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FSA probing &#39secret&#39 deal on Equitable reinsurance

Former Equitable chief exec-utive Chris Headdon is under investigation by the FSA over a secret deal struck with Equ-itable&#39s reinsurers that compromised the £700m contract used to help meet its solvency requirements in 1999.

The investigation could be passed to the Serious Fraud Office but it is not involved at present.

The FSA this week rev-ealed the existence of a letter from Headdon to Irish Euro-pean Reinsurance Company which meant the amount of cover arranged in 1999 was worth substantially less than the £700m stated in its stat-utory returns.

The regulator has known about the letter since Sept-ember but went public bec-ause of this week&#39s court case in which the new Equitable board won permission to send its compromise scheme to policyholders for voting.

The FSA believes Equit-able&#39s auditors did not know about the arrangement.

The FSA is now demanding answers from the parties concerned and further action could be taken. Equitable&#39s lawyers Herbert Smith are also investigating the letter.

The FSA says it would not have accepted the deal if it had known about this secret arrangement. The reinsurance agreement has now been renegotiated to the regulator&#39s satisfaction.

The regulator is assuring policyholders there is no impact on Equit-able&#39s solvency or on its with-profits fund. Advisers are telling policyholders not to worry about their policies but believe that people who bought after 1998 may now have even stronger misselling claims.

The FSA says: “Consideration will be given to whether any action should be taken by the FSA or by other authorities.”

Income Drawdown Bureau marketing director David Marlow says: “This is another example of the arrogance of Equitable and an indication it may have been leading policyholders astray. If Equitable accounted for an asset that would never have been payable, it is a very serious act.”

Equitable&#39s current chief executive Charles Thomson says: “The important thing for policyholders to know is that the society is and continues to be solvent.”

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