The closure to new business of the world’s oldest mutual, the Equitable Life Assurance Society, in December 2000, followed the House of Lords ruling in the Hyman proceedings ([2000] 3 WLR 529). As is well known, their lordships held that the differential terminal bonus policy, which the society had introduced in 1993, was unlawful. In short, it was held that the policy discriminated against those policyholders who had contracted to take retirement benefits with an option for Guaranteed Annuity Rates (GARs) to be applied.
This debacle highlighted shortcomings in management and marketing of investments in the company’s with-profits fund – management failures in terms of a seeming lack of appreciation of the financial risks posed by the volume of its guaranteed annuities written in earlier years; and marketing failures in terms of the omission to explain the same risks to new investors into the fund.
