Equitable old guard stands by its record

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It has probably been the toughest year in the professional lives of the 12 Equitable Life directors who on 8 December 2000 announced their resignations.

Also on this day they said that the once celebrated life assurer faced unmanageable liabilities and would have to close to new business.

Since making those stunning announcements, Equitable's old board has largely remained silent, leaving it to aggrieved policyholders, the society's new management, City regulators and even the Government to chew over publicly the dramatic collapse of the 238-year-old society.

But as the old management faces a formal threat of legal action, its most long-serving member made the first attempt yesterday to defend their record and to hit back at their critics.

Peter Martin, a non-executive since 1984, said he and his former colleagues did not act negligently but tried to carry out their duties with "honesty and responsibility" in guiding the society through turbulent times.

The strain of the mounting number of public attacks is showing on Mr Martin, who is 67 and now working full-time from his picturesque Wiltshire home to keep his former colleagues informed of the latest developments at Equitable.

They all feel "bitterness and outrage" at the public attacks against them in the last 12 months, Mr Martin said.

The latest allegation that Chris Headdon, the former appointed actuary, misled the regulators over Equitable's financial strength, was "a gross misunderstanding", he added.

A large amount of the outrage is directed at Sir Howard Davies, chairman of the Financial Services Authority, who recently branded the group "arrogant and superior" when facing his own grilling over possible regulatory failure in Equitable's demise by MPs on the Treasury Select Committee.

"Sir Howard can make this kind of personal remark and what is so unpleasant is that it is an environment where we cannot defend ourselves because he enjoys Parliamentary privilege," Mr Martin said.

The Equitable saga has not only driven a rift between the old Equitable board and its regulator, as each side struggles to defend their reputations. The story has also divided friends – Mr Martin had harsh words for Vanni Treves, head of Equitable's new board and a family friend of many years.

Mr Treves last week finally confirmed speculation about possible legal action, formally writing to Mr Martin and 19 other individuals on Equitable's board since the early 1990s, saying that the society would sue them unless they can come up with convincing explanations for their management decisions.

Mr Martin claims he does not have a personal quarrel with Mr Treves and supports his attempts to ratify a compromise agreement, the final details of which will be published today. But Mr Martin said the new chairman's threats were pandering to the "desire for revenge" of the policyholder action groups.

He says he is opposed to a court battle not just that he does wish not want to be sued. "Whenever an accident happens it should not be about attributing blame but trying to prevent a similar thing happening in the future," he said.

Unsurprisingly, the board members who resigned last December say the downfall of Equitable was accidental and therefore could not be foreseen. It is a story of tight spots and tough decisions and surprising and misguided legal judgments, according to Mr Martin.

First came the board's key decision in 1993 to pay smaller final bonuses to policyholders who exercised expensive guaranteed annuity returns on certain with profit policies.

At the time, the board believed it was the fairest policy. "Equitable is a mutual and so follows the principle of asset share – each member is entitled to what they put in plus an appropriate investment return, they are not entitled to any more. To pay GARs more bonuses would have meant taking away money from non-GARs and we felt that was unfair," Mr Martin said.

A group of GARs did not agree and took their case to the financial ombudsman. It was Mr Martin who in 1998 first suggested trying to settle the problem by bringing a test case over the guaranteed annuity rate (GAR) issue.

"We were confident we would win the case but in any case we had absolutely no choice. We could not settle it by taking money away from non-GARs and giving it to GARs as the non-GARs would have mounted their own legal action," he said.

The bold decision paid off with a victory in the High Court, but was then defeated in the Court of Appeal and House of Lords.

The House of Lords ruling, which went further than the Court of Appeal, spelled disaster for Equitable because it forced it to find £1.5bn of extra cash to hand back to GARs whose final bonuses were being cut.

As a result, many policyholders have endured bonus freezes for months and this July saw up to 16 per cent sliced off the value of their policies.

While not accepting any blame for the events, Mr Martin said: "We infinitely regret what has happened."

No doubt Equitable's policyholders do too.