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

Correspondence: 13/06/2002 - Alex Henney to Vanni Treves
38 Swains Lane
N6 6QR.
13th June, 2002.

Mr. Vanni Treves
Chairman Equitable Life Assurance Society
c/of Macfarlanes
10 Norwich Street
London EC4.

Dear Vanni,

As you and your colleagues did not provide adequate or correct answers to most of the questions I asked at the AGM, I restate them and would be grateful if you would answer the following outstanding points:-

  • Please provide in laymen's terms an analysis of the with-profits fund's available assets together with a comparison between, on the one hand, the available assets and, on the other hand, aggregate policy values, where the latter are differentiated between guaranteed and non-guaranteed elements and provisions for the annuitants. The clear intention of the FSA May publication "Feedback Statement on the With-Profits Review" is that the above information will be required in future.

  • Please provide a proper analysis of the fund's performance i.e. return by asset class. The With-profits Review Issues Paper 3, Disclosure to Consumers, January 2002 states (p15) that there should be:

    "A statement of returns achieved by the with-profits fund:-

    1. the investment return achieved from the fund in which the customer's policy is invested
    2. the average amount of that return credited to asset shares, and an explanation of any difference"

  • Please report the number of members currently in the with-profits fund. As required by the Companies Act the register of members is publicly available; it would be unreasonable to expect us to count those listed when the number must be readily available within the Society.
    In relation to the foregoing three points I note that Mr. Thomson has on occasion claimed that Equitable is more transparent in its reporting than other life funds.

  • Please set out clearly the nature and implications of the GIR issue. You alleged that information about GIRs was included in the Compromise document, and the website report on the AGM Q&A session claimed that "GIRs were fully described in the Compromise Scheme documents". Unless I have missed relevant scripting, these claims are incorrect. The GIRs were not referred to in the first set of documentation sent out. They were not listed in the "Definitions" of Schedule D of the Compromise Document. They were mentioned briefly on pp100 and 102 of Appendix III, Summary of the Associated Actuary's Report and the summary of the Independent Actuary's Report merely alluded on p113 to "other guarantees accruing under policies".

    Furthermore you and/or one of your colleagues made the claim that GIR and non-GIR policyholders were treated equally. It is true that so long as bonus rates to non-GIR policyholders are not less than that guaranteed to GIR policyholders, the two classes get the same bonus rate. But they are not treated equally since the GIR policyholders benefit from a guarantee and the guarantee is in fact given by the non-GIR policyholders to the extent that the guarantee can be honoured out of their policyholder funds with the Society. The apparent equality of treatment is therefore in fact of very unequal situations. In these circumstances there is an overriding need that the Board should now:-
    • explain the risk that non-GIRs bear of possibly having to fund the GIR benefit if the return on the fund reduces below 3.5%. I suggest that this information is part of what the FSA's Issues Paper 3 means by explaining to consumers the risks of the with-profits product
    • provide a reasoned explanation (rather than the one line assertion included in the AGM Q&A session) of why the Society did not address the GIR issue in the compromise (as EMAG urged it to do)
    • clarify the implications of the GIR for investment policy which seem to be a matter of confusion. Thus the Appointed Actuary commented on p102 of the Compromise Document that "I expect that the Society's investment strategy would remain broadly the same in the short term as it is now?the high level of guarantees within the with-profits fund may severely restrict [investment in equities] for some time". This observation directly contradicts the contemporaneous claim by Thomson reported in The Times on 7/1/02:-

      "Equitable Life has vowed to splash out £4 billion on buying shares, if the troubled insurer wins a crucial vote this week aimed at shoring up its ailing finances. Charles Thomson, chief executive of Equitable, told The Times that the insurer would halt a divestment programme triggered after a controversial ruling in the House of Lords effectively forced Equitable to close its doors to new business. Since then Equitable has steadily reduced its exposure to the equity markets from a peak of 60 per cent to today's level of 34 per cent?Mr. Thomson said: "If we get backing from our members over the compromise deal, we will bring the equity ratio back up to a fully competitive level. The current 34 per cent level is a low figure based on historical comparisons".".

      I note the figure for equities is now 25 per cent.

    • Furthermore the extent of GIRs and the lack of reserves appear to render the Board's objective stated in "Equitable Life 2002 and Beyond" of "moving the with-profits fund closer towards being a conventional with-profits find" meaningless. That is unless the Board's plan to siphon off virtually all profits beyond that required to meet the GIRs plus a token bonus into building up reserves. I suggest it would be appropriate to explain how the Board intends to square this circle

  • Mr. Bellringer incorrectly claimed that the reason for the delay in providing the solvency return was due to a delay by the FSA in providing it to Companies House from where members and journalists could request it. In fact by virtue of Rule 9.7 of the interim "Prudential Source Book: Insurers" made pursuant to the Financial Services Act, policyholders have a right to receive "deposited documents" once they are deposited. There was thus nothing to stop the Society putting the return on its website the day after it was deposited with the FSA, nor to provide it to any policyholder or journalist who asked for it. I subsequently learned that when Mr. Bellringer offered an excuse to a number of professional actuaries who sought the solvency return, 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 (as you kept the letter to the annuitants)

  • Either you or one of your colleagues suggested misleadingly that neither discussion of the GIR issue nor the appointed actuaries' policy that liabilities should be within +5% of asset values could be mentioned in the Annual Report, the content of which was statutorily prescribed. I note that the AGM Q&A session states that "The report is largely driven by the requirements of the Companies Act". This statement implies not only that the Companies Act prescribes the minimum of what must go in (which it does), but also that the Companies Act prescribes what may not go in, which is incorrect. S9 of Schedule 10 of the Companies Act 1989 states that "The directors' report should contain particulars of any matters?So far as they are material for the appreciation of the company's state of affairs by its members?". In my opinion both of the aforementioned matters meet that requirement.
I hope you will agree with me that directors should now provide adequate and accurate answers to questions put at an AGM. I cannot stress too strongly the damage done to the Society by making inaccurate or misleading statements and by the evasion of issues that are sooner or later identified by the responsible media as being relevant to policyholders' interests.

Finally I believe that unless the Board now publicly and candidly addresses the issues raised in this letter, and rapidly finds a way of enabling non-annuitants to substitute unit linked policies for their current interest in the with-profits fund, the Society will quite shortly find many except annuitants (who cannot move) will transfer their funds elsewhere unless even more punitive measures are adopted to prevent their doing so.

I reserve the right to copy this - and I hope in due course your reply - to our website and various journalists.

Yours sincerely,


c.c. EMAG Committee Members and website, ELAS Board Members