FOOL'S EYE VIEW
Equitable Members Back Compromise

By James Carlisle
January 28, 2002

Great Titchfield Street, London -- Members of Equitable Life have voted overwhelmingly in favour of its compromise proposal. Those with the infamous guaranteed annuity rates (GARs) and those without, by number and by policy value, have all been more than 97% in favour, streets ahead of the 50% and 75% required. This is a remarkable turnaround from the apparently gloomy prognosis of a few months' ago. Every one of the Society's members, with or without GARs, must feel a great resentment at not getting what their policies originally promised them. Without meaning to sound patronising or effusive, though no doubt I'll manage both, it's an amazing achievement that the Society's members have so resoundingly rejected the temptation to cut of their noses to spite their face.

What now?

The next step is for the proposals to go in front of the Court on 4th February. Where you're imposing a scheme like this on everyone, however they vote individually, the Court likes to take a look. It will take account of the fairness of the proposals and of the voting. Legal opinion appears to back the fairness of the proposals (it would be surprising for Equitable to bring things this far without being pretty confident of success in Court), so the crucial matter will be the voting.

The overwhelming majorities must surely point the Court towards giving its seal of approval, although the turnout was disappointing. By number, only 57% of the GARs and 45% of the non-GARs bothered to vote. We'll have to wait and see what the Court makes of this, but if people didn't want to vote, then I'd say that's their look out. The turnout should only be a worry if it suggests that Equitable didn't do enough to make its members aware of the issues. It would surely be very difficult to make that allegation stick.

Assuming the Court gives its thumbs up, then the Scheme will become effective 'shortly afterwards'. This will involve all the things that were being voted on, like the uplifts to policies and the abandoning of guaranteed rights. There will also be the extra £250m coming in from the Halifax as part of last year's deal to sell the company's operating assets. The flip side of all this is that members will lose their right to sue the Society on GAR related issues. This means that anyone wishing to take action against the Society will have to leave in the next week or so. Some people will have perfectly valid claims, and they should proceed with them, but let's hope people keep things in perspective and it doesn't turn into another party for the lawyers.

The next step will be to take a new broom to the boardroom. It takes a different personality to manage the peace as it does to win the war and Vanni Treves, at least, will need to step aside. He's certainly earned a rest (as well, in my opinion, as a juicy bonus, but then it's not my money). After a couple of years as a punch-bag, the Society should now begin to return to life as an investment fund. That would point towards a replacement with a financial background, but there will undoubtedly be continuing litigation, so they'll need to know how to manage lawyers.

Equitable Life has become much more open towards its members under Vanni Treves and this must be preserved as it moves forward. As a pure investment fund, it has little excuse for hiding things from its members (not that it had much before, but that's another story). One or two things will have to be dealt with carefully - for instance it doesn't help litigation to broadcast to the world how much you expect to have to cough up in compensation - but by and large the atmosphere should be one of extreme transparency.

Most importantly, with the compromise in place, the Society should have a better understanding of the profile of its future payments to policyholders and will therefore be in a position to adopt a more suitable, long-term, investment policy. That's a huge step forward, but it's only a start. The key now is to generate some good investment returns. As Fools will know, that starts with not trying to be too clever and keeping costs to a minimum.

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