There was a general failure on the part of the regulators and the Government Actuary's Department to follow up issues during their regulation of the Equitable Life, Lord Penrose has concluded in his report published today.
The regulatory scrutiny of the Equitable Life did not keep pace with industry developments Penrose says.
The 818 page report, published two and a half years after Penrose was commissioned by the Treasury to look into the events surrounding the near-demise of the mutual insurer, says the Board of the life office placed far too much reliance on the appointed actuary, who at key times was also its chief executive.
The measures of solvency used by the regulators are singled out by Penrose, who says: “measures of solvency applied by the regulators did not keep pace with developments in the industry, in particular the trend towards unguaranteed and unreserved for terminal bonus.
Thus regulatory solvency became an increasingly irrelevant measure of the realistic financial position of the society.”
The regulators, including the DTI, Treasury and the FSA, have been criticised for failing to consider the over-reliance by the society on the emergence of a future surplus in terms of the strength of its balance sheet.