27 March '03 - PRESS RELEASE

Report proves Equitable Life policyholders were the victims of mismanagement and regulatory failure for more than a decade.

The Equitable Members' Action Group (EMAG) has today published a report proving for the first time that Equitable Life policyholders and annuitants are the victims of mismanagement and successive regulatory failure dating back to the 1980s. This study provides new evidence to confront the Parliamentary Ombudsman's persistent refusal to look into maladministration by the financial regulators during the 1990s.

The report, a major forensic study of the Equitable Life's financial accounts and statutory returns throughout the 1990s, was commissioned by EMAG from chartered accountants Burgess Hodgson as a sound 'back-to-basics' submission to the Penrose Inquiry. It shows that:

• there was already a £1bn 'black hole' in the Society's finances at the beginning of the 1990s;
• the Society's liabilities exceeded assets by a margin measured in billions throughout the 1990s;
• the Society failed to build up any smoothing reserves during the 'raging bull' market of the 1990s to protect its members from adverse events and it has not, therefore, been operating as a with-profits fund;
• the regulators had access to exactly the same returns so they should have been aware of the precarious state of the Society and acted to protect policyholders' interests - yet they consistently failed to do so.
• had the Society been managed and regulated properly in the late 1980s the problems associated with Guaranteed Annuity Rates could have been avoided.
• The Society consistently misled members as to the state of their investments.

EMAG is totally supportive of Lord Penrose 's Inquiry. However, because the Treasury itself is regarded prima facie of being culpable the studies commissioned by the Treasury (Baird and Penrose) cannot possibly be regarded as truly independent. This is why EMAG is now placing emphasis on the Parliamentary Ombudsman, whose remit is focussed unequivocally on investigating regulatory failure, addressing liability and reporting to Parliament - in complete contrast to the Penrose Inquiry.

Commenting on the report Paul Braithwaite, general secretary of EMAG, said:

"As a result of this new evidence we are today demanding that the Parliamentary Ombudsman stops prevaricating, does her job and investigates the hundreds of complaints she has been sitting on from policyholders who were sold policies before 1999. These people, many facing poverty as pensioners, are entitled to have their claims of serious and repeated mis-regulation investigated independently from the Treasury."

Colin Slater, partner responsible for the report from Burgess Hodgson's said:

"For the first time we have revealed irrefutable evidence to show that policyholders were failed for more than a decade not only by the management of Equitable Life but, even more importantly, the regulators who had at their fingertips all the same information that we analysed, yet they failed to act to protect policyholders."

Alex Henney, Chairman of EMAG commented:

"EMAG calls on the Government to confirm that they will compensate people who have lost out because of regulatory failure. If savers can't have confidence that if regulation fails the Government will own up and pay up, then belief in the financial services industry will suffer a mortal blow. If a cover up continues despite this new evidence, Equitable Life will further poison the industry's image and continue to fuel the current pensions crisis."

NOTES FOR EDITORS

1. A summary of EMAG's submission to the Penrose Inquiry, prepared by Burgess Hodgson, is attached. The full report is on EMAG's website: www.emag.org.uk
2. EMAG is focussed primarily on pursuing Government compensation for all policyholders (present or past) who have in the last two years borne losses estimated at £3 billion NOT attributable to the stockmarket's collapse.
3. EMAG has prepared a definitive list of 10 unique reasons why Equitable Life is unique and why the causes of the Society's scandal have not been, as implied, simply the juxtaposition of GARs and the stockmarket (10 reasons, attached).
4. A second, rigorous 64 page EMAG study, building on the bedrock of the Burgess Hodgson report, has also just been submitted to the Penrose Inquiry and this focuses on the many failures of regulation. (available at: www.emag.org.uk)
5. An exceptional 40 minute Money Programme special: "Death of the Equitable Life" will be shown on BBC 2 tonight, Thursday March 27th, at 9.50pm.
6. Case studies of policyholders hit by hardship, and contact details for policyholder comment, are available on request.