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The Actuary The magazine of the Institute & Faculty of Actuaries

Ombudsman reports on the ‘Equitable Affair’

Ann Abraham, the Parliamentary Ombudsman, issued a substantial report in July on what she calls “The Equitable Affair”. As well as generally concluding that the regulators (FSA, GAD and DTI/Treasury) failed to properly exercise their regulatory functions, her report catalogues 10 fi ndings of maladministration:

>> They allowed the chief executive to continue as appointed actuary rather than insisting they were separate
>> Failed to question Equitable’s solvency calculation or the sustainability of its bonuses
>> Despite identifying the differential terminal bonus policy (depending on whether the policyholder took guaranteed annuity rates), failed to follow this through
>> Failed to resolve apparently non-compliant elements of Equitable’s regulatory returns
>> Allowed the returns to be published without resolving the issue of missing information.

Between July 1998 and December 2000
They allowed Equitable to take credit for a reinsurance arrangement which lacked economic substance
>> Failed to ensure that Equitable disclosed the potentially serious impact of losing their court case (Hyman)
>> Did not record the reasons for allowing Equitable to remain open to business >> Had unsound reasons for permitting Equitable to remain open to new business.

After closure to new business between December 2000 and December 2001
>> They provided misleading information to policyholders and the public, announcing that Equitable had been fully able to meet its obligations. After cataloguing the implications for policyholders and the financial losses, lost opportunity costs and outrage caused to them, Ms Abraham recommended the issue of an apology by the regulators and the establishment of a compensation fund. The government is considering the matter with a view to responding in the autumn.