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Daily Insurance Industry News
Tuesday 21st of May 2019
July 20, 2007

EU Demands Government Action for Equitable Investors

by Gill Montia

Story link: EU Demands Government Action for Equitable Investors

The European Parliament has voted on the findings of a committee of enquiry that has examined the near-collapse of the Equitable Life insurance company, in 2000.

MEPs have voted overwhelmingly in support of recommendations that the UK government should compensate those who sustained losses.

Equitable closed to new business in 2000 because it was unable to provide enough money to pay members with guaranteed annuity rate policies.

The crisis was the most serious ever to have occurred in a UK pension company but to date the government has resisted calls for compensation for investors whose investment values dropped.

In its report the European committee of enquiry stated that responsibility for the affair rested with the UK government. It blames the UK government for failing to ensure that EU legislation on insurance had been implemented properly.

It also accuses the UK's system of financial regulation of being ineffective in failing to ensure that Equitable was solvent. It considers that under the UK legal and regularly system policyholders are unlikely to gaining any redress and that therefore the UK government is under an obligation to assume responsibility.

The report recommends the establishment of a compensation scheme, which will not only consider claims from policyholders in the UK, but also from several thousand policyholders overseas.

Equitable's policyholders numbered over one million at the time of the crisis. The near collapse was caused by the company failing to put aside the £1.5 billion needed to ensure it could make the minimum payout to £90,000 promised to customers with guaranteed annuity rate policies.

Equitable closed to new business when the UK courts ordered that it had to make good its promise to these policyholders. It has subsequently reduced the value of all its customers' with-profits policies and has disposed of part of its business to raise funds.

According to the European Parliament report, two groups of investors were particularly badly affected: those who bought pension policies just before Equitable's problems emerged, and those locked into annuity policies.

Members of the latter group have seen cuts of up to 40% in the value of their payouts.

 

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