The European Parliament is to set up a special committee of enquiry into Equitable Life, the UK-based insurance company whose near-collapse in 2000 led to major financial losses for millions of policy-holders in the UK and other EU countries.
The EP committee
The EP committee of enquiry, which has still to be endorsed by the full Parliament in Strasbourg, was announced on 11 January 2006. It will look into whether European rules were breached, asking whether the UK properly transposed and respected EU directives, whether the Commission was at fault in inadequately checking UK rules, or whether the UK authorities themselves were at fault.
Equitable’s troubled history
In 1994, Equitable Life, a highly respected insurance co-operative founded in 1762, ran into a huge problem. Since the 50s, it had been issuing retirement policies (known as GARs) which guaranteed a minimum annuity to holders on retirement. Suddenly, however, it found it did not have enough money to honour them. It tried to unilaterally cut final bonuses but was told by the UK’s highest court, the House of Lords that it could not. As a result, it almost went broke, closing its doors to new business in December 2000.
By sheer good fortune, rather than judgement, some would say, Equitable has now pulled itself back from the brink through compromise agreements with policy holders. They are still short of substantial sums, but viewed accepting the compromise package as the lesser of two evils, given the alternative of the full collapse of the company.
In the UK, the matter has been thoroughly looked into. An independent government enquiry led to a 2004 report by Lord Penrose; there was a report by the Financial Services Authority and another by the Parliamentary Ombudsman. Equitable itself, sued its accountants, Ernst & Young, and its own former directors, accusing them of professional negligence. However the case against Ernst & Young has now been dropped, (not, however, before the company had run up a huge legal bill). Meanwhile, policy-holders themselves are still poised to sue as the issue of compensation has not been resolved.
It is estimated that over a million holders of savings, insurance policies and retirement pensions across the UK and 15,000 more in other EU member states such as Germany and Ireland, lost substantial sums when Equitable Life reneged on its policy promises in 1994.
Who was to blame for this disaster has been the subject of enquiry in the UK for over a decade and the Parliament has now taken the matter to European level. The UK policy-holders group Equitable Members Action Group, who had been lobbying for such a committee on the grounds that the UK enquiries had not looked sufficiently at possible UK government failings, welcomed the move.
Under Article 193 of the EU Treaty, the Parliament can set up special committees of enquiry to investigate "alleged contraventions or maladministration in the implementation of community laws". Such a committee has no powers to compel evidence but can hold hearings and request documents.
- The special committee must be endorsed by the full Parliament sitting in Strasbourg 16-19 January 2006.
- An interim report will be published after 4 months and a full report after 12 months.
EU official documents
- European Parliament:European Parliament probe into Equitable Life case(12 Jan 2006)
- UK HM Treasury:The Penrose Report(March 2004)
- UK Parliamentary Ombudsman:A Further Investigation of the Prudential Regulation of Equitable Life?(July 2004)
NGOs and Think-Tanks
- Equitable Members Action Group:EU Inquiry into Equitable Life
- The Herald:Equitable activists’ warning salvo for government(12 Jan 2006)
- The Scotsman:MEPs to probe government role in Equitable Life crisis
- Reuters:Fraud squad will not probe Equitable Life(19 Dec 2005)
- The Guardian:Equitable Life timeline(22 Sept 2005)