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

Search
Media Stories: 01/11/2003 - (as yet unpublished) letter in response to Leader in Telegraph: From Alex Henney

Unpublished Letter From Alex Henney to the Editor of the Telegraph

(Written in response to a Leader of 1st November 2003)
1st November, 2003. Draft

Dear Sir,

Your editorial "Looking for equity" on Saturday was to the point. The failure of The Equitable is quite simple. It was misgoverned by a management intent on growth and misregulated by a succession of government regulators. Under the Insurance Companies Act 1982 the government as regulator was responsible for protecting policyholders' reasonable expectations. It failed in four ways:

First, The Equitable (and other life assurers) had entered into guaranteed options. Although the actuarial methodology for reserving for options was fully understood by the mid 1980s, The Equitable (and many other life assurers) did not reserve for them because, until 1997, the Government Actuary's Department did not require it.

Second, during the 1990s The Equitable was over-bonusing and paid out an excess of more than£2 bn to departing policyholder, over and aboves t their asset share, relying on new income and the rising stock market to enable the with-profits fund to remain viable. When the merry-go-round stopped the fund plunged, to the disadvantage of those who remained. The de facto regulator, the Government Actuary's Department, was aware of over-bonusing from at least 1997 (and, if it had been doing its job competently, should have known before), but did not regard over-bonusing as important.

Third, the approach to prudential regulation was technically inept, being rule-based on box ticking. Also, it was opaque and secretive - so that policyholders could not readily assess the strength of a fund.

Fourth, on assuming responsibility for regulation in January 1999 the Financial Services Authority did not attempt to reign in The Equitable. It then compounded its flabbiness with its misjudgement (based on ignorance of the extent of The Equitable's financial weakness) of allowing The Equitable to remain open after the adverse House of Lords decision in July 2000. In consequence thousands of new policyholders joined the fund, and lost money.

In Australia, just one year after the HIH Insurance Company was suspended, a Royal Commission reported on the fiasco and prosecutions began on 56 counts. It is now almost three years since The Equitable closed.

We did not need a 26 month Inquiry by Lord Penrose, involving 30-40 man years of work, to spell out the story of serial misregulation by the government. This government, lacking any moral decency, sent Lord Penrose off to write a history book to avoid facing up to its responsibilities to the policyholders of The Equitable. And to cover its backside, dishonourably, it set up the Inquiry as an internal department of the prime suspect - The Treasury. Meanwhile, some policyholders have died before resolution, and as cut after cut fall on the annuitants, many are worried sick.

Yours faithfully,

ALEX HENNEY

Chairman of EMAG