Government announces Equitable inquiry

The government today confirmed it was launching a full inquiry into Equitable Life, the trouble-ridden insurance company.

Lord Penrose is to head the far-reaching inquiry, which will examine the circumstances leading to the current crisis at the mutual. The inquiry would go back "many years, even decades" to identify any lessons that could be learned for the "conduct, administration and regulation of life assurance", said Ruth Kelly, economic secretary to the Treasury.

She added: "The government has considered carefully the concerns of policyholders and representative bodies, including the select committee of the House of Commons. Equitable Life raises important issues which deserve consideration by a full independent inquiry."

The independent inquiry would make as much information public as possible, but it would be held in private because much of the information would be market sensitive. The investigations would have a wider brief than a probe already being carried out by the financial services authority.

The FSA, the financial services watchdog, has come under fire from disgruntled Equitable policyholders, who accuse it of failing to identify looming problems.

Equitable Life, Britain's oldest mutual, closed to new business last December because of mounting financial problems. Some policyholders have demanded government compensation for their losses, which they blamed on regulatory failures.

Equitable is trying to win acceptance of a compromise plan from policyholders since it lost a court case last year against members with policies which guarantee their annuity rates. The guarantees were offered in the 1970s and 1980s when interest rates were much higher.

The court ruled that Equitable was obliged to honour the guarantees, leaving it with an estimated ?1.5bn capital shortfall. The mutual failed to find a buyer and has come up with a compensation package for 90,000 guaranteed annuity rate policyholders.

The deal hinges on a legal opinion as to whether 360,000 policyholders without the guarantees could pursue claims, on the grounds that the firm did not warn them of the risks.

A successful deal would trigger a ?250m payment from Halifax, the mortgage bank which bought Equitable's information technology systems, investment management and sales force earlier this year for ?500m.

Related articles
31.08.2001: Equitable facing a public inquiry
04.08.2001: policy holders face new setback
03.08.2001: Equitable investors desert in droves
03.08.2001: Equitable delays payout


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