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Chapter 12, the consequences of each item
of maladministration are considered and
whether injustice resulted. For example, in
criticising the dual role of chief executive
and appointed actuary being permissible
for six years, she states this compromised
the operation of the system of prudential
supervision and governance. Nevertheless,
she is unable to say whether injustice
resulted and makes no determination.
On the other hand, her conclusion is that
policyholders were unable to take informed
decisions about their financial affairs in full
knowledge of Equitable's exposure to GARs
and the associated risks, and this was an
injustice. Overall, she concludes that in five
cases some injustice resulted.
Recommendations
Moving on to the question of remedy, the
first recommendation is that the public
bodies should apologise for their failure.
This does not seem too likely, given that,
when the question of compensation came
up, the public bodies immediately said
that their comments would be without
prejudice to their submission that no
maladministration occurred, and no
injustice had resulted.
Ann Abraham once again was not to
be deterred by the public bodies and her
second, and central, recommendation is
that the government should establish and
fund a compensation scheme. She has no
detailed suggestions as to how the fund
should be distributed but describes an
approach put forward by the Equitable
Members Action Group (EMAG). While the
method put forward would undoubtedly
have rough edges, it would mean that
payment could be made before the ageing
group of those affected went beyond the
point of benefiting.
Ms Abraham is well aware of the time
that has already elapsed to reach this
point. She declares that her predecessor
complained as early as July 2002 of the
failure of the government to set up a
single inquiry and she sustains that
complaint. Apart from her own first
review, with its limited brief, she reminds
us that we have had Baird, Corley, a report
from the Treasury Select Committee,
determinations by the Financial
Ombudsman Service, litigation by
Equitable, Penrose, the European
Parliament Report and disciplinary
investigation by the accounting
and actuarial professions.
A matter of conscience
There must be a number of
consulting actuaries (myself
included) who have it on their
conscience that they recommended
Equitable as suitable investments for AVCs
or DC schemes. They may possibly find
some comfort from the report. Unusually,
Equitable used a valuation method (bonus
reserve) different from that set out in the
applicable regulations, as it was entitled
to do, but showing the reserves on a
basis compatible with the regulations
in an appendix.
However, the latter omitted the amount
of the resilience reserve. GAD never pursued
its suggestion from the 1992 returns that
this figure should be included in the
published returns. Ms Abraham includes
a table showing the surplus assets and
free asset ratios as calculated by Standard
and Poor's and the true values. As a result
Standard and Poor's gave Equitable high
ratings for financial security and she
describes this as leading "to financial
analysts misunderstanding the true financial
position of the Society and to misleading
information being disseminated about the
`hidden' strengths".
Apparently, as late as November 1997, the
administrators of the NHS scheme told the
DTI that they were considering appointing
Equitable as their AVC provider and asked
if there had been any points of contention
in the previous three years and whether
there were any material facts of which the
secretary of state should be made aware.
After due consultation, an encouraging
response was given. If the DTI could do this
with the access they had to informed advice,
perhaps outsiders may be forgiven.
Ann Abraham makes no finding in
respect of over-bonusing, despite the tacit
support given by Penrose to that view. Even
so, all those who have long felt that the
regulators had let them down can now feel
vindicated. As part of her conclusions, Ms
Abraham refers to a "huge gulf" between the
duties and powers that Parliament had put
upon the regulators and the responsibilities
that those regulators actually accept were
imposed on them. She suggests that a
similar gulf may have existed with Vehicle
and General and Northern Rock, and that
there is a need for absolute clarity as to
what can and cannot be expected from the
system of financial regulation. To me, the
most disturbing part of the report is the
reluctance of the regulatory bodies to admit
any mistakes; can we hope that they will
learn lessons for the future?
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Equitable LifeOmbudsman's report
October 2008 39
�There must be a number of
consulting actuaries (myself
included) who have it on
their conscience that they
recommended Equitable
as suitable investments for
AVCs or DC schemes �

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