I am a member of a group scheme. Have we sought to contact such group members?
       Answer: Members of some group schemes are in a very difficult position. The trustees often forward very little information. Officially, only the lead trustee is a member of the Society, so we have very little opportunity to approach members of group schemes. There were thought to be about 500,000 such members at the close to new business. Major groups have been given the opportunity to transfer out (some at reduced MVA) - this has been a key aspect of political and trade union interest - such as the health workers (5%), MPs (7%) and others.
    4. A Member: I am a member of such an AVC scheme. We never get any mailings or information from the trustees. We had very little information about the policies and about annuities.
    5. A Member: In my acitvities with another group we had very good help from the Irish trades unions but the English unions thought that an action group was hostile to themselves and were uncooperative.
    6. A Member: I think this is the only group with guts and I am happy to support you. I think you must ask for a fixed subscription and you must show the benefit. You need to show how people have lost and what might be gained. You must give some idea of the real benefits in a way which people can relate to their pensions.
    7. A Member: I know how much I have lost but I don't know how much is attributed to stock market falls.
       Answer: Rodney Allen: The Society's case against the Directors cites the losses of the non-GARs and the destruction of the value of the Society. That is how the £ 2.7 billion arises. We all had a share of this value and it was destroyed.
       Answer: Colin Slater: Of the 16% we lost about 1/3 was the GAR loss about 1/3 was the loss due to markets, and 1/3 was due to irresponsible declarations of bonuses in previous years.
    8. A Member: we must find out why we are not getting through to so many people who are not able to look after their money. We have had good press but we have also had some bad - ``the smug have been mugged''. The Government are overspent and those who are perceived as well-off and possibly unsympathetic voters are likely not to be in the government's constituency.
    9. A Member: I cannot help but I am willing to subscribe further. How can we deal with the Equitable's position? Can EMAG take a position on the conversion of the fund.
       Answer:Colin Slater: We have - we support conversion to units. The Society is pretending that it has a with-profits fund and there is actually no smoothing kitty. Even in a rising market it would take years to build up. Those who have been in longest have the GIRs but they also have more terminal bonus to lose, so there is a rough justice between these groups.
    10. Paul Braithwaite: There are real differences between respected commentators on the Society: Ned Cazalet has a very negative view of the Society, while Stuart Bayliss believes that there is no real prospect of insolvency because the terminal bonuses could be raided for some time.
    11. A Member: Pulling it together for my own benefit - I am a small policy holder so I get the information but I don't understand it. Prof Blake said that to cut out all risk you have got to go for the bond fund option. I say that the offer must be to cut out the risk. We should be agreeing on how to persuade the Board to go for conversion to low risk. This is what would really appeal to many members who are currently too frightened or discouraged to open the envelopes.
    12. A Member: People would much rather be in a situation where they can reduce risk. I want my money in Bonds.
    13. A Member: The with-profits annuitants are about 40% of the fund. This will put a very severe restriction on what can be done for the others.
        Alex Henney: In the Compromise Scheme documents the Independent Actuary made just this point.
        Member: How can we find out the way that assets are held against liabilities?
        Tom Lake: This information is in the solvency returns usually obtainable from the Society but very much concealed and obscured, there are usually about 500 pages in the return.
    14. A Member: To sum up: I think the subscribers want us to go forward. We must be more constructive and less antagonistic. If we have a good legal case I am not concerned if the Government is not enthusiastic to compensate us. We need a good case.
        Paul Braithwaite: If we can show it Treves will need to show that he has acted upon it.
    15. A Member: Why should there be a difference between us and the present Board?
        Paul Braithwaite: We are treated as adversaries. Further, we have no evidence that the rest of the Board has any influence on Charles Thomson and Vanni Treves. We have worked harder on this than Vanni Treves - who has two dozen other active directorships.
11. Meeting closed at 9.45 pm.

Rule Changes Approved at the Meeting

1. Motion 1
   That Rules 2 and 3 shall be deleted, and replaced as follows:
   
   2    Objects
   
   The objects of the association are to further the interests of Members and former Members of the Equitable Life Assurance Society ("the Society"), and those having or formerly having had interests in its with-profits policies. This explicitly to exclude the association's support of any litigation against the Society.
   
   3    Membership
   
   The association may consist of any number of members, being either Members or former Members of the Society or persons having or formerly having had interests in its with-profits policies. All persons recorded by the association as members as at 5 June 2002 shall be deemed for all purposes to be, and to have previously been, members, notwithstanding that the eligibility of any such person to be a member might have been questioned on the grounds that such person was a former Member of the Society or a person formerly having had interests in its with-profits policies.



2. Motion 2
   that Rule 4.4 (Management) shall be deleted, and replaced as follows:
   
   4.4 Retiring members of the committee may be re-elected. Members can only be ratified as new committee members after attending two committee meetings and then subject to a majority vote by the committee.
   
   4.5 Each member of the committee shall have duties to attend the majority of committee meetings in London in each rolling 12 (twelve) month period; to keep confidential the proceedings of the committee and the affairs of the association, except as otherwise authorised by the committee or by its chairman; and not to express opposition to decisions of the committee once taken, except in committee or general meetings of the association, or in communications with other members of the committee or with the association's advisers for the time being. If any member of the committee fails to comply with such duties, or if the conduct of any member of the committee, in the opinion of the committee, renders him unfit for membership of the committee, he shall be liable to removal from the committee.
   
   4.6 Before any such member of the committee is so removed, the secretary must give him 7 (seven) days' written notice to attend a meeting of the committee, and must inform him of the complaints made against him.
   
   4.7 No member of the committee may be so removed unless he has first had an opportunity to appear before the committee and answer complaints made against him and at least two-thirds of the committee then present (other than the member of the committee complained of) vote in favour of his removal."
   
   and that Rule 12.1 (Special general meetings) shall be deleted and replaced as follows:
   

   12.1 A special general meeting may be convened at any time by the committee and must be convened within 21 (twenty-one) days from receipt of a requisition in writing signed by not less than 50 (fifty) members specifying the object of the meeting.

3. Motion 3
   that Rule 11.1.4 (appointment of auditors) shall be deleted: