1982 - 1988
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| 01/01/1982 | The Insurance Companies Regulations 1981 (ICR 1981) come into effect. |
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| 04/01/1982 | The Equitable Life Assurance Society (Equitable) write to inform the Department of Trade and Industry (DTI) that they had appointed a new Appointed Actuary, with effect from 1 January 1982. |
| 29/06/1982 | Equitable submit their 1981 regulatory returns to DTI. Accompanying those returns are copies of the Society’s annual report and accounts for 1981, prepared in accordance with the provisions of the Companies Acts 1948 to 1980 and dated 14 April 1982. |
| 28/01/1983 | The Insurance Companies Act 1982 (ICA 1982) comes into force. |
| 02/02/1983 | DTI carry out an examination check of the Society’s 1981 returns. DTI conclude that this ‘does not reveal anything unsatisfactory’. They recommend that the Society’s priority rating remains at 3. An official (Officer A) passes the initial check to the regulatory line supervisor with responsibility for Equitable (Line Supervisor A). |
| 07/02/1983 | Officer A passes some further comments on the 1981 returns to Line Supervisor A. These include: This is a mutual and there is no information on the free assets position for 1981, while for the last four years the profits realised is shown under “capital and free reserves”. The position of the company appears to be sound with long term assets at £773,026K. Net premium income is up by £28,511K. Major part of the premium income during the last four years (1977–1980) was based on single premium business but the current year’s (1981) was mainly derived from regular premium business. The Line Supervisor responds that he has no comments. |
| 25/02/1983 | The Government Actuary’s Department (GAD) complete their scrutiny of the Society’s 1981 regulatory returns. GAD tell DTI that they have no comments on the returns. |
| June 1983 | Equitable submit their 1982 regulatory returns to DTI. (Note: the relevant DTI file is no longer available.) |
| 15/03/1984 | The Insurance Companies (Accounts and Statements) Regulations 1983 (ICAS Regulations 1983) come into force. |
| 16/06/1984 | Every insurance company is sent by DTI a letter setting out new arrangements between DTI and GAD for the scrutiny of returns. |
| 28/06/1984 | Equitable submit their 1983 regulatory returns to DTI. Accompanying those returns are copies of the Society’s annual report and accounts for 1983, prepared in accordance with the provisions of the Companies Acts 1948 to 1981 and dated 11 April 1984. |
| September 1984 | Every insurance company is sent by DTI a copy of their ‘Guidance Notes on the Preparation of Annual Returns’. These notes are reproduced in Part 4 of this report. DTI say that the guidance is ‘designed to assist insurance companies and their advisers in the preparation of returns to the Department and attempt to clarify points which may not be immediately apparent from the relevant legislation’. |
| 19/09/1984 | GAD complete both the A1 and A2 ‘Initial Scrutiny’ key checks on the Society’s 1983 regulatory returns. GAD note that the company have maintained their required solvency margin. They reduce Equitable’s priority rating from 4 to 5 and note that mortality rates are ‘a little tight in places but there are adequate margins elsewhere’. They identify no items of concern and no items to notify to DTI, to be taken up immediately with Equitable. GAD add the comment that: ‘The company’s investment reserve is £345m compared with [nonlinked liabilities] of £1023m and [linked liabilities] £37m – massively solvent!’. GAD also prepare a ‘Form B’, tabulating some key figures disclosed in the 1982 and 1983 returns. (Note: Initial Scrutiny checks comprised: form A1 (key checks, usually carried out by a trainee actuary at GAD, covering completeness of returns, certificates, solvency and compliance); Form A2 (key checks (Actuary), carried out by the GAD scrutinising actuary, which included new rating and a space to record any aspects of the returns which caused concern (from 1988, aspects which ‘look worrying’) or which needed to be notified to DTI, to be taken up with the company immediately); Form B (some key statistics drawn from the returns). The design of the forms changed over time.) |
| 27/06/1985 | Equitable submit their 1984 regulatory returns to DTI. Accompanying those returns are copies of the Society’s annual report and accounts for 1984, prepared in accordance with the provisions of the Companies Acts 1948 to 1981 and dated 3 April 1985. |
| 23/07/1985 | GAD complete the A1 Initial Scrutiny check on the Society’s 1984 returns. GAD note the cover for the required minimum margin is 8.53. They do not identify any concerns. |
