27 March '03 - "Regulator failed Equitable policyholders as far back as the '80s" by Leslie Kraft Burke

Troubled assurer Equitable Life had £1 billion more in liabilities than assets as early as the mid-1980s and should have been cited then by regulators to protect policyholders, according to a forensic accounting report commissioned by the Equitable Members Action Group (EMAG).

EMAG is today publishing the report by chartered accountants Burgess Hodgson which it gave to Lord Penrose for his inquiry into Equitable. It alleges regulatory failure dating back to the 1980s.

EMAG said the report, which studied Equitable's financial accounts and statutory returns throughout the 1990s, provides new evidence 'to confront the Parliamentary Ombudsman's persistent refusal to look into maladministration by financial regulators during [that decade]'.

The report, which says the mutual society's liabilities exceeded assets by 'a margin measured in billions' throughout the 1990s, also found that Equitable had failed to build up reserves during the bull market of the decade to protect its members from adverse events. Therefore it had not been operating as a with-profits fund, EMAG said.

The group added that regulators had access to the same returns as its forensic accountants used and should have acted in the 1980s to protect policyholders' interests, yet consistently failed to do so.

Colin Slater, partner responsible for the Burgess Hodgson report, 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.'

A Financial Services Authority (FSA) spokeswoman declined to comment on the report and said the regulator was awaiting reviews from the Parliamentary Ombudsman and Lord Penrose.

An Equitable Life spokesman also declined comment as the report covers the period of time when the society was under prior management and served by its former auditors Ernst & Young. He cited the legal action the society has begun against E&Y and 15 of Equitable's former directors.

EMAG said that had the society been managed and regulated properly in the late 1980s, it would have been able to meet its guaranteed annuity rates instead of relying on a compromise to keep it from collapse.

The action group also said Equitable consistently misled members as to the state of their investments. Paul Braithwaite, general secretary of EMAG, said, 'At the end of the bull market and when the society closed in December 2000 Equitable had a £3 billion shortfall. This could not have been blamed on falling markets, as management has tried to do.'

He added, 'As a result of this new evidence we are 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.'

He explained that several departments within the Treasury have served as insurance regulator for the period of time covered in the report. And since the Penrose report is to the Treasury, which is potentially culpable it could limit the report's public exposure.

Paul Weir, a spokesman for the Equitable Late Joiners Action Group, said, 'This report reveals what we have long suspected the societys problems were far worse than the Equitable management was letting on. We have been conned again with silky words and broken promises. We were deceived when we bought our policies and we should be compensated in full for our losses. Equitables problems have nothing to do with current stock market turmoil and everything to do with years of mismanagement and deception.