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Investigation into actuarial advice on Equitable Life

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  • Investigation into actuarial advice on Equitable Life

UK - The UK's Accountancy and Actuarial Discipline Board (AADB) has confirmed it is investigating possible misconduct by or on behalf of the Government Actuary's Department (GAD) regarding advice about Equitable Life.

This is the first investigation to be launched under the separate disciplinary Scheme for the Actuarial Profession, which came into effect in September 2007 after the Accountancy Investigation and Discipline Board was expanded to include actuaries the previous month.

The AADB, part of the UK's Financial Reporting Council (FRC), focuses on cases which raise important issues affecting the public interest, and revealed the decision to initiate its first actuarial investigation followed a "reference from the Actuarial Profession".

In a statement, the AADB confirmed the scope of the investigation would be: "The conduct of certain [actuarial] members in relation to the provision of advice by or on behalf of the Government Actuary's Department (GAD) to prudential regulators in respect of The Equitable Life Assurance Society between December 1990 and April 2001 inclusive."

It pointed out the purpose of the investigation is to determine "whether there is evidence of misconduct on the part of members of the professional bodies", although it stressed this does not mean an allegation had been made.

Any disciplinary complaints which are filed after an AADB investigation will be heard by an independent tribunal, and should a complaint be upheld possible sanctions could range from an unlimited fine, exclusion from membership and the withdrawal of practicing certificates or licenses.

The GAD was unavailable for comment on the announcement at the time of publication.
 
The investigation related to the near-collapse of UK mutual life insurer Equitable Life in 2000 when the firm admitted it could not honour guarantees on certain pension policies, and resulted in more than one million policyholders - including 15,000 members in Germany and Ireland - losing over €5bn in reductions to their retirement savings.

The latest investigation by the AADB follows a recent report by the UK Parliamentary Ombudsman, published in July, which outlined 10 determinations of maladministration of the part of the GAD, the former Department of Trade and Industry, and the Financial Services Authority (FSA).

A committee of inquiry established by the European Parliament in January 2006, which published its final report in June 2007, also focused on the implementation of EU law, comparing the adequacy of UK regulation against other EU countries, and the availability and effectiveness of redress systems available across borders to the victims.

Equitable Life has only just confirmed on 27 November 2008 it was putting its sale process "on hold" and instead will focus on just 'running-off' the business - servicing existing policies until they mature.

The company previously transferred £4.6bn (€5.54bn) of non-profit pension annuities to Canada Life and £1.7bn of with-profits annuities to Prudential and had invited proposals from third-parties in an effort to improve prospects for the remaining policyholders for example through lower costs.

However, in a statement the firm said this week: "Given the current financial and economic climate and having taken appropriate advice, the Board decided that although various proposals were received none would certainly provide improved prospects for policyholders.

"Consequently, the Board has decided to put the sale process on ‘hold' with immediate effect and to continue implementation of the best possible strategy for running the business until the current policies mature. This will include looking in detail at the company, people, structure and costs."

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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