UK- Equitable Life is suing its former auditors Ernst & Young for up to £2.6bn over its role in the guaranteed annuity crisis that pushed it to the brink of collapse. In a statement to policyholders, Equitable Life says its solicitors Herbert Smith had written to former directors, auditors and advisers asking for explanations for their actions.
Equitable has launched legal proceedings against Ernst & Young as it failed to provide a ‘substantive reply.’ The writ suggests the auditors should have realised that the society had a particularly high risk exposure and that its statutory accounts between 1997 and 1999 should have provided for guaranteed annuity liabilities.
Ernst & Young said there is no basis for the claim which it describes as opportunistic. It has expressed surprise that the insurer has decided to proceed while various inquiries are incomplete.
Equitable is also considering whether to sue regulators and former directors and advisors. It will wait for the findings of the enquiry led by the judge Lord Penrose, recently delayed until next year, before making a decision.
In the same statement, the insurer announced more bad news for policyholders by increasing its exit penalty from 10% to 14% for individual and group schemes. Holders taking mature policies will also suffer a 4% reduction.
Equitable said poor investment returns and the need to hold what it called ‘prudent reserves’ meant it was not announcing an interim bonus for 2002 and that it was cutting the non-guaranteed bonus for the last six months of 2001 from 3% to 2%.
Both the Equitable Members’ Action group and the Equitable Late Joiners Action Group reacted angrily to news of the cut in bonus and rise in exit penalties. Paul Weir of the latter said “it would appear that those policyholders who stayed are now more than ever trapped in a fund which is going nowhere.”
Elsewhere and the board of Equitable has appointed Ron Bullen and Fred Shedden as non-executive directors and Charles Bellringer as an executive director.
Bullen is an engineer and former general manager who also leads the Equitable Policyholders Action Group, the largest of the action groups. Shedden is a Scottish lawyer with several years service on the board of Standard Life while Bellringer is Equitable Life’s chief finance and investment officer.