5 November '02 - Letter from Alex Henney to John Tiner of the FSA

Dear Mr. Tiner,

Re Equitable's Market Value Adjuster

Your recent report "The Future Regulation of Insurance" states that "After buying long-term products, consumers must be given the information necessary to enable them to monitor the performance of their product to help ascertain whether it continues to meet their long-term needs. Where it does not, consumers should be able to switch products without incurring excessive costs". I will be writing shortly on the topic of lack of information from Equitable. Meanwhile I wish to make a complaint on behalf of myself and of other members in my position about the MVA (or a financial adjuster) which Equitable applies to members who under the terms of their contract are entitled to take a contracted exit, but who wish to exit and to continue saving for retirement.

I imagine you are aware of Sandler's view that (para 10.141) "An MVA could only be applied in either of two circumstances:

• a significant change in the value of the underlying assets since the setting of the redemption value; and
• a high volume of redemptions seeking to take advantage of a smoothed asset value above the unsmoothed value

I attach correspondence which I had with Mr. Peter Nowell, the appointed actuary of Equitable. It appears to me that the policy statements made regarding the purpose of an MVA are not clear, and can be reduced to the impermeable exercise of unfettered discretion on the part of the Appointed Actuary/the Board. The Chief Executive has been reported in The Times as stating that the fund will make a profit of 10% from parties taking uncontracted exit. This objective - I assume it is such - is not consistent with the Equitable's statements of policy, nor with Sandler's views, not I suspect with your stated views. I imagine that you would agree that the members of Equitable have been punished savagely financially by three cuts in maturity policy values within a year (16% in July 2001; 4% on 15 April 2002; and 6% on 1 July 2002). These cuts are surely more than enough to suffer for the mistake of trusting ones money to the Equitable. Surely a life assurance company should not be allowed to make a discretionary cut for which there is no economic justification?

I would be grateful if you would review the issue.

Yours sincerely,

ALEX HENNEY

c.c. EMAG Committee and website.