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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Documents: 01/05/2002 - Adrian Howard-Jones' speech draft for the Equitable AGM

EQUITABLE LIFE MEMBERS

ADRIAN HOWARD-JONES ADDRESS AT THE AGM 2002   

Draft for address to be delivered at 2002 AGM.
This is not the speech as delivered! The speech as delivered was culled from this because of the extreme pressure on the available time. This draft is presented to provide readers with the wider range of material covered and to add further substance to the points made in the meeting.
1) Hello, My name is Adrian Howard-Jones.
2) First to the organizers. Thank you for agreeing to let me make a short address.
3) This is the second time I have stood for election to give the Members a chance to express their views.
4) Last year one in four voted for me. Today I do not yet know how many.
5) I shall not repeat my candidate's statement, which I hope you have seen.
6) Members have voted for me against the advice of the Chairman.
7) Perhaps they are not satisfied with his efforts or those of the Board. I think they are right.
8) If the Board has understood the crisis that the Society faced and still faces and the urgency with which it has needed and needs to be addressed they show little sign of it.
9) Vanni Treves ended a letter to the FT on Saturday saying, "I do not believe that the management could have done much better".
10) I cannot agree. After over one year of the efforts of the new Board, the Society is still caught in a direction less drift. With a lawyer at the helm and suing everyone in sight. But what about inside the Society? How long will it be before it has its house in order?
11) What the Society needs to do now is to move as rapidly as possible to achieving stability.
12) More than anything else the policyholders want security for their pension funds.
13) Annuitants, life and endowment policy holders also need fair outcomes.
14) The Society is ill placed to take further losses, and indeed if it does do so risks insolvency.
15) It must seek to divest itself of uncertainty and risk wherever it can do so.
16) This means for example moving towards the steady income yields and lower volatility of bonds.
17) If policies without guarantees are to be treated the same as those with, then in effect they contain imputed guarantees, which must be secured by suitable reserves; they do not confer "investment freedom" on the fund.
18) It means ceasing the sale of new risk business.
19) That means annuities. The Society is ill placed to sell annuities and has offered annuities on non-competitive terms. This does no one any favours.
20) Annuities carry with them the uncertainty of changing life expectancy.
21) A closed fund must make a conservative provision to ensure that there is sufficient residue to cover the most extreme foreseeable extension to life expectancy of the last annuitants on its books. To do this a Tontine reserve will be required.
22) The Society should consider reducing its exposure to annuity risks by divesting itself of the risk to more efficient providers, to Societies open to new business that can offset the uncertainty of increasing life expectancy against new income streams.
23) The creation of a Tontine reserve must be avoided to the greatest extent possible. The creation of such a reserve must mean that policyholders taking benefit in the near years will get less than a reasonable fair share.
24) The present method of smoothing has increased rather than diminished risk. Smoothing there may be, but the way this operates needs to be changed so that the Society does not find itself combating systemic risk.
25) I recommend that the Society consider adopting a running average policy valuation system where the maturity value of policies is based on the running average value of the fund for the past three or six months (or other suitable period).
26) This can be funded by maintaining a sufficient margin of liquid funds to meet the forecast rate of off take. It will protect policyholders from the worst effects of a September 11th arriving on their day of retirement.
27) But the fund will always follow the market on a day-to-day basis, and values will never get stranded such that a 16% change in value has to be announced on a single day.
28) As an aside, it is clear that policyholders with unit-linked policies carry a high market volatility risk. The Society should consider offering such policyholders a smoothed exit from their holdings, also based upon a running average principle.
29) If the approach to smoothing is modified along the lines indicated, the justification for maintaining a high MVA for transfers will no longer exist.
30) Certainly it is fair that the transferee should bear the administrative costs of the transfer, but there should be no reason for any punitive financial restraint on Members from transferring out of the fund.
31) Policyholders with many years to elapse before retirement may wish to move to an Equity base and should be able to move to a unit linked or other fund if they so wish, whereas those retiring within a few years may have less incentive to do so.
32) If because of continuing areas of uncertainty it is impossible to determine immediately what constitutes a fair share of the fund, consideration should be made to making a retention which may then be released at a future date when the cause of the uncertainty is removed.
33) The principle is that Members should be able to leave the fund through a contractual event or transfer without disadvantaging themselves or others.
34) The Equitable is now a closed fund. It will not continue forever. A vision of the future with an associated exit strategy is needed.
35) An informing philosophy is required, which can guide both the Society and the Membership, to proceed to best advantage. Such a philosophy must be internally consistent, not just a promise of all things to all men.
36) The Members of the Society want to trust the Society and the Board once again. But this past year has been full of tricks, and surprises. Information has been delayed and withheld. The Board will only succeed when it has reached the point where it does not need to withhold information, or to mislead the Membership. The Board has, it seems, focussed on spin and presentation rather than content.
37) The present Board deny responsibility for any of today's problems. I do not think that you should believe them. The Compromise Scheme, a success? Well not really.
38) Securing Member's votes with incomplete and out of date information is as much a matter for shame as for pride.
39) And the scheme itself. Has this solved everything it should? Sadly no. The scheme only addressed the first of the two forms of guarantees which create such unfairness between the different classes of policyholder.
40) On April the 15th within weeks of assuring Judge Lloyd that there was only a remote possibility that the GIR benefit could cause a problem, ELAS revealed that it was already causing one.
41) While most policies decreased in value by 5%, some policies at the guarantee threshold increased in value.
42) The Society declared a negative bonus increment and introduced a third measure for the value of policies.
43) The non-guaranteed bonus for last year was reduced by one percent and the exercise value of the policy was redefined as being four percent less than the non-guaranteed nominal value that it then had.
44) This means that, within weeks of the Scheme being implemented, Members are finding that the value of their policy is less than they were led to expect when their votes were needed in January.
45) In a letter to Saturday's FT Vanni Treves says "Despite some lurid headlines the Society is solvent always has been solvent, and furthermore meets the stringent requirements of the Insurance Regulator.
46) On the same day he is quoted in the Times as having informed the FSA that due to market volatility last year there can be no absolute assurance that at every point the required minimum margin of solvency was maintained.
47) I will close at this point. I wish the Board, and fellow Members well and hope that this will be a good year for the Society. There is much to be done, and I think that the Board will need to find a means of increasing the rate of progress in the redefinition of the Society.
48) With the Society in crisis it is an active Board which is required working alongside the executive.
49) The Articles confer considerable powers on individual non-executive Directors, and every Director does have the power to call a meeting on a subject of his choosing whenever he wishes.
50) If progress continues as slowly as it has done, it can only be because every Director has consented to the slow pace
.