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Equitable Members Action Group

Equitable Members Action Group Limited, a company limited by guarantee, number 5471535 registered in the UK

Media Stories: 18/12/2002 - C4 interview with Vanni Treves - Transcript

18 December 2002 - Transcript of interview with Vanni Treves, interview by Jonathan Rugman

Ann Berry is in her mid sixties and lives on her own in a bungalow in Selsey on the Sussex coast. A few weeks ago her pension provider Equitable Life told her and 50,000 others that it was cutting back their incomes by between 20 and 30 per cent.

In an exclusive interview with the Equitable Life chairman, Vanni Treves, Channel 4 News' Business Correspondent, Jonathan Rugman, put her case to him.

Jonathan Rugman: First off what do you say to annuity holder like Anne Berry? Because she says she feels trapped, she's bought her annuity, she can't leave the Equitable, she is facing a 20 to 30 percent cut in her income this year, more the year after. What do you say to her?

Vanni Treves: First of all we say we are deeply aware of the predicament. Of course she is trapped, that's a fair word, we have done everything possible to protect the annuities but the investment markets have made it impossible for us not to treat them, in fairness, as other members have been treated, that is to cut their policies.

JR: But policy holders, including Anne Berry say they have been lied because you told them at the AGM in May that you had a planned to stabilise the society and that plan has clearly not worked.

VT: We don't lie to anybody, there is no possible reason why the new board should ever even think of lying. We have done everything we can to stabilise the society.

JR: But it hasn't worked, has it?

VT: To that extent it hasn't worked because the investment markets have overcome our plans to stabilise to the extent we wish.

JR: You mean the stock market?

VT: The stock markets.

JR: But you have less than 5 percent of your funds in the stock market so you can't carry on blaming falling prices.

VT: Now we do. But at the time we are talking about we were much more heavily invested in equities and we have sold down in order to protect and stabilise the fund. The fact is that we couldn't protect the annuities on a continuing basis as we would have wished. We must treat them fairly and we are very, very sorry to have and to take this hard action. It was very hard but equally necessary.

JR: Policy holders have seen a 20 per cent cut in the value of their policies over the last couple of years. Are there going to be more cuts?

VT: No we expect not. That depends of forces outside our control. The investment markets, though we out of equities we are still in gilts, we have to see what happens to gilt values, we have to see what happens to property values, and of course on the level provision. We have done everything that we think necessary to provide for all known risks. The interim accounts make that perfectly clear. We have no reason to suppose that we need to increase the provisions but we can't be absolutely certain at any one time.

JR: So if commercial property in which you invest and if government gilts in which you invest collapse, you will have to cut policy values again wont you?

VT: We would have to consider doing that but the converse is also true, if they increase in value then of course that will be reflected on what we can pay our policy holders.

JR: What is your calculation or your prediction of what is going to happen?

VT: We can't predict, what we can do is observe and at the moment we are solvent and we have a much greater degree of financial stability than we had say a year ago, certainly before the compromise. And we are going to wait and see and manage the society as effectively and as cheaply as we possibly can.

JR: Anne Berry, who is the policy holder we've interviewed, says she is angry because she has seen that in the year that Equitable Life failed to stabilise, the chief financial officer has resigned with £175, 000 and of course you have been paid around a quarter of a million through your law firm. And she thinks that is unfair.

VT: I am being paid through my law firm the rate of £125,000 a year. As for the chief financial officer, like all our senior executives he had a contract, and we paid him out in accordance with that contract and no more.

JR: So policy holders should not feel aggrieved that when they face a 20 to 30 percent cut in their income as annuity holders you get lots of money?

VT: I am a policy holder too, as is well known. I have a small fortune invested in Equitable. And I have had that money invested since the day I took office. So I feel the pain just as they do. We have to do what is necessary in the interest of members as a whole.

JR: What about your solvency? Are you going to dip below the Financial Service Authority's 4 percent margin this year?

VT: We hope not but if it happens I must emphasis its not the end of the world. That margin is a kind of regulatory comfort blanket, it is an arcane creature of statute

JR: Are you going to dip below your solvency margin which is set by the Financial Services Authority at 4 percent, this year?

