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The Actuary The magazine of the Institute & Faculty of Actuaries
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Sorry seems to be the hardest word

Brendan McBride (March 2006) says that the profession should have stated publicly that the House of Lords judgment was ‘an industry-wide travesty of actuarial justice’. Had we done so we would have been condoning the inclusion of guarantees in contracts and then, when they became useful, of taking steps to make sure they were of no value. To the man in the street that had to be sharp practice. If it really was industry-wide that just makes it worse.

Chris Headdon, in the same issue, invokes the document published by Equitable Life in October 2004 to downplay the financial loss suffered by policyholders. In looking at this document we should remember that it was clearly produced to fend off any litigation that might have arisen from Lord Penrose’s report and so it was naturally going to try to minimise the problems caused by past actions. The fact that it was not challenged in court does not make it right. (After all, who was going to challenge it?) At the end of 1999 the UK equity market was at its highest ever having doubled over five years. Yet even in that situation the document states that Equitable’s aggregate policy values were 2.7% above asset values (£700m). If ever asset values were going to exceed policy values it would have been then. Still to have a negative balance at that stage had to lead to trouble sooner or later. This, of course, it did, resulting inevitably in actions destructive of policyholder value, not to mention the damage to the esteem of the mutual principle and of our profession.

I have set out below the full table as shown in Lord Penrose’s masterly report. Bonus notices made it appear that there were assets corresponding to the policy values. Hence the table shows the extent to which policyholders were misled about the results of the Society’s investments and its economical management. And all for the sake of ranking in the league tables.

As far as I know the only person who has said sorry in this whole affair is John Sclater (former president of Equitable.) It would be nice if a few more people did the same.

To see a full version of this letter, please see the PDF of the letters page.