MONEY COMMENT
More Failings At Equitable Life

By Cliff D'Arcy
March 27, 2003

According to a report commissioned by Equitable Members' Action Group (EMAG), the well-documented financial problems at crippled life assurer Equitable Life began far earlier than anyone ever suspected.

Most Equitable Life policyholders assumed that the company's problems only began in 1999, after an unsuccessful legal battle left Equitable Life facing multi-billion-pound liabilities. However, according to EMAG, which commissioned a report from chartered accountancy firm Burgess Hodgson, Equitable Life's financial woes can be traced as far back as 1990. According to the accountants' report, Equitable Life had a secret deficit of a whopping £1.3 billion thirteen years ago, which grew throughout the nineties.

EMAG believes this new evidence adds to its argument that the regulators failed to monitor Equitable Life effectively and, therefore, the company's current problems can be laid at the feet of the Financial Services Authority and its predecessors. The action group is demanding that the Parliamentary Ombudsman undertakes an evaluation of the regulators, which could lead to government compensation being paid to financially disadvantaged policyholders.

Of course, Equitable Life's finances have also suffered, along with those of all investment companies, during the three-year bear market in shares that began in 2000. However, this latest news suggests that, outside of its recent poor investment returns and the Guaranteed Annuity Rate debacle, Equitable Life had another hidden black hole at the centre of its business.

It's estimated that long-suffering Equitable Life policyholders have lost around £3 billion in the aftermath of the GAR legal defeat. However, this news could raise their hopes. If proven, it shows that the regulators failed to notice Equitable Life was technically insolvent, yet allowed it to continue trading for a further ten years.

To me, Equitable Life has become the UK's Enron, a financial failure on a scale too great to be borne by the unfortunate policyholders. The crisis at Equitable Life reaches far beyond its members' pain, since it has caused widespread damage to our entire savings structure. In this scenario, the government ought to shoulder some of the blame for the company's strategic failings.

Let's hope that Lord Penrose's report into Equitable Life, due in June, brings some good news for members because, without state intervention, some of Britain's most prudent pensioners and savers (regrettably, including my father-in-law and wife) will have lost out on a massive scale.

To find out more, tune in to "The Death of Equitable Life", on BBC2's The Money Programme at 9.50pm on Thursday, 27 March, and visit our Equitable Life discussion board.