Pru chief quit over damning report

`The Pru has always been a great company, incandescently honest in its relations'
Click to follow
The Independent Online
A damning secret regulator's report on the inappropriate selling of private pension plans, which could cost the Prudential hundreds of millions of pounds, was a key factor in the sudden departure of Mick Newmarch as chief executive, it has emerged .

The report by Lautro, the life assurance regulatory organisation, was delivered to the Prudential shortly before the end of last year, and is believed to challenge the claim by Britian's biggest insurer that it has been untainted by the scandal over personal pensions.

Controversy in the pensions market erupted in 1993 after it was discovered that there had been widespread selling of personal plans to those who would have been better off staying in company schemes. The Pru acknowledged it had sold some of these, but maintained that it had acted above reproach.

But Lautro's report means it faces the prospect of disciplinary action which would have put Mr Newmarch, 56, in a difficult position. He had nailed his personal colours firmly to the banner of an aggressive campaign to prove the Pru was not involved in improper selling.

His situation was complicated by the controversy surrounding a share sale in October, the subject of an imminent Stock Exchange report.

A Pru spokesman said last night: "We have been having continuing discussions and communications with Lautro since April 1994 on the subject of our informal inquiry and at the moment we have nothing further to say about it."

The Lautro findings are the culmination of a near-year-long investigation into the Prudential's selling of transfers into personal pension plans. Led by Mr Newmarch, the Pru conducted a vigorous publicity campaign to show it was different from other insurers tainted by the pensions scandal, and that it had no case to answer. Although the Lautro conclusions are believed not to suggest that the Prudential's problems on personal pensions are greater than most of its competitors, they are as bad.

It is expected that the report will be scrutinised by Lautro's monitoring committee, which includes top insurance industry practitioners, in the next month or two. In the light of the report's findings, the Prudential risks being ordered to take certain corrective measures. For other insurers found to have acted improperly on pensions' sales, such measures have included the retraining of sales staff, the introduction of stricter controls, and the dispatch of letters to clients suspected of having been disadvantaged, offering compensation.

Smith New Court, the brokers, have predicted the cost to the Pru could amount to £200m. The monitoring committee usually does decide to publish such reports, and it was the prospect of this happening that may have prompted Mr Newmarch's resignation late on Monday night. Latest figures revealed the chief executive's total salary, including pensions' contributions, as £834,068.

Even when it was revealed last summer that Lautro was conducting what it called an informal Inquiry into the Prudential's pensions selling, Mr Newmarch maintained his defiant line that the insurer had always acted entirely properly.

A leaked internal memo from Lautro at the time spoke of "significant cause for concern" about the Pru's sales practices, and that "actual harm to investors had been detected".

But in an interview last year Mr Newmarch said: "The Pru, in my eyes, has always been a great company, incandescently honest in its relations both internally and externally."

At the end of 1993, the Pru ran an advertising campaignproclaiming it was not involved in the problems engulfing the industry. Throughout 1994, it stuck by this line.