VT: We expect not, we hope not. But can I emphasise that that margin is a regulatory comfort blanket, what matters much more is that we should remain solvent in the usually excepted sense of the word. Which is that we pay our way, that we pay our debts as and when they fall due.

JR: It may be a comfort blanket but policy-holders want to know whether you are or not going to be technically insolvent this year?

VT: The word technical is the right one, we do not think that we will be. We will do everything possible to make sure that we are not. Should it happen, I say this to policy-holders, what matters is that we should remain solvent in the usually accepted sense of the word. Are we paying our bills as and when they fall due? The answer is yes and we intend to continue doing that.

JR: So when Standard and Poor, the credit rating agency say that you are likely to dip below that 4 percent this year, they are wrong are they?

VT: They may or may not be right, they are a credit agency. They are taking a view of our subordinate debt, that has nothing to do with our ability to pay our debts to policy holders as and when they fall due.

JR: If you do dip beneath that 4 percent what has the Financial Services Authority said they will do to you?

VT: It hasn't said it will do anything, we will work together with our regulator in order to manage the fund in the most stable and sensible way possible in the interest of all policy holders. We do not expect anything awful to happen from a members point were we to fall below that margin.

JR: Do you have contigency plans for that insolvency, that technical insolvency happening?

VT: We are in course of discussion with the FSA all the time. As are other organisations like us as to what might happen were we to fall below the RMM.

JR: And what would happen. Would the FSA effectively intervene and assist in the running of the Equitable Life?

VT: I think you should ask them.

JR: What's your understanding?

VT: Our understanding is that they are satisfied with the way in which the society is being run at the moment and that nobody else could do a better job.

JR: Ned Cazalet, a leading insurance analyst, say he thinks the structure of Equitable will be radically different 12 months from now. Either it will be internally restructured of there will be some kind of legal or regulatory intervention in the running of the society.

VT: We don't think that Mr.Cazalet is right. We don't think there will be intervention. And we think we are running this society in the most prudential, sensible and cheapest way possible in members' interests.

JR: But earlier this year you didn't think that you would be technically insolvent and now by your only admission you are pretty close to being that.

VT: That's because a great many more provisions has emerged. We now think that we have our arms around those provisions. We have no reason to suppose that there will be any further need for provision in going forward.

JR: So policy holders, annuity holders who may have seen a 20 to 30 percent cut in their income coming up next year should feel confident should they that there wont be any more cuts?

VT: They should feel confident that we will do everything possible to avoid any further cuts.

JR: A big question for many policy holders is where is the good news going to come from for EL?

VT: The good news is first of all reassurance to policy holders that we are and will continue to stay solvent. Vital, that our policy holders should go to bed at night feeling that there is no bad news to come form the society. A new sense of stability therefore for all our members, many of whom have in the past had many reasons to be extremely worried. Secondly to run the society in the most efficient way possible, that is cutting down the costs of the society so that in due course more money may be made available to members.

JR: Isn't the good news for the Equitable really in the financial sense, because we don't know what the markets will do and obviously you're not really in the market anymore, resting almost entirely on your court cases where you are trying to get back over £3 billion from the former directors of EL?

VT: No that is not the fundamental good news. We are pursuing those cases because we are advised that they are strong cases. But in our financial modelling , the rewards, the results that might come from those cases do not form a significant part. The society's solvency, the society's future depends on where we are now. Not on what we may achieve through the court cases in the future.

JR: Where is the good news going to come from for EL, because you talk to leading city analysts, people like Ned Cazalet, and they can't see where the good news is going to come from.

VT: The good news is solvency. A sense that we are indeed going to remain solvent as we said to members all along that we will. A new sense of stability and that the society is at last in calm waters.

JR: But isn't the only way you can guarantee remaining solvent is by cutting policy values again?

VT: There is no guarantee that we wont have to do that if outside forces intervene.

JR: Isn't your problem, Mr Treves, that you can say to society members that the society will stay solvent - but really the only way you can guarantee that to them is by cutting their policy values if you have to, if your investments fall in value?

VT: Every society, clearly, is affected by what happens in the outside world, by investment values in the outside world and we clearly can't insulate ourselves from that. What I can tell you now is that the state of our provision, that the reserves that we have made leads us to the conclusion that no more policy values, in the present state of the markets, will have to be cut.