| 24/07/1985 | GAD complete the A2 Initial Scrutiny check on the Society’s 1984 returns. GAD raise Equitable’s priority rating from 5 to 4 and note that the question ‘Do the reserves for maturity guarantees look reasonable?’ is not applicable. GAD identify some missing and inadequate information in the returns, but record some of this as ‘trivial’. GAD note that only a ‘trivial’ proportion of the major classes of business is reinsured. They also note some queries about unitlinked policy expense charges and about the expense reserve, but also that these need not be pursued. GAD identify no items of concern and no items to notify to DTI, to be taken up immediately with Equitable. GAD also prepare a Form B, tabulating some key figures disclosed in the 1982, 1983 and 1984 returns. |
| 02/08/1985 | GAD write to Equitable highlighting the new procedure under the 1984 Service Level Agreement whereby GAD have responsibility for scrutinising returns in respect of long term insurance business. GAD continue: In order to assist us in providing advice to Insurance Division on your society’s returns for the year ending 31 December 1984 we would be grateful for the comments of the actuary appointed to your society under section 19 of the Insurance Companies Act 1982, on the matter set out in the remainder of this letter. We would be glad to hear directly from him if that would be more convenient for your society. This matter has come to our attention during our initial scrutiny of the returns; further matters may arise when a detailed scrutiny is carried out. GAD then set out the issue on which the Appointed Actuary is asked to comment: The reply to paragraph 5 to Schedule 4 (which refers us back to the 1982 returns) indicates that no explicit provision for tax on unrealised capital gains was made, nor was any explicit provision made for any mismatching between the nature and term of the assets held and the liabilities valued. It was no doubt considered that the excess of available assets (Form 14.51) was sufficient to meet these liabilities. With the implementation of the longterm business solvency margin, operative from 15 March 1984, it is necessary to make a clear distinction between liabilities and margins, and foot note 3 to Form 14 is designed to achieve this where the long term fund in the Revenue account is brought in at less than the full value allowed by the Asset Valuation Regulations. GAD continue: Would the actuary please state the provision, included in line 51 of Form 14, which should be shown as a foot note to that form and included in (a)(ii) of the actuary’s certificate and in the mathematical reserve shown in Form 9. Alternatively if the actuary is satisfied that provision is made for tax on unrealised capital gains, in the circumstances of the society ceasing to transact new business, and for any mismatching reserve in relation to assets taken at their Form 13 value within the mathematical reserves established in Schedule 4, paragraph 5 would need to be rewritten. GAD conclude by asking Equitable to: Please send to the Department of Trade any amendments to the 1984 returns which are made as a result of the points in this letter, so that they can be placed on public record. GAD also state that: It would be helpful, for the 1985 returns, if detailed answers to question 5 of Schedule 4 could be given, rather than referring back to a previous return. This will enable specific replies to questions 5(1) (a) to (g) and 5(2) (a) and (b) to be clearly identifiable. |
| 09/08/1985 | Equitable’s Appointed Actuary responds to GAD. The Appointed Actuary explains: When making the statement in the 1982 returns that no explicit provision for tax on unrealised capital gains was made it was not intended that this should be taken to mean that provision was made in the excess of available assets. This applies also to the 1983 and 1984 returns as indicated by the absence of a foot note to Form 14. He continues: ‘In my opinion no additional reserve for tax on unrealised capital gains or for mismatching of assets and liabilities was necessary’. The Appointed Actuary then provides amended answers to question 5 of Schedule 4, saying: I note that it would be helpful if specific replies to questions 5(1)(a) to (g) and 5(2)(a) and (b) could be given. I attach as an appendix to this letter answers to question 5 of Schedule 4 in this form. I have taken the opportunity to expand on the answer to 5(1)(e) to reflect the above and in 5(1)(a) to take account of your comments. Against this, a Chief Actuary at GAD (Chief Actuary A) writes: ‘? Not formal amendments to returns’. He also records a number of queries on the amended information. Against the statement that no mismatching reserve is required, he notes ‘???’. Against the statement that no additional reserve has been made for prospective liability for tax on unrealised capital gains, he notes ‘why not?’. (Note: no reply to this letter was sent at the time, but see 18/08/1986, 04/03/1987 and 23/03/1987.) |
