Opening Presentation
Vanni Treves on non-GAR misselling claims
“Much more
recently, as you will have read, we have received advice that the non-GARs may,
in some number, have legal claims against the society. I use the words
‘may’ and ‘in some number’ carefully because we’ve received and have published
available for members to see, opinions from a total of four QC’s, where they
agree on a number of things, and disagree on many more. What they agree upon is
that some members may have claims against the Society. They also
agree that the nature of those claims is complex and that they will be
difficult to argue and that the Society will have scope for a variety of
defences. What the disagree about is how many members will have claims, what
the amount of those claims will be and how successful those claims are likely
to be. We have discussed those opinions at some length in the purple pack that
you have got and the board has in a very short time, because the first of those
opinions was only received on September 12th, and the others
followed, in a very short time we had to build in those additional complexities
into the proposal you have before you. What we know, however, is that those
claims, whatever they will be whatever they might be will be expensive to argue
on the part of the policyholder. They will be expensive to defend on the part of the Society. It should be
said in passing that if a member, any member I, Charles, makes a claim against
the Society and looses, legal aid will not be available and that member will
have to pay the Society’s costs as well as his own. Those claims may succeed in
some measure and the Society has to reserve against that possibility and that
too is destabilising and of course the administrative effort on the part of the
Society in dealing with each case properly would be enormous. We have 415,000
non-GARs. If just 10% choose, as is their right, to pursue their claims, 41,000
claims will have to be processed by a society that as we all know, is already
suffering very, very deeply from administrative overload.”
Question and answer session
Vanni Treves on when Herbert Smith will report:
“There is no precise timescale for the Herbert Smith inquiry. It’s a huge, huge operation. Herbert Smith are going back 10 years or more to see what the legal origins of our troubles are and then to recommendation. We’re waiting for two external pieces of work to be done to feed into the work that Herbert Smith is doing. The first, which we’ve commissioned ourselves is a study by Price Waterhouse our new auditors into the quality of the work that was done by our previous auditors Ernst & Young. That quality, of course, can only be judged by other auditors and that report is some weeks away but will be received, we are told, by the end of November. The other piece of work is not within our control and that is the so-called Baird Report which is a report that was commissioned by the FSA although it is independent in a sense, commissioned by the FSA into what failings there were in the conduct of it’s affairs. That’s a very important report. They’ve promised to publish it; we don’t know where it’s got to. The reason it’s so important is that we do not, the Society does not, want to do what would be a tremendous amount of work in looking into the regulatory failure. That work is being done by somebody else, at somebody else’s expense. That somebody else is the Government, the FSA, the Treasury and we are therefore waiting for the outcome of that report which we thought would be available byte end of September. We don’t know where it is yet, and we know that a lot of MPs are very concerned about its apparent disappearance and when Parliament reassembles we expect a great deal of pressure to be put on the government to see where that report is. That will be very important because, as you know, we are pursuing enquiries against effectively three groups; the first is former advisors, the second is former directors and managers and the third is regulators and the work into regulatory malfunction is actually the most difficult of all because we don’t have the records. We of course have the records into the other two groups but to look into regulatory failure from a standing start is enormously difficult and we’d rather the Baird report did a lot of the work for us.
One other thing is that we are committed to publishing the Herbert Smith report and will do so, so that all members will see what the advice is, subject to this point, which I’m sure members will understand: we cannot publish a report if its publication will do the Society’s chances of success damage. In other words we can’t disclose our case before we are ready to do so. It may well be that the Society will be aware of Herbert Smiths advice before members are. To reassure you that we are not keeping things to ourselves there are members of action groups who have signed confidentiality agreements who have direct access to Herbert Smith in order to check and verify their work independently. These are lawyer members of policyholder groups and therefore if there are members, committee members typically of policyholder groups who want to know what’s going on but don’t want to wait until all members know as a function of publication what’s going on they have direct Access to Herbert Smith without going through the Society at all.”
