Equitable Life board to quit

The president and non-executive directors of troubled Equitable Life are to step down.

The company said John Sclater, Equitable's president, and seven non-executives, would go as soon as replacements were found.

The board will be seeking new directors who have the relevant skills to help the society in its transition and who reflect the concerns of members

Letter to policyholders

The announcement came amid mounting recriminations over whether the company and its regulators did enough to protect Equitable's policyholders.

A million customers face lower growth from their investments since the company was forced to close to new business 12 days ago.

Equitable, the world's oldest insurer, closed its doors to new business after failing to find a buyer.

The move left Equitable's policyholders facing an uncertain future and provoked criticism of City watchdog the Financial Services Authority, which has launched an investigation into the affair.

Probe launched

Equitable said it would also look to bring in an appointed actuary, or finance director, to replace Chris Headdon, who took on the role of chief executive after the resignation of incumbent Alan Nash this month.

The new appointments will need to be made by the spring to give time for them to be in place before the society's annual general meeting in May.

In a letter to policyholders the company said: "The board will be seeking new directors who have the relevant skills to help the society in its transition and who reflect the concerns of members."

The news comes the day after it was announced that a probe into the handling of the affair was being launched by the internal audit department of the Financial Services Authority.

The review came amid claims that the government and the regulator were aware that the mutual life insurer would not be able to make the bonus payments it had promised.

Unanswered questions

Earlier this year, the Equitable lost a court battle against policyholders, who refused to accept a cut in their bonuses.

Equitable put itself up for sale in July after the High Court ruled it must honour pension guarantees totalling about £1.5bn - something the company on its own can not afford.

Many policy holders want to know why the Equitable Life was allowed to continue trading until now.

They are likely to be further angered by claims that the government and regulators were aware of the Equitable's problems since November 1998.

Guaranteed income

The Equitable, founded in 1762, remains solvent and says it will continue to pay out benefits and accept premiums under existing policies.

The court battle focused on Guaranteed Annuity Rate (GAR) policies sold by Equitable Life, which allowed policyholders to opt for minimum pension payouts and land a bonus when their policy matured.

About 90,000 Equitable Life policyholders out of a total of 500,000 have GAR policies.

They bought products with a guaranteed minimum annuity - typically £12,500 a year for £100,000 in pension savings.

The guarantees were made by many life insurers, but longer life expectancy and lower interest rates mean they are now much more expensive to honour than originally expected.

Court defeats

A shortfall in funding led Equitable to ask the GAR policyholders to accept a cut in their bonuses or give up their right to guaranteed annuity rates.

This led to an outcry among policyholders who launched the legal action alleging breach of contract and abuse of discretionary powers by the society's board.

Those most likely to be hit by the crisis are those holding with-profits policies as the Equitable has to change its investment strategy.

It says policyholders who were making regular contributions could continue to do so, although with-profits policyholders should consider the impact of the likely lower investment returns on their savings over time.