BURGESS HODGSON NUMBERS ADD UP IN EQUITABLE LOSS (04/08/10)

Burgess Hodgson’s investigations into the Equitable Life debacle - and its estimate of the compensation owed to policyholders - have been vindicated by the recent government announcement of compensation payouts.

The Canterbury-based firm, working on behalf of the Equitable Members’ Action Group, has played a key role in estimating the aggregate losses suffered by Equitable Life policyholders ever since near-collapse in 2000 of the UK’s oldest insurer.

And now the government has announced that savers who lost money in the Equitable Life debacle should start receiving compensation payments in the middle of 2011.

Treasury minister Mark Hoban has said that 1.5 million savers would be compensated for their "relative loss as a consequence of regulatory failure". The figure for this ‘relative loss’ has been estimated at between £4bn and £4.8bn – the same figure that Burgess Hodgson came to in its independent assessments.

However, Sir John Chadwick, who was asked by the previous Labour government to devise a much more limited scheme, has suggested that compensation should be capped for each policyholder at about 10% of the relative loss figure, which could be as little as £400-£500m – or £250 per policyholder.

Colin Slater, partner at Burgess Hodgson, who has been working with EMAG, said: “Our calculations for EMAG have been vindicated.”

And, he added, it’s not the first time that the practice has been proved right in its estimates relating to Equitable Life.

“In 2003, we advised EMAG that in addition to the well-known guaranteed annuity rate problem, which was believed to have caused the Society’s demise, it also had a shortfall of assets of £1 billion as far back as 1990.

“This estimate was prepared entirely from published information. A year later, this was confirmed by Lord Penrose who had full access to the Society’s records.”

An Equitable Life bill has now been introduced to Parliament that will pave the way for the Treasury to make the compensation payments.

Mr Hoban confirmed the scheme would follow the recommendations of the 2008 report from the Parliamentary Ombudsman.

An independent commission has been set up to advise on the best way to allocate payments.