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Vanni Treves on non-GAR member claims
for mis-selling based on concealment of GARs:
“We have said that any member who seeks to jump the gun if you like ahead of the compromise (after the compromise, if it doesn’t happen it’s going to be open season) we will apply for what lawyers call a stay in any court where a member tries to forestall what the compromise is trying to do. That means to say to the court will you please not consider this claim until after the compromise has gone through. Clearly once the compromise has gone through (if it goes through) those claims can’t be pursued anyway so at the moment we are not facing any claims of the kind that would be covered by this”
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Vanni Treves on mis-selling claims by non-GARs who have left the Society (the questioner has had a policy for 11 years but made a substantial addition last year. The question was whether to remain and face the possibility of others who had left suing and taking money from the fund, or whether to leave and try to sue for mis-selling):
Well, if the
compromise goes through then that compromise will only bind members.
Those who are not
members can't be bound by the compromise and can sue. If you had the time and
the interest to look at the opinions I've mentioned earlier you will see that
they deal with that issue namely do those members who have left before the
compromise have strong claims or not. We have to distinguish between two major
different kinds of claims; there are specific mis-selling claims. Some members
in this society as in every other society have very specific mis-selling claims
where for example their representative when given the facts gave them advice
that was wrong and sold them policies that weren't appropriate to their needs.
That is not the kind of mis-selling claim that is dealt with by the compromise
anyway. What this compromise deals with are those claims that don't arise from
specific mis-selling but arise from the fact that all non-GARs suffered because
they didn't know at the time that they took out their policies of the GAR
liability but specific mis-selling is not covered by that and therefore any
member that's got a specific mis-selling claim should, quite irrespective of
this compromise, whether or not he or she accepts it or not.
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Vanni Treves on reserving for cases brought by non-GARs who have left the Society suing for mis-selling due to concealment of GAR policies:
“We have made no reserves and the reason we have made no reserves is because you will see if you chose to look at the opinions we have had there is a wide variety of opinion as to whether or not there are any viable claims at all by those who have left. The strongest opinion is by a man called Gabriel Moss and he is supported by another man called David Richards, both QCs, who are very clear that those who have left have no claim at all. Nicholas Warren QC thinks that some may have a claim. In any event we have not reserved because our best reading of those opinions and indeed of a fourth opinion received by the FSA by a man called Glick commissioned quite independently of the Society but since published by the FSA our best judgement supported by Sir Phillip Otten and others is that if there is any liability at all to non-GARs who have left it is not so great that we should reserve.”
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Vanni Treves on continuing solvency:
“The fact that we are being breathed upon very heavily on a monthly basis and informally on a weekly basis by the FSA in terms of solvency should be of real reassurance to members. The FSA has been bitterly criticised, I express no view on that, but as a function no doubt in part of that criticism of the collapse of Independent and all those other things, it is very, very difficult for me to tie up my shoelace without asking the FSA first and that I think should be reassuring to members.”
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Charles Thomson on the level of the MVA
and the16% bonus reduction:
“ The society obviously has been unable to smooth in the traditional sense and this sudden change in policy values in July was correcting things that, in an ideal world would have happened in part earlier-over the previous seven years. The Society is still dealing with a with-profits fund, and still trying to smooth in part. The changes that were made in July have not been altered since that date as far as maturity values are concerned so they have stayed the same but the markets fell further and the financial adjuster was increased in order to compensate for the market fall. The Society has been ??? at those market values that we have had in recent weeks with that level of surrender value and with maturity values ???? ????.There is a degree of smoothing involved. If markets go up, then we would hope the financial adjuster could come down. If markets go up a long way we would hope that bonus rates go up and the financial adjuster comes down further.”
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Charles Thomson on the security of the unit linked funding insolvency given that it is part of the Society’s long term business fund:
“The unit linked funds are re-assured from Halifax Life and Halifax Life therefore have obligations to pay Equitable Life that amount. So in essence there’s an obligation on Halifax Life and there’s also a guarantee from Equitable Life. Halifax Life also have an ability to pay direct to pensioners. So I think that what you are dealing with is that you have an obligation from Halifax Life and you have a guarantee from Equitable Life that the benefits will be paid”.
