Guernsey Branch Status



Letter from Guernsey Financial Services Commission - 8 August 2001


As most people are aware Equitable Life ceased to write business in December last year. This stemmed from a combination of factors including the generous terms of its Guaranteed Annuity Rates (GAR) contracts. The company has stated that it is not insolvent but some restructuring of the investments in the with-profits fund has been necessary to maintain the required margins of solvency.


Since 1990, Equitable has operated through a branch operation in Guernsey, managed by Bacon & Woodrow, which has written business locally and internationally. The regulatory arrangements are that being a branch operation of a UK insurer, prudential supervision, including solvency, is the responsibility of the home regulator, the Financial Services Authority (FSA) and market conduct is overseen by the Commission. In addition, Guernsey’s policyholder protection scheme does not extend to branch operations of UK insurers.  The Commission regularly reviews policyholder protection arrangements for insurance companies. At the last review the Commission agreed with their actuarial advisers that the small size of the industry in relation to the high value of the funds of some of the companies would have made a retrospective levy scheme, similar to the one that operates in the UK, unworkable.


There is some uncertainty surrounding the application of the UK Policyholders Protection Act. However, the Commission understands that should Equitable become insolvent the UK Policyholders Protection Act will cover local policyholders, although we have been unable to get clarification from the Policyholders Protection Board, who will not confirm the position until such time as they are actually required to compensate policyholders.


The position appears to be different for international policyholders and we understand that the policy literature for international Equitable branch policyholders has always stated that the Policyholders Protection Act does not apply.


The recent Warren opinion suggested that there was potential for the differential treatment of international policyholders and the Commission contacted Equitable following publication of the opinion. It is our understanding that although in theory it might have been possible for the international business to be ringfenced, as a matter of practice it has been written into the single with-profits fund along with the UK business. There is the question as to whether ringfencing the Guernsey business would, in any event, survive an insolvency. There does not appear to be any obvious basis on which the international business could be ringfenced now.


Whilst we cannot give specific advice as the circumstances of individual policyholders will differ, we would recommend that independent financial advice should be taken from an appropriate adviser before any decisions are made. In particular the position for with-profits policyholders is complex and you should ensure that you understand how your adviser is paid and if a switch is proposed how much of your fund will be paid to the adviser.


Should a Guernsey branch policyholder wish to make a complaint against Equitable they can write to the Commission. However, the Commission does not act as an ombudsman or arbitrator but will seek to ensure that all complaints are dealt with at an appropriate level within Equitable. Legislation is currently being drafted to enable the establishment of an ombudsman scheme in the Bailiwick.


The situation surrounding the issues is complex but we would like to reassure all Guernsey branch policyholders that their interests are foremost in the Commission’s investigations and ongoing discussions with all relevant parties.


The Commission is in the process of appointing a leading London lawyer to look at issues involving the interests of the Guernsey branch policyholders.




Enquiries to:        Steve Butterworth

                        Director of Insurance


                        Tel: (44 1481) 712801

                        Fax: (44 1481) 712010

                        Email: swbutterworth@gfsc.guernsey.net



9 August 2001