JR: You hope?

VT: We indeed hope and we expect.

JR: What about this whole business of regulatory failure, which is being investigated at the moment. Do you think that there was regulatory failure in the supervision of Equitable Life before you were on the board?

VT: We won't know that until after Lord Penrose has reported. We hope that he will report soon. We hope he will report comprehensively. If he finds there has been regulatory failure we'll of course take action in the light of that.

JR: What kind of action will you take?

VT: If there is a case we will take legal action.

JR: Against whom?

VT: Against whoever was responsible. Against any arm of government that Lord Penrose finds has a legal culpability.

JR: So you are talking about the FSA and the Treasury?

VT: If necessary, absolutely.

JR: So we are talking about a big court case looming if Lord Penrose finds that the government failed to protect policy holders.

VT: We have made it clear that if Lord Penrose finds there is a viable claim against any arm of government than the board will not shrink from pursuing that claim in members interests.

JR: So you will go to court against the Government?

VT: If we have a strong case, that's what we will do.

JR: But isn't there every likelihood that that will happen, because there is already a report called the Baird report which indicates that there was regulatory failure, that the Treasury and the FSA allowed Equitable to carry on selling 100,000 policies when it knew that its reserves were dangerously thin?

VT: We are not going to spend members money on a court case unless we are advised by lawyers that its a strong one. If there is a strong one, if there is a viable case we will take it against anyone responsible.

JR: Just to be clear, is there any way you can say to me on camera that you think that there was regulatory failure?

VT: I can't say that because we don't have access to the enormous amount of information that Lord Penrose has access to. We don't have access in particular to the government files, that's what he has that we don't have. We only have our own information.

JR: There is a compensation scheme, isn't there, if basically the FSA has to intervene, or there is some sort of intervention and equitable cant carry on functioning?

VT: We have explained to members that reliance on the compensation scheme would be the very last resort. I would hate, speaking as a policy-holder myself, to think that my own pension would be dependent of the workings of the scheme. Its untested, we don't know what it will pay out, we don't know whether it will be properly funded by the insurance companies and any payment that may come out of it will be extremely far into the future.

JR: And there's also a problem for policy holders that you could have cut their policies values by so much, by the time the company is effectively wound up, that the money that they get back from the compensatory scheme doesn't amount to much.

VT: I quite agree. The compensatory scheme should be thought of as a very, very distant resort and frankly the board thinks that that not something that policy-holders should even contemplate.

JR: So looking forward, what's 2003 going to be like?

VT: We think 2003 will be a lot better. In particular because 2003 should ensure that we are and are going to stay solvent. Secondly, there should be a new sense of stability because members will be satisfied we have provided for all our liabilities that we know about. Possibly we have over provided for some, time will tell. And thirdly, that they may in due course be recoveries from third parties.

JR: Policy holders have obviously given up the right to sue Equitable Life so in that sense they are entirely dependent on you acting in their best interest when it comes to regulatory failure and addressing it.

VT: And that is a responsibility that the board is fully prepared to carry. We know exactly what we are doing in the policy-holders interests we came into this job with certain ideas with what it would entail. In the event it's been a much harder job than any of us predicted. We won't complain about that it's a fact. But we are carrying on with that job as best as we know how and we will keep doing it until there is this new sense of stability that we are all hoping for very much.

JR: Anne Berry says she feels angry with the government because she wasn't protected; she brought an annuity in 1998 the very time when the government was concerned about Equitable's ability to pay its way

VT: I understand her sense of dismay. We feel very strongly for people in her situation and we will try to do everything we can to help. But whether or not there was government failure is what Lord Penrose is investigating and if their was failure and we do have a claim against government we will of course pursue in her interests and that of all other members.

JR: So you might take the government to court, if Lord Penrose finds that regulation failed.

VT: We will.

JR: You will do that?

VT: We will do that if he finds that it failed and if we are advised that we have a strong case.

JR: The whole government policy of supposedly investing for our own age is in tatters isn't it if we are not protected from mis-selling?

VT: Government policy is clearly under pressure at the moment. We are pretty busy here trying to preserve the Equitable.