' EPHAG  apologise for the delay in publishing these notes, which has been caused by a technical problem with our web site server. This will be fixed as soon as we can, but in the meantime, we are grateful to Liz and ELM for their assistance in making them available. 

Notes of meeting held on 10 October 2002 between representatives of the Equitable Policy Holders Action Group (EPHAG) and The Equitable Life Assurance Society (ELAS) at 55 Basinghall Street, London



Equitable Policy Holders    

Action Group :                   Bob Widdess

                                       Jack Denbin

                                       Michael Caley

                                       Paul Jordan


ELAS:                                Vanni Treves (Chairman)

                                       Charles Bellringer (Director, Chief Finance and Investment Officer)

                                       Charles Thomson (Director, Chief Executive)

                                       Jean Wood (Director)

                                       Tony McGarahan (Media and Communications Officer)

                                       Peter Wilmot (Company Secretary)


1.  Terms of the meeting

It was agreed that all information discussed at the meeting would be regarded as confidential.  However, minutes of the meeting would be prepared to be agreed by both EPHAG and ELAS, which could then be put on the websites of EPHAG and ELAS, if desired.


2. The following matters were discussed:


2.1.  Interim Accounts

Vanni Treves reported that the Interim Accounts were in the process of preparation and consideration by the Audit Committee.  Work was continuing on identifying the appropriate provisions to be made in the accounts; there was a need to ensure that they were fair (i.e. not too low nor too high). He confirmed that the Society remained solvent and there was no indication that the Society was moving towards insolvency.


2.2.  The Sunday Times (29/9/02) article

Vanni Treves reported that the article had contained many inaccuracies which were damaging to the Society, in particular the reference to administration. The Society had immediately issued a press statement, correcting the major inaccuracies in the article.  Vanni Treves added that the Board had discussed administration as one of many possible actions inappropriate circumstances.  The Board had analysed whether administration could be in policyholders’ interests, but had concluded that it would not.  The article had clearly caused concern to policyholders and had led to a higher level of surrenders and maturities.


Vanni Treves reported that it appeared that someone had selectively leaked internal papers and an investigation was underway to seek to identify the individual or individuals concerned.


2.3.  The Society’s with-profit fund

Charles Thomson said that statements made by the press that the Society’s with-profit fund had reduced from £35 billion to £15 billion were misleading.  The £35 billion had included all of the Society’s business, including unit-linked, non-profit and annuity business.  The £15 billion is the current size of the with-profit fund only.  This had, of course, reduced from its former size but this reduction was due both to withdrawals and to lower asset values (due to stock market falls).


Charles Thomson confirmed that the reserves for guarantees under policies (including guaranteed interest rates) were included in the valuation of liabilities.  Allowance for future costs were also included in the valuation of liabilities.


Charles Thomson confirmed that of the £15 billion only approximately 5% was now invested in equities, so that the Society was largely insulated from possible further falls in stock market values.  Significant sales had been made over recent months, at prices considerably higher than the now current stock market values.


Commenting on the financial adjustment on surrender and the maturity equaliser, Charles Thomson remarked that it was important that these should be set to be fair both to those policyholders surrendering or maturing and to those remaining in the fund.


EPHAG expressed concern that largely fixed costs were being spread over a smaller fund thus raising the cost base as a percentage.  It wanted to know what action was being taken.  ELAS remarked that, as regards ongoing costs, these largely arose from the outsourcing of administration and investment to the HBOS group.  Negotiations were currently taking place with HBOS regarding future charges.


2.4.  Service levels

Charles Thomson reported that, immediately prior to the Sunday Times article on 29 September 2002, the level of service being provided to policyholders was the best that had been achieved within the previous two years.  However, the increases in policyholder enquiries and in surrenders and maturities, following the Sunday Times article, were likely to have an adverse effect on the service provided.


Charles Thomson remarked that action was being taken to improve the quality of service being provided e.g. improving accuracy as well as turn-round times.


2.5.  Memorandum and Articles of Association review

Vanni Treves reported that a sub-committee of the Board was in the process of reviewing the Memorandum and Articles.  Draft proposals for changes would be put on the Society’s website (expected to be early November) for consultation and mention would also be made in the Interim Accounts. Firm proposals would then be put for voting at an Extraordinary General Meeting to be held on the same day as the AGM in May 2003.


2.6.  Legal action against Ernst & Young and certain former directors

Charles Thomson reported that the application made by Ernst & Young to the court to “strike out” the Society’s action against them would be heard by the court in January 2003.


A case management conference, covering the actions against Ernst & Young and the former directors, had taken place on 4 October 2002 and the judge had directed the timetable to be followed for the next stages in the litigation process.


2.7.  Possible action against the regulators

EPHAG asked about possible action that could be taken against the regulators.  Vanni Treves and Charles Thomson confirmed that they continued to believe that any further consideration of action against the regulators should await the outcome of the Penrose Inquiry.


2.8.  With-profit annuities

EPHAG expressed concern that in their experience many with-profit annuitants did not yet appreciate the full long term impact on their annuities.  ELAS accepted that more had to be done in communicating this issue.  It will be again placed on the agenda for the next meeting. 


EPHAG asked whether it would be possible for with-profit annuitants to move to another provider.  Charles Bellringer commented that, as they shared in the profits and losses of the with-profit fund, then allowing transfer on an individual basis could be difficult as it allowed selection against the Society.  For transfer of the whole book of business, a company prepared to take the transfer would be needed and a “Schedule 2C” transfer would be required.  This would be likely to give rise to difficult legal issues.


It was agreed that ELAS would provide EPHAG with a brief note on the reasons why such transfers were not possible to enable them to answer questions they receive on this topic.  EPHAG also asked that the note should cover an explanation of the potential reductions in the amount received by with-profit annuitants if the assumptions as to future bonus levels selected at the outset were not achieved.


2.9.  The B&W Deloitte report and the proposed Section 425 scheme

The B&W Deloitte report had been published by the Society on 30 September 2002, together with the legal opinion by Messrs Carr and Moss.  The ELAS Board was satisfied that the proposed scheme, with individual assessment of claims by an independent assessor, would be the most effective way of dealing with potential claims by policyholders who had left the Society between July 2000 and 8 February 2002. The Section 425 scheme would need to be voted on only by those policyholders whose policies had left the fund in the relevant period.  The requisite majorities of those voting (i.e. 50% by number and 75% by value) would be required for the scheme to become effective.


2.10.  GAR rectification scheme

Charles Thomson confirmed that a review of the operation of the GAR rectification scheme was being undertaken.  This was to ensure that appropriate compensation was paid under the scheme and that proper proof of policyholders meeting the “specified condition” was obtained.  Further legal advice had been required regarding this.  The review had caused a hold up in the cases being processed under the rectification scheme, but it was hoped that an increasing number of cases could be dealt with in the relatively near future.


3.  Next meeting

It was agreed that a further meeting should be held in, say, the second or third week of January 2003.  However, if matters arose before then these would be raised by the respective parties.


PWW 10.10.02