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Charles Thomson on why no MVA is charged if a drawdown is converted to a different kind of annuity, but is charged on transfer of drawdown to a different drawdown plan:
“The answer is basically quite simple and it is this: If we are paying benefits under a contract in accordance with the contract terms then we will pay those contract values. If we are not paying out under contract terms in other words effectively if there is a surrender value, then we must follow the principle that while we are keen to pay full and fair value to these people, we must not pay more than that because if we did pay more than that, it would be paid for by those who remain in the Society. And that is the separation. I appreciate that the law changed earlier this year but that doesn’t actually alter the fact of how these contracts were written and the terms that are available under those contracts”
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A
Specific Question:
“There
are many others who think like me and are considering leaving the society, who
put huge amounts of money in last year. If our capital values were preserved we
would be content. We don't want an uplift, we don't want extra money, we just
want our capital retained. Whereas I have enjoyed growth on my earlier policies
from about the beginning of the decade and broadly speaking the 16% that has
been taken off is equivalent to loosing the non-guaranteed bonus, to have that
taken from your capital within a matter of months seems absolutely wrong and
unfair and I wonder if it's possible to amend the compromise to take this into
account.”
Charles
Thomson in reply:
I
believe we're back to the question that the compromise scheme is about the
legal issues surrounding GAR rights and non-GAR rights. What you are dealing
with is an example, I'm afraid of what's happened in terms of the with profits
fund and the investment circumstances at the back of it and the changes that
were then made in policy value. I don't believe that we could readily change
the policy value figures for one group of policies. We have a very simple bonus
methodology in Equitable Life and the end result is that it ends up being an
extremely broad brush because of this system that's used for adding either
guaranteed bonuses or final bonuses to policy value and that affects every
policy equally regardless of whether you came in a day ago or ten years ago or
fifteen years ago and that is a less refined system than is used on the life
business of Equitable Life which does something much more normal in terms of
how other with profit funds work and there is a reversionary bonus a guaranteed
addition year by year and there is a terminal bonus which depends on the length
of time the policy has been in force and that makes it much easier to make sure
you are giving entirely fair value to policies of different durations. In the
same way the surrender value basis, the Financial Adjuster is a single figure
taken off the policy value. Whereas most companies who have a surrender value
basis which differentiates much smaller groups of policy and tries to be fair
to them individually. On the Group business at Equitable Life might if a group
policy wants to surrender then the surrender value is calculated on it's
precise circumstances and I'm sorry we are where we are and we have these
enormously broad brush results. Generally on policy values when we look at the
greater detail it is reasonably clear within the constraints of the broad
brush, reasonably fair to policies of all durations and surrender values,
because there's a single figure, then that will be unfair to some and perhaps
fairer to others and I would like to change that I think I run a big risk if I
do change it then we run the risk that people can't see what's fair and what's
unfair and they will be concerned with it being unfair by making that change
but I think it would make it possible if some years down the line, it wont be
months, because the machine systems do not allow this change but if it is
possible to make that change then it could be done to increase fairness but at
the moment we are where we are.
Post meeting ‘chat’:
Vanni Treves asked about the Hughman case:
“That was mis-selling. That was exactly what I was trying to say; distinguishing the 2.5%, currently, with the specific mis-selling claim. What I know about that case is only what I have read in the paper. He says that he was sold the wrong type of policy for his requirements.”
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Vanni Treves after being thanked by a policyholder for the presentation:
“Thank you. I don’t know what people thought. Do you think people thought it helpful?
You know when people say it’s a matter of trust what can I do about it? I think that the board we’ve got now are absolutely terrific. None of them need the job. They are all doing it out of a sense of public interest. Why would a Lord Justice of Appeal do it for ten thousand quid a year? The other deputy chairman has just stood down as senior partner of Price Waterhouse Coopers. They are really doing it because they think they have something to give and the trust must stem from there, frankly.”
Apologies: for misspellings and ???? which are words that could not be heard clearly (Charles Thomson is very quietly spoken)