The FSA says it reached the right decision with its actions over Equitable Life.
In response to the Penrose report FSA chairman Callum McCarthy has defended the regulator's approach saying it reached the right decisions at the time but he accepts much of the previous regulatory regime needed to be overhauled.
He says although Penrose's specific criticisms of the FSA highlight that when Equitable put itself up for sale, the FSA did not properly explore possible options for the protection of new policyholders, McCarthy still believes the FSA acted correctly.
McCarthy has also spoken out against Penrose's criticism over the FSA's approach to the reinsurance deal Equitable negotiated. Penrose believes the FSA allowed too high a value to be given to the reinsurance treaty, not taking proper account of the fact the treaty would fall away if Equitable lost the initial case that lead to the close of Equitable business.
McCarthy says the FSA was aware of the impact of the Hyman case on the reinsurance treaty and that the treaty could be renegotiated, as indeed it was, in the event of Equitable losing the case.
Post Equitable, McCarthy believes regulation is much stricter when it comes to life office solvency requirements.
McCarthy says he is considering whether the report contains new facts or analysis which will cause the FSA to reconsider its view on the continuing solvency of the Equitable.
McCarthy says: “The prospective benefit to its 1 million existing policyholders of a sale of the Equitable was bound to outweigh the prospective detriment to the 6,000 new policyholders who joined after the House of Lords verdict.”
“We take Lord Penrose as encouraging us in the clearest terms to get on with delivering the modernisation programme and applying it effectively.”