Before the financial crisis, before the state bail-outs of Northern Rock, Royal Bank of Scotland and Lloyds TSB, there was Equitable Life.
The near-collapse of a centuries-old institution, moreover one with which millions of the UK’s wealthiest professionals had placed their retirement savings, was probably the single most important moment, prior to 2007-08, in which the British public began to lose confidence in the financial services sector.
Equitable Life has been in rehabilitation in the 18 years since it came close to collapse.
Today, a curtain has been brought down on its 256-year history as Britain’s oldest mutual life company has agreed to a £1.8bn takeover by the specialist insurer Life Company Consolidation Group (LCCG).
The deal will mean a pay-day for most of the near 400,000 or so policyholders who own Equitable.
The pay-out, which will be paid via an increase in the bonuses paid by their with-profits-funds, will not be begrudged them by most people.
The experience during the 1990s of Equitable’s customers, many of whom have since died, brought shame on the UK’s financial services industry and undermined trust in it.
Equitable was founded in 1762 as the Equitable Life Assurance Society and by 1810, according to the company biography, its famous policyholders included the poet Samuel Taylor Coleridge, the anti-slavery campaigner William Wilberforce and the novelist and playwright Sir Walter Scott.
Image: Equitable Life sponsored the popular TV comedy Frasier
Things ticked over nicely for the next 180 years or so and, by the 1990s, Equitable had more than 1.5 million policies in force.
It sponsored the popular TV comedy Frasier and its policyholder-owners largely comprised middle-class professionals like lawyers and accountants.
By then, though, the seeds of its near-death had already been sown.
Beginning in the late 1950s, Equitable had been selling policies with a guaranteed annuity rate (an annuity is an insurance product, allowing customers to swap some or all of their pension pot in exchange for a guaranteed regular income to last, in most cases, for the rest of their life).
The rates that Equitable guaranteed were higher than the prevailing market average and so proved highly popular.
Equitable continued to write such policies throughout the 1960s and 1970s – decades in which inflation ran riot.
Fast-forward to the 1990s, by which time inflation had been tamed, it was becoming harder and harder for Equitable to meet the promises it had made in previous decades.
So the company tried to renege on its previous promises and sought to force cuts in the bonuses paid on such policies.
Some 90,000 policyholders who had bought the guaranteed annuity products revolted against this and took the company through the courts.
In 2000, in a decision that threatened to cost Equitable £1.5bn, the House of Lords found for them.
Equitable was forced to close its doors to new customers and put itself up for sale.
No bidders emerged but, over subsequent years, parts of Equitable were sold off, with the last of its with-profits annuity policies being transferred to Prudential by 2008.
Years of legal wrangles followed as Equitable sued not only its former directors but its former auditors.
Meanwhile, the policyholders were also demanding compensation from the government, arguing that poor regulation had contributed to their losses.
Treasury mandarins for years dragged their feet in agreeing any kind of compensation for them on the basis that most policyholders were middle-class professionals regarded as capable of looking after themselves.
In short, at a time when Labour was in power, they were not seen as worthy candidates for compensation.
It was not until 2007 that Yvette Cooper, then the chief secretary to the Treasury, apologised to Equitable’s policyholders for the poor way it had been regulated by the Financial Services Authority.
Image: Yvette Cooper, then chief secretary to the Treasury, apologised to Equitable’s policyholders
In 2010, after years of campaigning by policyholders, the newly-elected coalition government agreed they were entitled to £1.5bn worth of compensation for the poor way the FSA, set up by Gordon Brown when he was chancellor, had protected their interests.
By then, ironically, Equitable’s finances were stronger than they had been for years.
Under Chris Wiscarson, the chief executive who has overseen today’s sale, a change in investment strategy saw Equitable start to generate a surplus exceeding its solvency ratio and the company began returning more money to its members.
Mr Wiscarson said today that Equitable and its remaining £6.3bn of assets would be rolled into Reliance Life, an arm of LCCG.
He added: “When the Equitable closed to new business in 2000, it was inevitable that at some point the society had to come to an end.
“The benefit of bringing Equitable to an end sooner rather than later is that we can capture for with-profits policyholders the near record-high values of the investments backing their policies.”
The deal is not entirely a win-win for policyholders.
In order to benefit from the distribution, expected to be worth around £6,000 per policy, they will have to agree to the conversion of their with-profits policies, which offer investment guarantees, to “unit linked” funds that move more in line for financial markets.
Over the years, and even taking into account the government compensation, past and some present Equitable members lost getting on for £4bn as a result of the company’s poor administration and bad regulation.
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That was not the fault of the current management – who are among the few people from this long-running saga that can emerge with some credit.
Ian Brimecome, chairman of Equitable Life, said: “While it will be sad to bring an end to the oldest mutual assurer in the world, the potential to enhance with-profits policy values to the extent made possible by a transfer to Reliance Life is fundamentally helpful in distributing capital to our policyholders as fairly and as soon as possible.”