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?".
Contacts;
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).