Instead of alleviating the fear, Equitable Life Compensation

 

Friday, Mar 06,2009, 10:43:49 AM   Click:

Instead of alleviating the fear, Equitable Life Compensation Plan raises uncertainty Robert O'Connor
The announcement by the British government plans to compensate victims of mutual life insurance company Equitable Life Assurance Society raises a series of political, economic and actuarial matters.

The announcement was made from the Treasury Minister Yvette Cooper, who told the House of Commons that customers of Equitable Life has suffered as a result of "maladministration in particular areas."

Cooper did not mention a figure and is vague on what could be the levels of compensation, saying the payments are made to customers who had been "disproportionately affected."

Policyholders' unease

Cooper announced that John Chadwick, a former judge of the Court of Appeal, to act as an adviser. The Equitable Members Action Group has criticized the appointment of Chadwick, arguing that it would be contrary to the prohibition to apply to retired judges to offer legal advice. The group also expressed suspicions of the government's intentions, suggesting that 90% of customers could receive nothing.

In a statement, Paul Braithwaite, a member of the group, accused the government of Labor Prime Minister Gordon Brown to concoct a "Cheap Trick to give a veneer of respectability to a dodgy legal hardship."

The cost of compensation, estimated at more than 4.65 billion pounds (5.16 billion euros), was enough to make the government reluctant to consider it as an option.

Equitable Life closed to new business in December 2000 after being caught between longer life and lower interest rates. The company's inability to make payments on its with profits policies was highlighted by the defeat in a test case.

Shaken Faith

In his speech to the House of Commons, Cooper noted that Equitable Life's regulatory returns during the period 1990 to 1996 in some cases have raised issues that should have been resolved by government agencies, but are not. "

In 2008, Ann Abraham, the Parliamentary Ombudsman, has pointed to "the failure of regulatory Series" in government supervision of Equitable Life and called for both an apology and compensation.

More recently, Abraham comments suggest good progress toward resolving the issue is unlikely. Abraham accused the government of an immune reaction to his report and the "re-organize the evidence, and to repeat the analysis as a judge in his own name.''She made these remarks in an appearance before the Parliamentary Public Administration Select Committee.

Charles Thomson, Equitable's chief executive, told the committee that the government's response to Abraham, the report was "totally inadequate.''

"Parliament", Thomson said, "should not accept the government's response to the mediator's report, and we hope that Parliament can find a way to influence the government.''

The situation could be made more complicated by the difficulty of financial markets. The government could reasonably argue that the losses suffered by other investors may reduce the requirement to compensate customers of Equitable Life.

All these criticisms are unlikely to enhance the reputation of a very unpopular government which is widely regarded as the head of a defeat in the general election of David Cameron and his Conservative Party. If the work does fall, the handling of the Equitable Life fiasco could have played a role.

(By Robert O'Connor, London editor: Robert.OConnor @ ambest.com)

Copyright © 2009 hours Best Company, Inc. The announcement by the British government plans to compensate victims of mutual life insurance company Equitable Life Assurance Society raises a series of political, economic and actuarial matters.