| 14/11/1985 | Every Appointed Actuary is sent by the Government Actuary a copy of his first Dear Appointed Actuary letter (DAA1) on valuation returns in relation to solvency margins. The Government Actuary says that scrutiny of the 1984 returns has shown that many actuaries had not appreciated the impact of the changes brought in from March 1984. Actuaries had beensent letters drawing their attention to aspects of the 1984 returns which did not meet the relevant requirements, and DTI, with GAD, are following these up on a company by company basis. He draws attention to guidance issued by DTI in September 1984; he explains more fully the background and expresses the hope that misunderstandings can be cleared up in time for the preparation of the 1985 returns. |
| 27/05/1986 | GAD complete their examination of the Society’s 1984 regulatory returns. GAD write to DTI, saying: The Society is in a strong financial position, with the required minimum margin being covered 8½ times, though this overstates the excess since the society did not show any provision for capital gains in mismatching reserves. [Chief Actuary A] wrote to them in August 1985. The actuary’s main report used a bonus reserve method to value the liabilities but he has provided a supplementary report using a net premium valuation on a strong basis complying with [Regulations 5564 of the ICR 1981]. This society distributes surplus generally every three years in the form of reversionary bonuses, the last distribution being in 1982. The long term fund is currently providing surpluses of £40m or so every year without any transfer from investment reserves so that the distribution as at 31 December 1985 is likely to need only a moderate transfer. I have no further questions for the society. |
| 26/06/1986 | Equitable submit their 1985 regulatory returns to DTI. Accompanying those returns are copies of the Society’s annual report and accounts for 1985, prepared in accordance with the provisions of the Companies Act 1983 and dated 2 April 1986. |
| 30/06/1986 | Equitable send DTI £5,000 in respect of Insurance Fees for their 1985 returns. |
| 21/07/1986 | GAD complete the A1 Initial Scrutiny check on the Society’s 1985 returns. GAD note that the cover for the required minimum margin is 5.15. They do not identify any concerns. |
| 30/07/1986 | GAD complete the A2 Initial Scrutiny check on the Society’s 1985 returns. GAD reduce Equitable’s priority rating from 4 to 5. They note that the parameters used in valuing or testing unitlinked contracts are too low, but that there is not much of this business in force compared with the total. GAD note that Equitable have again not provided sufficient information in relation to any explicit provision for tax on unrealised capital gains or any mismatching reserve (see 02/08/1985) and suggest ‘Possibly take up [this issue] at early stage’. They identify no other items of concern and no items to notify to DTI, to be taken up immediately with Equitable. The relevant GAD file includes a computerised Form B, tabulating some key figures disclosed in the 1981 to 1985 returns. GAD also produce a computerised Form C1 – Nonlinked companies. This Form includes further key figures disclosed in the 1981 to 1985 returns. |
| 18/08/1986 | GAD write to Equitable’s Appointed Actuary with one query on the Society’s 1985 returns, explaining that ‘we are paying particular attention to the replies to Question 5(1)(a) of Schedule 4 of companies’ 1985 returns’. That question asked for ‘the basis of the provision made for any mismatching between the nature (including currency) and term of the assets held and the liabilities valued’. GAD state: It would be most helpful if you could clarify one aspect of your company’s answer to that question. Does the answer mean that in the assumed changed investment conditions the Society would be able to setup mathematical reserves which satisfy the relevant Regulations without making any call on the excess value of admissible assets of £445,456,000 shown in line 51 of form 14? In other words is the assumed fall in asset values covered entirely by the reduction in the amount of the liabilities in the changed conditions compared with the mathematical reserves actually set up in Schedule 4. |
