This piece first appeared on BBC Online on 24 January 2001
 The text here may not be identical to the published text

The pillars of Britain’s financial establishment knew the extent of the problems at Equitable Life two days before the rest of us. On Wednesday 6 December 2000 an emergency meeting of the Standing Committee on Financial Stability was called. David Clementi, deputy governor of the Bank of England, Michael Foot, Managing Director of the City watchdog the Financial Services Authority, met with Sir Stephen Robson, second permanent secretary at the Treasury, in the chair. Emergency meetings of the committee are only called when a potential threat to Britain’s financial stability is identified.

Equitable was in difficulties after losing a major battle in the courts. It first lost in the Court of Appeal on 21 January 2000. Between then and December 8 it tempted thousands of people to become new customers. The exact figure is uncertain, but Equitable admits that it tempted 5000 new customers to join after it finally lost its case in the House of Lords on 20 July.

Susan Wood was sold an Equitable policy just before that decision. She told Money Box

"I finally signed a few weeks before the court case was lost and I kept asking him, was this a wise time to do this? I would have been much happier to leave it really until after the court case was settled. I think the advice was wrong. I feel the bottom has been wrenched from my future financial stability".

As long ago as 1998 officials in the Treasury were expressing concern about whether Equitable had the funds to meet the cost of guaranteed pension rates which it had promised to customers who joined from 1956 to 1988. The Treasury took no action but has told us that no redress is due or will be made to people like Susan. And the City watchdog, the Financial Services Authority, which hardly left its kennel never mind growled, accepts no responsibility either even though it allowed Equitable to carry on selling policies right up to December 7. In July the five Law Lords decided that Equitable had to honour guarantees it had made. It had promised rates of return on policyholders’ investments which had seemed very modest at the time but which, as interest rates fell, ended up far higher than could be obtained in the market. Mary Francis, the Director General of the Association of British Insurers, told Money Box that Equitable had made what she called ‘a bet about the way interest rates would move in the future,’ and lost.

Equitable's board room where the fateful decisions were made in the 1950s

The case concerned the rights of 90,000 individual holders of these so-called ‘guaranteed annuities’. But Money Box enquiries revealed that there are another 100,000 people who have guarantees through company schemes and additional voluntary contributions paid into them. Some experts estimate the final bill for paying them could be treble the official estimate of £1.5 billion. The rest of Equitable’s customers will have to pick up the bill.

Equitable really was insurer to the Establishment. It emerged during our researches that two out of the nine judges at the three court hearings had Equitable policies. It is believed that Lord Hoffmann, who was one of the five Law Lords who found for Equitable guaranteed annuity holders, had a guaranteed policy himself.

Four separate enquiries have been launched – covering actuaries, accountants, regulators and Equitable itself. Most commentators, though, agree that the board of Equitable Life must bear the main responsibility. Even the current Chief Executive, Chris Headdon, admitted to us

"Did the management get it wrong? The answer to that is clearly yes."

Small comfort to his million customers.

24 January 2001