The latest attack on the FSA follows Equitable Life’s decision last week to reduce the value of with profit policies by an amount equal to 16% dating back to 31 December 2000.
Parliamentary commissioner for administration Michael Buckley has already warned that he is to begin investigating complaints about the ‘alleged failure’ of the FSA and other regulatory bodies to exercise adequate supervision over the affairs of the insurers.
Equitable said the cut in policy values was the result of heavy devaluation in world stock markets over the last 18 months as well as mature values significantly exceeding the value of the investments underlying maturing policies.
In addition, it said a large number of policyholders are currently retiring and taking their benefits.
Paul Braithwaite, chairman of the Equitable Members’ Action Group attacked the FSA for ‘sitting on its hands’. In the Financial Times, he berated the watchdog for ‘allowing a growing flood of leavers to take out thousands of pounds more than their asset share, and a bonus for 2001’.
‘The FSA could and should have been pro-active and intervened months earlier,’ Braithwaite said.
But FSA chief Howard Davies defended the actions of Equitable’s board. Davies told the FT that while the FSA could challenge the assumptions of the life assurer, ‘companies have a considerable degree of discretion as to how they choose to allocate their reserves’.
He added: ‘It is not open to [the FSA] to specify precisely how they should do this.’
Since 8 December 1999 Equitable Life, the worlds oldest mutual life assurer has not written any new business and operated as a closed fund. In July last year, the House of Lords ruled its decision to cut terminal pensions bonuses to holders of guaranteed annuity rate policies was illegal.
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