| 08/09/1986 | Equitable apply to DTI for a section 68 Order to allow them to make returns on business identified as ‘personalised funds’ in aggregate form. Equitable explain that they have recently extended their range of ‘personalised funds’ and, as they are required to show each fund separately in four different forms in the returns, this ‘could result in a significant increase in the content of these Forms’. The Appointed Actuary says that a section 68 Order ‘would simplify the preparation of the returns and in my opinion would not detract from the information given’. (Note: a section 68 Order was made by the prudential regulators on the application, or with the consent, of an insurance company which directed that all or any of the relevant statutory requirements should not apply or should apply with modified effect to that company for a specified period.) |
| 09/09/1986 | Equitable’s Appointed Actuary replies to GAD’s letter of 18/08/1986. He confirms that: … in the assumed changed investment conditions the Society would be able to set up mathematical reserves which satisfy the relevant Regulations without making any call on the then value of the assets represented by the excess value of admissible assets shown He continues: I am sorry this was not clear. I had taken it that the answer to Question 5(2)(a) covered this point. I can, however, now see that my answer to this question could be taken as indicating the book values would be maintained at current levels in changed investment conditions by recourse to the excess value of admissible assets. When answering Question 5(2)(a) I had assumed that the book value would be written down to reflect the changed investment conditions. GAD note that: The answer to [our] letter of 18/08 looks satisfactory. He appears to say that [the] Society could set up adequate reserves without recourse to [the Investment] Reserve … In [the returns] he says that assets are taken at book value in Form 58 [valuation result and distribution of surplus]. He had assumed that then book values would be written down under the new investment conditions and no recourse to [the Investment] Reserve would be needed i.e. these revised book values would exceed mathematical liabilities. It seems that the answer [in the returns] needs amending to make it clear what he is saying. (See 23/03/1987 and 15/09/1987.) |
| 12/09/1986 | A GAD actuary who has taken on responsibility for Equitable (Scrutinising Actuary A) informs DTI that GAD have no objection to Equitable’s ‘personalised funds’ being aggregated for the purpose of the returns. (See 08/09/1986.) |
| 14/10/1986 | DTI send Equitable the section 68 Order allowing Equitable to include details of their ‘personalised funds’ in aggregate form. The Order is subject to the following conditions:
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| 17/10/1986 | GAD inform Equitable’s Appointed Actuary that they will consider the 1985 returns, with DTI, in the light of the additional information provided in Equitable’s letter of 09/09/1986. GAD copy the letters of 18/08/1986 and 09/09/1986 to DTI. GAD state that they wish DTI to: … consider whether some amendments to the returns are required. In my view para 5(1)(a) is not as clear as it might be and [the Appointed Actuary] admits that it relies on a particular interpretation of the answer in paragraph 5(2)(a). I do not think that his interpretation is the normal one because it is not usual to write down the book values of assets until the market values fall below them. GAD continue: If you agree with my thoughts perhaps you would advise me how you would wish matters to proceed. Will you take up the matter with the company or would you prefer me to do it? Alternatively could you accept the 1985 returns as they stand provided the company undertakes to make suitable alterations to the wording in preparing the 1986 returns? |
| 29/10/1986 | DTI reply to GAD to say that they agree that: … [the Appointed Actuary’s] interpretation … does not appear to be the normal one. In the circumstances we would be content for the company to make amends in the 1986 returns. Since you are already in touch with [the Appointed Actuary] about this may I accept your offer to take up the point directly with him. |
| 12/11/1986 | GAD write to Equitable’s Appointed Actuary, saying: Further to my letter of 17 October the Department of Trade and Industry has advised me that it would be content for the company to make amends in the 1986 returns. If you are agreeable to reconsider the answers to paragraphs 5(1)(a) and 5(2)(a) when preparing the next set of returns it would not be necessary to pursue the matter in relation to the 1985 returns. Could you please let me know if this method of proceeding is acceptable to you so that I may advise DTI accordingly[?] |
| 27/11/1986 | Equitable’s Appointed Actuary replies to GAD, saying that he is happy to proceed as was proposed in their letter of 12/11/1986. |
