The Equitable Life fiasco need not – should not – have happened but the sad fact is that it did happen. However, it may not be too late to save the day. What is needed is a blend of creative and positive thinking and fast action. There is not much time left and even that is running out.
It is well known that Equitable policyholder base includes many members of the professions – not just accountants, solicitors and the like but also actuaries. The firm was the first life insurer in the world to be based on actuarial principles and its 18th Century roots go back to James Dodson, one of the founding fathers of the profession.
Now its salvation and long-term future as a going concern could rest largely on the shoulders of Equitable Life policyholders – actuaries and others.
Lloyd Zokay, an actuarial consultant and the current chairman of the Financial Services Consultants Group, believes strongly in a three-pronged approach. These are the steps that Zokay proposes.
First, the life office should urgently seek a compromise with the guaranteed annuity policyholders it eventually lost out to in the House of Lords. An agreement of this kind is obviously a must with the black hole in the Equitable's balance sheet. No one in their right mind wants the Pyrrhic victory implied by the current legal outcome and we are pleased that the compromise course is being explored.
The second step is to demutualise the society. A regrettable decision for some but no more than would have happened if a buyer had been found. It appears that a capital injection of some £1.5bn would be needed.
This could be funded in one of two ways. The life office's 450,000 individual with-profits policyholders need only subscribe an average of £3,333 in cash. Many of them will have no problems in laying their hands on this sort of money but there are others who are not so well off.
A more widely acceptable alternative to coming up with the cash might be to cancel terminal bonuses in exch ange for a proportionate number of shares in a newly formed and viable public limited company.
We realise that neither route would be as easy a passage for members of occupational pension schemes, contributors to scheme AVCs and the like as it would be for direct policyholders.
However, there are lawyers as well as actuaries on the society's policyholder base who have the professional acumen it takes to sort out an acceptable scheme of arrangement.
The third and final step is to re-open the doors to new business, a move that is by no means as radical as it may at first seem.
The closure of Equitable Life and its dismemberment is a nonsense. It may be an inevitable nonsense, given the life office's current course but taking the first two steps can change all this. The headlong dash into oblivion must be reversed – and quickly.
All that has happened so far is the sale of the Permanent Insurance subsidiary – and there the process must stop. Continuing the business as a going concern will maximise the goodwill of the society and its value.
Aware that speed is of the essence both Zokay and I, as Equitable Life policyholders, are keen that this initiative quickly gains momentum. We want to sound out the views of the soc iety's policyholders. Many of them will be regular readers of Money Marketing and, if you are one of them, you can visit a special website on www.equitable solutions.co.uk. Go to the site and you will find a questionnaire designed to find out what you think.
To be successful, any lifeboat initiative will rely on actuarial input. Although I realise the society still has a number of actuaries on its payroll, there is a strong case for accessing a pool of professional services from outside. The advantages include a fresh perspective and experience and expertise gained in environments other than that of working for a highly specialised niche player.
It is not too late to save Equitable Life but we must act quickly if we are to succeed.