
UK’s Equitable seeks compromise deal on liabilities
NEWS
LONDON -- Troubled UK mutual life assurer Equitable Life is continuing efforts to seek a compromise deal over its liabilities after a poll of its members showed a majority in favour of a settlement.
Equitable, the world’s oldest mutual life assurance company, is still solvent after falling foul of a combination of legal, strategic and interest rate risks.
But in December it closed its doors to new business after a decision last year in the House of Lords, Britain’s highest court, left the company with uncovered liabilities of around £1.5 billion ($2.1 billion).
UK pension industry analysts estimate about 1 million people could face reduced retirement incomes as a result of the debacle.
Vanni Treves, who took over as Equitable chairman earlier this year, reported the results of a poll of Equitable’s members to the company’s surprisingly subdued annual meeting in May.
Majority
The poll, undertaken by Mori, showed a majority of policyholders in favour of a compromise that would cap Equitable’s liabilities to its guaranteed annuity rate (GAR) policyholders.
The GAR policies, sold to some 90,000 Equitable members from the 1950s to 1980s, guaranteed a minimum rate of return based on interest rates that were at times at record highs. In effect, GAR policyholders held a call option on interest rates.
Judges in the House of Lords last year rejected Equitable’s argument that it could reduce the terminal bonuses of those GAR policyholders who exercised their right to a guaranteed rate.
The judgement sparked the crisis because Equitable had made insufficient provision against the risk of losing the case.
Compromise
The Mori poll of 1,000 policyholders found 57% of GAR policyholders were in favour of a compromise deal that would give them an improvement in the return on their policies in exchange for waiving their guaranteed annuities.
Among non-GAR policyholders, 73% found the idea acceptable. But 66% of non-GAR policyholders weren’t prepared to allow GAR policyholders to get more than they had already obtained at any further cost to non-GAR members.
Any compromise would have to be reached by next March for Equitable to qualify for a further £250 million payment from Halifax, the UK mortgage bank that paid an initial £500 million for Equitable’s operational assets earlier this year.
Meanwhile, senior lawyers engaged by Equitable advised in May that the House of Lords’ decision cannot be re-opened or challenged, as some members had urged.
However, lawyers Nicholas Warren and Thomas Lowe said the law lords’ decision didn’t preclude non-GAR policyholders from asserting any claims they might be able to establish against Equitable, even if success would mean the value of the guarantees to GAR policyholders would be diminished.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Risk managers mull Basel-style climate standards
Risk Live: Splintered approach to stress-testing across jurisdictions “very, very worrying”, says risk expert
Forced CS merger casts doubt on use of resolution regimes
Risk Live: Spreads on European AT1 bonds still wider than before March bail-in
Regulators’ remorse: SVB and the case for IRRBB capital charges
Basel Committee chair among those who say Pillar 1 capital requirement could have helped control SVB risks
Improving efficiency and your financial crime compliance programme
The financial crime landscape is constantly evolving, and organisations are facing increasing pressure to stay compliant with rapidly changing regulations and combat financial crime effectively. At the same time, organisations must balance the need for…
Basel’s IRRBB shock scenario update hit by US crisis
Recalibration of shocks had been touted for Q3, but wider rethink may now cause delay
HKMA launches consultation on green taxonomy
Regulator could use proposal to assess progress of banks towards climate goals
After SVB downfall, EBA stress test seeks out unrealised losses
European regulator asks for data on the fair value and sensitivity of bonds and their hedges
EU banks fear Brexit battle over FRTB internal models
Bank of England approach looks easier, but that may not make much difference to model uptake