| 04/03/1987 | Scrutinising Actuary A sends a note to Chief Actuary A headed ‘Equitable Life – 1985 Returns’. The Scrutinising Actuary refers to queries raised in 1986 about the 1985 returns and to two points arising from the 1984 returns, namely:
The Chief Actuary records on the note that he recalls that a letter had gone missing and that he and the Scrutinising Actuary have discussed and now agree to leave the point about sterling reserves to the next set of returns, to take up some minor points on the telephone, and to reply in writing to the letter of 09/08/1985. |
| 23/03/1987 [entry 1] | GAD write to Equitable’s Appointed Actuary referring to a telephone conversation on 13 March 1987 about the letter of 09/08/1985. GAD note that: … you consider there are sufficient margins in the mathematical reserves to cover any potential tax on unrealised capital gains, taking into account that the major proportion of the liabilities relate to gross funds. I understand that you are happy to make specific reference to this in the next set of Returns. |
| 23/03/1987 [entry 2] | GAD complete their detailed scrutiny of the Society’s 1985 regulatory returns. GAD provide DTI with a one and a half page ‘final report’. GAD state: The Society declared a triennial bonus at the end of 1985. The cost of these bonuses (which included a transfer of £125 million from investment reserve) has resulted in a reduction of available free assets. At the same time the required minimum margin increased during the year by 35% due to a corresponding increase in the mathematical liabilities. These changes have resulted in a reduction in the cover for the [required minimum margin] to 5.2 X (previously 8.5 X). The society has announced that it will be declaring bonuses on an annual basis in future … The Company has valued its liabilities on a bonus reserve basis as in previous years. It has also provided details of a net premium valuation in accordance with the regulations. With reference to the letter to Equitable (12/11/1986), GAD say: ‘After consultation with D.T.I. it was agreed to leave the 1985 returns unchanged subject to an undertaking to amend this paragraph [about their mismatching reserve] in the 1986 Returns’. As regards the lack of an additional reserve for tax on unrealised capital gains, GAD explain: The actuary has pointed out that as most of the liabilities relate to gross funds, any tax provision would be small and is amply covered by the margins in the valuation basis. He intends to refer to this in the next set of Returns. We recommend that DTI should accept the Returns as they stand on this point. |
| 11/05/1987 | DTI provide briefing for a visit by a Minister to Equitable. DTI describe Equitable as ‘probably the oldest and most respectable of all UK life insurance companies’. They note that there are ‘no supervisory questions outstanding with the Society, with which we are content to have little contact’. |
| 26/06/1987 | Equitable submit their 1986 regulatory returns to DTI. Accompanying those returns are copies of the Society’s annual report and accounts for 1986, prepared in accordance with the provisions of the Companies Act 1983 and dated 2 April 1987. Equitable also send DTI a declaration under section 94A of ICA 1982 (note: this gave DTI the power to charge fees from insurance companies to recover, to the extent possible, the costs of the prudential regulation of such companies). Equitable pay Insurance Fees of £5,200 in respect of their 1986 returns. |
| 08/09/1987 | GAD complete the A1 Initial Scrutiny check on the Society’s 1986 regulatory returns. GAD note that the cover for the required minimum margin is 5.38. They do not identify any concerns. |
| 15/09/1987 | GAD complete the A2 Initial Scrutiny check on the Society’s 1986 regulatory returns. GAD give Equitable a priority rating of 5 (unchanged from the previous year). They note that Equitable have provided the information needed on unrealised capital gains and any mismatching reserve (see 23/03/1987). GAD identify no items of concern and no items to notify to DTI, to be taken up immediately with Equitable. GAD produce two forms (‘Form B’ and ‘Form C1’ ), tabulating key figures disclosed in the 1982 to 1986 returns. |
| 22/09/1987 | GAD provide DTI with their final report on the Society’s 1986 regulatory returns. GAD state that the point raised with Equitable on the 1985 returns (see 12/11/1986) has been dealt with. GAD record that cover for the required minimum margin has increased to 5.38 and that they have no new questions for Equitable. GAD say: It is interesting to note that for 1986 the Society has made reductions in the bonus rates for reversionary bonuses on all classes of policies. To compensate for these reductions the Society has increased the rates of Terminal Bonuses paid on all policies. We understand that this means that there is unlikely to be any overall reduction in benefits payable at maturity of a policy. The Society has valued its liabilities on a bonus reserve basis as in previous years, and has provided full details of an alternative net premium valuation basis in accordance with the regulations. |
