NU Online News Service, March 8, 2004, 6:29 p.m. EST – United Kingdom accounting regulators will be taking a hard look at mutual life insurance company governance, the actuarial profession and participating life insurance policies.[@@]
Ruth Kelly, financial secretary to the U.K. Treasury, ordered the reviews in response to the release of a major report by George Penrose, a judge, about the problems that Equitable Life Assurance Society, Aylesbury, Buckinghamshire, suffered in 2000.
The British Equitable Life, a policyholder-owned mutual insurer that is unrelated to the U.S. Equitable Life, promised buyers of participating annuities high rates of return in the 1970s and 1980s, when interest rates were high, then discovered that its earnings fell below the level necessary to back the guarantees in the 1990s, when rates fell.
Equitable Life executives saved the company, at least temporarily, by cutting payments to holders of guaranteed contracts to keep up payments to holders of other types of contracts. The U.K. courts and U.K. regulators say Equitable Life should have started by making good on the guarantees.
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Penrose found in his report that regulators, actuaries and Equitable Life executives did a poor job of controlling the company’s exposure to annuity benefit guarantees and warning policyholders that the company would be unable to deliver on the guarantees.