Documents: 12/03/2001 - Informal Report on Vanni Treves Bristol Roadshow 12 March 2001 - Informal
Report on Vanni Treves Bristol Roadshow
A packed meeting
of more than 300 policyholders - the dominant group being anxious annuitants,
perhaps reflecting lunchtime availability.
Treves (T) was very well received. He won the audience over with his directness
and patience. The session ended after two solid hours of maybe 30 policyholders
with warm applause. There were very few overtly hostile questions.
The first 15 minutes was taken with an opening statement and introductions,
including very briefly, Charles Thompson (CT).
T's central statement was to the effect that there has been a tremendous amount
of bad news and his job is to re-establish TRUST and COMMUNICATIONS with members
and to provide them with access to information, for the members to then vote
as they see fit.
T's first task is to recruit a new Board and he is taking great care in the
appointments He will include a wide spectrum of functional expertise.
The capping scheme that is being worked on is "a fiendishly complicated exercise".
It will need to satisfy the FSA, the High Court, an independent actuary and,
above all, the policyholders.
CT said all services have been outsourced, to the same people, but the Board
retains all regulatory responsibility. If any bonus is guaranteed it requires
an increase in reserves and that is detrimental to investment flexibility, hence
prospectivereturns. He described his most important task in the coming months
is to achieve a compromise deal, which, realistically, won't give everyone what
they want but it must be FAIR to all classes.
The sales force will be licensed to sell under the Halifax-Equitable brand.
If a deal is achieved it will bring a fundamental change: It will bring the
Society back to investment freedom. At that point the members could then be
free to choose to sell, even whilst remaining a closed fund, as London Life
had to AMP, with a possible demutualisation bonus.
T: Effectively, options would be opened up and there would still be a large
positive cash flow. "Until that happens the Equitable Life is stultified," Bonuses
depend on future strength of the fund but looking forward, future bonuses should
be better than under the Equitable.
The rectification scheme was required by the H of L ruling to redress GARs who
had not received their entitlement in the past. The capping deal is, in effect,
another kind of rectification scheme.
Observation: The loudest applause was given to an early questioner who expressed
the opinion that the previous directors had mismanaged the Society. T undertook
that "If there is evidence of mismanagement which could give rise to a claim
of negligence, it will be dealt with." The same for mis-selling. "There are
investigations in hand by the regulators and within the Equitable and if there
is evidence of mis-selling it will be the subject of recompense."
T said that: "My own view is that if a scheme is not approved the Society will
remain in a parlous state. Unless there is a cap the Society, because of solvency
return requirements, will remain weak forever."
The H of L decision was "bizarre, aberrational."
CT: "The MVA will disappear when the assets are worth enough."
T assured that there is no other "black hole". The £650m cash received in the
last three months is irrelevant. When the Society guarantees a bonus it has
to "lock in" reserves and loose investment flexibility. This is nothing to do
with solvency.
T: "SOLVENCY: One word that I worry most about. Yes, we are solvent in both
senses of the word." Why did no-one want to buy us? Several different reasons.
They'd have been buying INSTABILITY. "Here's another NON-threat: No one will
buy us until we know what we are worth." (a reference to Mail on Sunday characterisation
of T as threatening/bullying).
Why didn't the Society try to raise the cash from members by demutualising and
going for a public listing? T: It was considered but because of the loss of
confidence it wouldn't have flown. The trust was lost.
Can you assure us that there will be no further call on the nonGARs? T: "No,
I do not give any such guarantee?? The £1.5bn is the best estimate of the liability
of the GARs but it can't be set in stone."
CT assured that that the assumptions are not unreasonable. The bonuses declared
in the past were so high that the reserves are inadequate. "Under Clerical Medical,
if returns are re-achieved prudence will dictate lower returns than in the past.
There may have to be a different reserving policy, less generous on the guaranteed
bonuses than in the past."
Where could the members look to for recompense? T: The Society and the Government.
(That was all that T mentioned.) The Society will recompense if policyholders
have suffered at its hands. "The Government? Don't hold your breath. There are
no signs of contrition. The FSA are keeping a very, very, very, close eye on
the Equitable."
The High Court will want to satisfy itself that "the scheme of arrangement"
is not unfair. The FSA want to be able to endorse it, go beyond the Court requirement,
and say that it is fair.
A popular sentiment expressed from the floor: The Society should write to us
and tell us if we are GARs. Put it on the annual bonus statement.
T: Halifax has NOT paid us for de-mutualisation. They made an enormously good
purchase. They have held back a sum as an incentive because it is important
to Halifax "to present a clean image to the nation."
Surrenders were running at four times last year's level at the end of last year
but it has calmed down since the Halifax deal. IFAs are advising GARs to pay
in.
On action groups T said that, like the members, they had a number of good ideas
and some barmy. From wonderful to loopy. The work by the action groups has become
less necessary. They were there to ginger up the actions of our predecessors.
There will be less and less for them to do. The membership as a whole will get
all the information.
T: "The reduction in equities forced upon us was good news. Currently the Society
holds 61% of assets in equities and property. A few points off where we would
choose to be."
The policyholder protection scheme, in insolvency, only covers re-imbursement
of 90% of the GUARANTEED fund. - But insolvency is "a bad and distant place."
IF the capping goes well, how much of the billion pounds will we each get? None.
It goes in the general pot.
T: The service agreement is at cost. Clerical Medical wishes to expand Aylesbury.
So the charges, because of economies, should be lower than they would have become
independently.
T: Whilst Equitable's solicitors (Lovells) say there are 96 classes, they will
argue that down to the minimum possible - ideally a manageable two or three.
Observation from floor: There are apparently an estimated 50,000 members currently
on "drawdowns". They are currently loosing money in this scenario, Unless they
can live on 3.5%. they will need to erode capital.
On the issue of GAR restriction to single life annuities:
T: "It's not for me to say what a policyholder should tell his wife?.Most GAR
policies are written on a single life. I'm married, so my GAR is of no use to
me."
T: Before my time a leading QC was retained to investigate about the result
of the H of L. Were the right classes of policyholders considered? Was the case
made on behalf of the nonGARs? We ought to know the findings within a few weeks
(Nicholas Warren).
The timing looks like the putting together of the deal may take longer to shape.
In late summer Equitable should be sending out every member a 150 page document.
Will the seven months withheld accomplish cover or is the liability changing?
Thus far yes, it looks like the liability has been substantially allocated.
But it depends on future interest rates averaged over the years. Returns are
assumed at an average of 8% or 9%, whereas reality last year was 2.8%. The industry
average was minus 4%. But broadly we are smoothing.
Are the old Equitable sales force now on commission? T: Yes. Halifax wants to
maintain the best possible relationship with us because we are a unique group.
It's in their interest to look after us well. Their self-interest meets ours.
Paul Braithwaite 25th March, 2001
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