Correspondence: 05/11/2001 - to John Tiner, FSA - compromise proposal & ongoing management & administration problems at Equitable Life Mr. John Tiner
Managing Director (Insurance)
The Financial Services Authority
25 North Colonade
London E14 5HS
EMAG
5th
November 2001
Dear Mr. Tiner,
Equitable Life concerns:
We met you and your colleagues
on October 10th. We have two central concerns relating to the period
since closure (i.e. not yet within the scrutiny of the Parliamentary Ombudsman's)
- the FSA's role in the forthcoming compromise proposal and the ongoing management
and administration problems at the Equitable Life (ELAS).
Compromise and the FSA
-
It
is our understanding that the FSA will review the final compromise proposal
in the light of policyholder classes when these have been determined by
the High Court. The only remit will be to comment on whether the content
is "not unfair" to all classes. The FSA will not promote the scheme
or collude with the ELAS board.
-
EMAG
and ELM made a joint submission to ELAS during the consultative process
on October 10th (encl.), which has not yet been acknowledged.
In it you will see that we express the view that recent non-GARs (post 1998)
have, in the draft, not been fairly treated. In the light of Nicholas Warren's
opinion and more particularly your own counsel Ian Glick's, we cannot see
how the FSA could possibly condone as "not unfair" a non-guaranteed
uplift to these policyholders of just 2.5%.
-
On
the subject of class definitions, we have not had sight of ELAS's brief
to their solicitors, Lovells, so we cannot be confident that all policyholder
classes have received adequate fair consideration, in particular annuitants
and the internationals.
-
We
understand that an Independent Actuary is not a pre-requisite of the Court
in a section 425 "scheme of arrangement" but that it had been
suggested by the FSA in this innovative newapplication. It is therefore
particularly important to policyholders to have sight of the brief given
by ELAS to Michael Arnold, since the Court may subsequently rely upon it
- as was the case recently with AXA.
-
At
a meeting with EMAG on February 9th, James Crosby agreed that members should
have details of the sales contract. Despite half a dozen letters over months
to both ELAS and Halifax, EMAG has failed to get the details of the contract
of Feb 4th 2001 published to policyholders. We hear that senior
management from HBOS (Halifax Bank of Scotland) is now intimately involved
with ELAS but the owners, the members, are still not privy to what may be
arduous and still secret undertakings therein.
-
For
a "scheme of arrangement" there must be an up-to-date "statement
of affairs". Thus far, policyholders (and their IFAs) have received
woefully inadequate financial information to base any informed conclusions
on such a pivotal decision. Since ELAS now admits that the voting pack will
not go to print until early December, our request for comprehensive figures
as at September 30th is fair and achievable.
THE
FSA could usefully require ELAS to provide what is described in points 3
- 6.
Management
and administration problems at the Equitable Life
-
On
Radio 4's MoneyBox November 3rd, Vanni Treves admitted that ELAS's
target turnaround time to effect a transfer or surrender is currently 4
- 6 weeks after the time of receipt of completed and fully-in-order paperwork.
In itself that is unacceptable, but it has rarely been delivered since July
16th's devaluation.
-
The
FSA has a duty, "to ensure orderly financial markets". To the
great distress of tens of thousands of policyholders, many of whom are still
waiting anxiously, this has simply not been achieved in any area by ELAS
at any time in the year 2001.
-
On
October 30th 2001, Equitable's policyholders finally began to
receive their new fund valuations, more than 14 weeks after the draconian,
unprecedented cuts. In the middle of that period all were asked for comments
on a draft compromise, without knowing their revised fund's value (or any
detail of the Society's financial state). The FSA is reported to have said
that this delay was reasonable under the circumstances. Time and again we
hear that, "the FSA is monitoring the situation."
-
The
only known occasions of FSA intervention in the Equitable Life were the
closure of the fund and the written instruction to IFAs. There is a widely
held view that the FSA, by sending out an advisory, counter-productively
intimidated IFA's from giving ELAS policyholders advice. IFA's, most of
whom have very limited experience of Equitable, could be forgiven in the
absence of any meaningful financial data, for refusing to get involved and
this is what has happened. This was exactly the opposite result to what
one would have wished and it reflects badly on the FSA.