| 13/10/1987 | DTI provide briefing for the Permanent Secretary of the Treasury, prior to a lunch with Equitable on 19/10/1987. DTI repeat that Equitable are ‘probably the oldest and most respectable of all UK life insurance companies’. They provide some core statistics for 31/12/1986 (being free assets of £475m, long term business fund of £2,305m and net premium income of £397m). DTI add: The Society appears to be sound and has expanded steadily with the underlying trend of expenses being satisfactory. Its strong solvency position makes it low priority in the companies supervised by [DTI]. Consequently contact with the Society is infrequent and there appear to be no important current issues. DTI suggest two issues which might be pursued at the meeting – Equitable’s assessment of changes in the industry following the FS Act 1986, and what growth in business Equitable foresee when new personal pensions begin. |
| 29/04/1988 | The FS Act 1986 regulatory regime comes into force. |
| 28/06/1988 | Equitable submit their 1987 regulatory returns to DTI. Accompanying those returns are copies of the Society’s annual report and accounts for 1987, prepared in accordance with the provisions of the Companies Act 1983 and dated 30 March 1988. Equitable send DTI a declaration under section 94A of ICA 1982 and pay Insurance Fees of £6,000 in respect of their 1987 returns. |
| 30/06/1988 | On the introduction of new personal pension policies in response to changes to the legal framework for pensions, Equitable cease to offer guaranteed annuity rates on new policies sold after this date (other than in respect of a small number of group schemes). Certain classes of policyholders continue to enjoy the right to pay further premiums in the future to which the annuity guarantee contained within their original policy would apply. (Note: I understand that Equitable’s move was consistent with a general industry trend away from including such guarantees in pension policies.) |
| 22/07/1988 | GAD complete the A1 Initial Scrutiny check on the Society’s 1987 regulatory returns. GAD note that cover for the required minimum margin is 3.95. |
| 23/08/1988 | GAD complete the A2 Initial Scrutiny check on the Society’s 1987 regulatory returns. GAD raise Equitable’s priority rating from 5 to 4. They identify no items that are worrying and no items to notify to DTI, to be taken up immediately with Equitable. They note three other matters:
GAD also complete an ‘AIDS Category – Initial scrutiny’. They note that the ‘Sums assured at risk’ are £7,798m and the Society’s free reserves are £390m. In the notes section, GAD write:No specific AIDS reserve set up. Actuary states margins are sufficient. Query basis. GAD produce two forms (‘Form B’ and ‘Form C1’ ), tabulating key figures disclosed in the 1983 to 1987 returns. |
| 26/08/1988 | GAD write to Equitable’s Appointed Actuary and ask about the reserving basis used in the 1987 returns to provide for future AIDS mortality. On GAD’s copy of the letter, someone has written: ‘You might get a dusty answer!’. |
| 21/09/1988 | Equitable’s Appointed Actuary replies to GAD’s letter of 26/08/1988. He explains that Equitable have not set up an explicit reserve as: The question of whether or not an explicit reserve against a contingency should be established at the present time for the Society’s business seems to me a matter of equity. To take such action effectively retains monies from policyholders now leaving the fund which may, in the event, not be required … In my view the information currently available on the effects of AIDS is so speculative that I find it difficult to justify penalising contracts leaving the fund at this time. I did of course check that such action was prudent and can confirm that the additional reserve … in respect of all of the sums at risk is only a small percentage of the future bonus reserve within the valuation. It is thus clear that future bonuses would comfortably be able to take the additional strains which would arise on that basis. You may also take reassurance from the point that a significant proportion of the Society’s procuration expenses are written off in the year of acquisition. The loadings fall into surplus as the contract matures but could have been anticipated. |
| 14/11/1988 | Every Appointed Actuary is sent by GAD a copy of DAA2 on reserving for AIDS. |
