EMAG

The independent action group for current and ex Equitable Life policyholders, funded by contributions.

Equitable Members Action Group

Equitable Members Action Group Limited, a company limited by guarantee, number 5471535 registered in the UK

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Correspondence: 27/07/2005 - Answer from Sir Callum McCarthy

For the FSA, Sir Callum.McCarthy‘s reply:

A: You refer to our report of last year which you say "concludes that Penrose does not give rise to new mis-selling claims". In fact, it concluded that generic claims against Equitable Life regarding its basis for allocating bonuses during the 1990s were unlikely to succeed. Our report did not consider whether any one individual might have a claim against Equitable Life for mis-selling in relation to their own particular set of circumstances.

With regard to the requests that have been made under the Freedom of Information Act (FOIA), I can confirm that we were unable to disclose an unedited copy of the report as a number of exemptions under the FOIA applied including section 44 (prohibitions on disclosure) since we are prohibited under section 348 Financial Services and Markets Act 2000 from disclosing non public information that we have received. Of course, under the FOIA, our decisions can be subject to an internal review. The case was reviewed in this way and the decision not to disclose any further information was upheld. Such decisions can then be referred on to the Information Commissioner for his review.

You suggest that we have "kept the lid on Equitable". In fact, three inquiries have been carried out into how the society was regulated, each leading to a published report. A further inquiry (the second by the Parliamentary Ombudsman) is due to report early next year. We have sought throughout to ensure that Equitable has provided relevant and timely information to its policyholders and, to supplement that, we have provided, through our website, more general information to help policyholders take decisions about their investments.

We have made substantial changes to insurance supervision, taking into account, among other things, the lessons from the Equitable Life case. We introduced new prudential requirements for insurers at the end of 2004, which require firms to assess all the risks they face and how much capital they need to support these risks. For example, life insurers with with-profits liabilities in excess of £500 million are required to make a realistic assessment of these liabilities, including expected discretionary bonus payments. In addition, since the end of April 2004, we have required all life insurers carrying on with-profits business to publish a document called the Principles and Practices of Financial Management (PPFM), setting out how a firm's senior management runs its with-profits business. At the end of this year, life insurers will also be required to publish a consumer-friendly version of this document. At the same time, new rules on with-profits payouts will also take effect.

We have also made far-reaching changes to the role of actuaries in life offices, which replace the role of the Appointed Actuary with two new advisory actuarial roles, requiring FSA pre-approval. All firms carrying on long-term insurance business are required to appoint an actuarial function-holder. Firms carrying on with-profits business are also required to appoint a with-profits actuary. Policyholder protection has also been strengthened through our requirement for auditors to seek actuarial advice on the valuation of liabilities from a reviewing actuary, who is independent of the firm. These new rules took effect at the end of 2004.

Sir Callum McCarty
Chairman of the FSA
27 July, 2005