EMAG  (Equitable Members' Action Group) Press Release 25th June, 2003:

Stonewalled by Equitable Life, cover-up by the FSA?


Ironically, The Equitable Life's true assets and liabilities figures for their with-profits fund during the 1990s have finally been revealed - by their ex-auditors Ernst and Young, who presented an internal Equitable actuarial paper in their evidence to the Court of Appeal. It confirms that the assumptions made by Burgess Hodgson in their "Another big black hole" report (March 26th, 2003) were ultra-conservative and had actually understated the deficits by an average of £500m in each year.  In consequence EMAG asked Burgess Hodgson to prepare an Addendum to their report for submission to the Penrose Inquiry, which was delivered to the Inquiry yesterday (see the attached PDF file). It is available free on EMAG's website at www.emag.org.uk


Charles Thomson has been asked in writing three times by Burgess Hodgson to reveal the pivotal number used for GAR costs in the report of the Independent Actuary, Mike Arnold, on the Compromise Scheme in autumn 2001.  This report gave vital underpinning to the Scheme.  Thomson declined on the curious grounds that providing this information, would be:  " …not helpful to the continuing policyholders."


Paul Braithwaite of EMAG reacted:


" EMAG is totally dissatisfied with Thomson's stonewalling and refusal to confirm to the owners the true position. It's clear that the Treasury, the FSA and the board are desperate to keep secret the magnitude and the length of the history of multi-billion pound deficit for as long as they possibly can.  They blamed the GARs and shares but now we learn that there was a fundamental, seismic flaw going back to the 1980s that the regulators inexplicably ignored."


This 'black hole', totally unrelated to the GAR problem, is confirmed to have been well in excess of £1bn each year (except 1993) and dates back at least to 1990.  The Addendum is a very timely boost to the political pressure on the Parliamentary Ombudsman  (Ann Abraham) from the Labour-inspired Early Day Motion 1337 - to immediately broaden her study of regulatory failure of The Equitable Life throughout the 1990s.


Burgess Hodgson has now suggested that Lord Penrose seeks an explanation from the Independent Actuary (Mike Arnold) as to why he appears to have used a figure at 31st December, 2000 which is £700 million less than the figure in the regulatory returns and the accounts for GAR costs in arriving at his published conclusion that the with-profits assets were in deficit to policy values by 10%.


The new figures indicate that the actual position was probably far worse. Burgess Hodgson estimates that the deficit was actually £3.3bn - 13% short of policy values - whilst the stock market was near the FTSE high of the nine year bull market and policyholders might reasonably have expected a surplus of 5% of the with-profits asset value - i.e plus £1.3bn, not minus £3.3bn.


Alex Henney, chairman of EMAG said:


"In the autumn of 2001 the FSA and the board were collaborating, arguably far too closely, in their desperate quest to sell the Compromise at all cost..  They were privy to the disastrous state of The Equitable Life's finances, because they alone knew the content of the confidential financial review of June 2001, which they have obstinately always refused to reveal. This was withholding of information critical to decision taking by policyholders and IFAs alike on a very grand scale. They've both done everything in their power to conceal the true depth of the black hole throughout the 1990s and at the time of closure. [If it looks like a cover-up, smells like a cover-up, what would you call it?".



Paul Braithwaite  general secretary, EMAG.

Tel Nos: 020 7267 5938 or 07973 537 480

Alex Henney chairman, EMAG.  Tel: 020 7284 4217

Colin Slater, partner at Burgess Hodgson. Tel: 01 227 454 627


Notes to Editors;


1)      One million policyholders in The Equitable Life have suffered death by a thousand cuts and borne losses of well over £3 billions.


2)      EMAG commissioned the Burgess Hodgson's forensic accounting study which reported in March, 2003.  It showed for the first time that the a massive black hole between the assets and liabilities goes all the way back to 1990 and this pre-dated and was not related to the much more recent guarantee annuity rate (GAR) problem, which was the straw that broke the camel's back.


3)      The Equitable Life has only survived to this point because all the policyholders agreed to give up valuable rights under the board's Compromise, which was unequivocally endorsed by the FSA.


The Compromise documentation circulated at Christmas, 2001 was supported by a report from Independent Actuary (Mike Arnold) who stated that the policy values of the Equitable Life's with-profits fund exceeded its assets by 10% at the time of closure of the society (December, 2000).