-
The
previous ELAS board communicated its intention to resign en masse on Dec
20th 2000, immediately after the closure of the with profits
fund. The FSA is charged with ensuring that there is a competent management
team in place. ELAS was a £27bn mutual with circa 1.25m policyholders.
We know from the June 30th return that liabilities exceeded assets,
liquidity was wafer thin and solvency was only achieved in a closed fund
by the "fudge" of incorporating £1bn of future profits.
-
Equitable
had been a high-handed, secretive, aggressive, marketing-driven, direct-selling,
mutually owned Society with almost none of the normal IFA and PLC checks
and balances. On closure, not only was the tap of new income turned off,
but a flight of policyholders must have been anticipated. Under these dire
circumstances the FSA should have been acutely active and attentive to safeguarding
policyholders' reasonable expectations - not just "monitoring the situation".
-
Despite
this, during the first three months of 2001, with no effective board in
place, the FSA allowed the sale of all assets and staff of the Society,
without recourse to the owners. The FSA appeared to endorse the transaction
at the time and Michael Foot, in a meeting with EMAG in late March, positively
welcomed it.
-
The
FSA stood by whilst the old discredited board presided over replacing itself.
Vanni Treves, with no experience of the life assurance industry, was chosen
as part-time chairman. Probably without precedent, he hand-picked every
single member of his new board. He resisted at every turn all overtures
to appoint lay-member directors.
-
Immediately
on his appointment, Treves promoted Charles Thomson to chief executive.
This was the fourth time in succession that the Appointed Actuary had been
promoted to fill the role. Charles Thomson had no appropriate general management
experience and had been with the Society for just six weeks. Treves ratified
turning Equitable Life into a virtual Society by contracting out all services
and retaining only a handful of employees to steward a £25bn fund.
Only a replacement financial director (Charles Bellringer) has subsequently
been recruited.
-
The
effect has been disastrous. There is an intellectual vacuum at the centre
of the Society because the three full-time executives have been under siege
all year.
The
virtual Society isn't working. Little has been done in 2001 to address the
inadequate internal management. The loyalty of 1m plus remaining policyholders
has been penalised, whilst those that left received more than their asset
share.
-
"Transparency"
has been repeatedly promised by Treves and remains totally undelivered.
The comprehensive financial review conducted in June has been withheld from
members with a series of unacceptable derisory excuses. The oft repeated
attribution of the 16% devaluation to stock market falls simply does not
stand up to scrutiny. Deplorably, neither the FSA nor the new Appointed
Actuary, Peter Nowell, has insisted on publication in any form for policyholders
and their IFAs.
-
At
a meeting of Action Group leaders and the board of ELAS on September 18th
Charles Thomson admitted that ELAS did not even track surrenders, crystallisations,
departures etc by value or numbers, so the figures could not be made available.
This, during a period when the number of policyholders in the Society was
decimated. The flood of panic departures has continued unabated.
-
At
the first meeting between Action Groups and the board on August 22nd the
new ELAS board said that they had only one agenda item - securing the vote
for a compromise. EMAG offered to prepare a white paper on revising the
archaic constitution, reforming ELAS's governance, addressing unitising
the fund, reviewing strategy and policy in the now closed fund to help the
Society through the traumatic days ahead. The offer was dismissed as irrelevant.
EMAG has subsequently made submissions on revising governance to the FSA
and to the Sandler Review.
-
We
believe that the ELAS board has not begun to adequately address the post-vote
future - just two months away. EMAG suggested that the compromise contain
time-phased benefits to reward loyalty. Our board told us that it was a
matter of indifference to them whether policyholders chose to stay or leave.
One is forced to suspect that this board anticipates handing the Society
over lock, stock and barrel to Halifax. Even if this is in members' best
interests, it would be prudent to do so from a stabilised position, having
evaluated all options and consulted members.
N2 is less than a month
away. Whatever the outcome of the forthcoming compromise vote, it continues
to appear that ELAS is being unsatisfactorily managed without any visible progress
on administration problems or addressing of the future. In the light of the
above concerns, we encourage the FSA after N2 to entertain taking, for the first
time, a pro-active role as catalyst to improve the lot of the beleaguered policyholders
instead of just "continuing to monitor the situation."
Paul Braithwaite
Chairman EMAG
Equitable Members' Action Group
Liz Kwantes
Chair ELMHG
Equitable Life Members
Help Group
www.equitablelifemembers.org.uk
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