Equitable: rebel blames regulators

THE Equitable Life policyholder who defeated the mutual in a landmark House of Lords ruling four years ago has launched a blistering attack on Government regulators for failing savers who now face dramatic shortfalls in the value of their policies.

Scottish judge Lord Penrose's report into the Equitable Life debacle was published today and David Hyman upped the pressure on the Department of Trade and Industry, and the Treasury, by insisting they should have spotted the mutual's financial distress before it was too late.

The 73-year-old former stockbroker said: 'There was a failure in regulation from the 1960s onwards. The Board of Trade, the DTI, the Treasury and the Financial Services Authority totally failed. They should have known Equitable was paying out too high a proportion of profits rather than building up its reserves.

'The whole insurance sector wasn't taken very seriously when things seemed to be doing well, when equities were rising, bonuses were going up and most people were doing well out of their mortgage endowment plans.'

The House of Lords' damning verdict, in a test case where Hyman was picked as a defendant, meant Equitable was forced to honour guaranteed annuity policies to more than 90,000 pensioners. The judgment left it with a black hole of £1.5bn and it was forced to close to new business.

The guaranteed policies were sold during the high-interest rate years of the 1970s and 1980s.

When rates began to fall in the mid-1990s and guaranteed rates proved more attractive, Equitable decided to cut terminal bonuses to offset the effect.

Hyman singled out the Government's actuarial department for attack, stating the officials who saw Equitable's returns each year and gave the mutual a solid rating should have known of the trouble that lay ahead. 'In doing nothing they were culpable,' he said.

But he added many Equitable directors 'knew very little about insurance' and that policyholders may find it hard to secure blanket Government compensation.

'If the Government did pay out, it may have a problem of how to treat those with other life companies that have struggled,' he said.

Policyholders hope Lord Penrose's 818-page tome will allow them to press for more than £3bn compensation, but the Treasury claimed regulators were hindered by the failures of Equitable's former directors to reveal the real state of its finances.

The Serious Fraud Office has yet to decide whether to launch a full inquiry into the mutual. The report will still make uncomfortable reading for Chris Daykin, head of the Government's actuary department since 1989, and a host of DTI and Treasury officials.

Ruth Kelly, Financial Secretary to the Treasury, pinned much blame on the 'hands-off' regulatory framework put in place by the Tories.