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P
arliamentary and Health Service
Ombudsman, Ann Abraham,
clearly wanted to leave no doubt
about the tone of her final report
on Equitable Life -- Equitable Life: a decade of
regulatory failure -- when she put the above
words prominently on each cover.
The report examines the performance
of the regulators between June 1989 and
December 2001. Although it runs to five
substantial volumes, for the most
part it is only necessary to read part
1, the main report, to achieve a
good understanding of the process
and conclusions. She preserves the
anonymity of the regulating officials
but we learn the names of her own
legal and actuarial advisers, the latter
being Tony Leandro.
Next month, it will be five years
since I wrote in these columns, "Has
Ann Abraham been too ready to
accept the justifications given by
regulatory officials for their actions?"
Such a suggestion certainly cannot
be made this time. The Government
Actuary's Department (GAD), The Treasury
and the Financial Services Authority (FSA)
-- collectively "the public bodies" -- were
given the opportunity to comment at
each step of the process and each time put
forward a combined reply. They took 119
pages to deny all the complaints set out
in the terms of the investigation. Then,
in each of the 10 cases where she told
them she was minded to come to the view
that their work had fallen short of what
was reasonable to expect, they denied
vehemently any
such wrongdoing.
Maladministration
I will take just one of the 10 instances
of maladministration she found, the
introduction of the differential terminal
bonus policy, to illustrate the process by
which she reached her conclusions. After
explaining why Equitable took this step,
the report tells us that Schedule 5 for both
1985 and 1990 stated the value of the
business to which the guaranteed annuity
rate (GAR) applied and gave examples of
the rates (for example, �11.55% for a male
at 65). She finds no evidence that GAD
considered this information.
In the 1993 returns there appeared for
the first time a description of the differential
terminal bonus policy that was used until
the House of Lords decision in 2000. While
the GAD scrutinising actuary noted the
new policy, this was not taken forward
in his process and neither notified to the
prudential regulators -- the DTI -- nor
taken up with the Equitable. She finds this
omission inexplicable and sees three issues
that should have been addressed:
n The impact on reasonable expectations
-- these being central to the role of the
prudential regulators
n The description of policy to potential
policyholders not reflected in bonus
statements and with-profit guides
n The impact on reserving.
Important opportunities that were lost as
a result are then described.
In response to this proposed criticism of
their actions, the public bodies produced a
litany of reasons why any such finding of
failure would be wrong, the most significant
being their view that Ann Abraham was
making an impermissible use of hindsight.
The section of her chapter on this subject
explains why she is not persuaded and
concludes that GAD fell short of the
standard that could reasonably be expected.
Having established in Chapter 10 that
there were 10 such instances where the
regulators' actions similarly fell short,
Chapter 11 is devoted to deciding whether
they constituted maladministration. In
A decade of regulatory failure
Roy Colbran reviews the Ombudsman's July 2008 report on Equitable Life and
wonders whether lessons will be learned in future
Roy Colbran was a
with-profit annuitant
of Equitable Life,
now transferred
to Prudential. He
currently leads
the Government
Policy Group of the
UK Shareholders'
Association.
Equitable Life Ombudsman's report
38 October 2008
�In response to this
proposed criticism of their
actions, the public bodies
produced a litany of reasons
why any such finding of
failure would be wrong, the
most significant being their
view that Ann Abraham was
making an impermissible
use of hindsight �
The following features can be
found exclusively on The Actuary
website this month:
n What's up doc? Why one
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a headache for water authorities
and insurers
n Playing with fire The dangerous
misuse of modern finance models
that sparked the credit crunch
n Net working Johan Strydom
looks at networking opportunities
for actuaries online
n 100 not out The development of
actuarial science at the University
of Pretoria.
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