for the company based in the united states founded 1859 see axa equitable life insurance company . the equitable life assurance society type mutual industry financial services founded 1762 headquarters london england uk key people ian brimecome chairman website equitable life assurance society the equitable life assurance society equitable life founded in 1762 is a life insurance company in the united kingdom . the world s oldest mutual insurer it pioneered age based premiums based on mortality rate laying the framework for scientific insurance practice and development 1 and the basis of modern life assurance upon which all life assurance schemes were subsequently based . 2 at its peak equitable had 1.5 million policyholders with funds worth 26 billion under management but it had allowed large unhedged liabilities to accumulate in respect of guaranteed fixed returns to investors without making provision for adverse market changes . many policyholders lost half their life savings and the company came close to collapse . 3 following a july 2000 house of lords ruling and the failure of attempts to find a buyer for the business it closed to new business in december 2000 and reduced payouts to existing members . 4 the 2004 penrose report found that the company had made over generous payouts leading it to be under funded . a 2007 european report concluded that regulators had focused on solvency margins and failed to consider the increasing risk of accrued terminal bonuses . the october 2010 spending review by the coalition government announced compensation of 1.5 bn above the level recommended by the review conducted by sir john chadwick and below the 4 4.8 bn loss calculated by consultants towers watson . 5 contents 1 history 1.1 organisation 2 guaranteed annuity rates article 65 and the hyman case 2.1 house of lords ruling on the hyman case 3 aftermath of the hyman case sale of business and current trading 4 reports by the actuarial profession and fsa 5 the penrose report 6 european parliament investigation 7 legal actions by equitable life 8 government response and the parliamentary ombudsman 9 government response after may 2010 general election 10 references 11 external links history edit the society established via a deed of trust in september 1762 with the name of the society for equitable assurances on lives and survivorships offered both whole life and fixed term policies . premium which were constant for the duration of the policy 2 were based on a method devised by the mathematician james dodson using mortality figures for northampton 1 and the amount payable on death the basic sum assured was guaranteed a major advantage at the time . 2 as dodson had died five years earlier edward rowe mores became its chief executive officer with the title of actuary the first use of the term though he was an administrator rather than a statistician . 6 the first modern actuary william morgan was appointed in 1775 serving until 1830 . in 1776 the society carried out the first actuarial valuation of liabilities and subsequently distributed the first reversionary bonus 1781 and interim bonus 1809 among its members . 1 it also used regular valuations to balance competing interests . 1 its products therefore met the description of a modern with profits policy . the society sought to treat its members equitably and the directors tried to ensure that the policyholders received a fair return on their respective investments . throughout the society s history the annual allocation of bonuses was a carefully thought through decision based on actuarial advice designed to promote fairness and equality between current policyholders and between different generations of policyholders . 7 its methods were successful enough for it to be able to reduce its premiums by 10 % in 1777 and a further reduction was forthcoming in 1781 . 2 by 1799 the society had assets of 4m and its 5 000 membership subsequently doubled to 10 000 in 1810 . famous 19th century policyholders included samuel taylor coleridge william wilberforce and sir walter scott . 2 in 1870 the life assurance companies act was passed requiring all life offices to publish financial data on the lines so long followed by the equitable . 8 9 in the 20th century henry manly devised the concept and theory of staff pensions which the society marketed from 1913 . 1 pensions became available to the self employed in 1957 when the society launched the retirement annuity plan . 2 corporate pension scheme members included the nhs unilever and the post office . 2 organisation edit the society s first offices were in the parsonage of st nicholas acons in nicholas lane moving to blackfriars in 1774 . approval of policies the main business of the society was undertaken by the court of directors whilst resolutions had to be approved at two meetings of the general court which all members were entitled to attend . from 1786 this court also dealt with grievances and there was early tension between initial subscribers wanting a return on investment and those wanting to recruit new members . in 1816 a waiting period was introduced for new members and only the oldest 5000 policies were entitled to bonuses . 8 in 1893 the memorandum and articles of association was adopted incorporating the society as the equitable life assurance society and transferring power to the directors . the 1816 membership and bonus restrictions were removed . 8 the society moved to mansion house street in 1863 coleman street in 1924 and to new offices in aylesbury in january 1983 . 10 the archives of the society from 1762 to 1975 are held by the institute of actuaries . 11 the society acquired the university life assurance society and the reversionary interest society in 1919 and the equitable reversionary interest society in 1920 . 6 guaranteed annuity rates article 65 and the hyman case edit many of equitable s with profits policies were designed to provide a pension for the policyholder on retirement 12 and the lump sum available for annuity purchase depended on the sum assured the reversionary bonuses and the larger terminal bonus . both types of bonus were allocated at the discretion of the directors in accordance with article 65 of the articles of association the total being intended to reflect the investment return over the lifetime of the policy subject to smoothing . 12 between 1956 and the advent of personal pension schemes in july 1988 equitable sold policies with an option to select either a guaranteed annuity rate gar or the current annuity rate car . the latter reflected the anticipated investment return on the lump sum over the annuity holder s lifetime and could change with interest rates or longevity . 12 no additional premium was charged in respect of the guarantee . 7 in 1979 legislation allowed the lump sum to be transferred to another annuity provider . as a result communications with policyholders increasingly focused on the lump sum rather than annuity benefits . the gar assumed 4 % interest until 1975 when it was increased to 7 % . by may 2001 of equitable s 1.1 m policyholders about 16 % held a gar option . 12 during the 1980s and 1990s equitable experienced a further period of rapid growth . it developed market leading personal pension and additional voluntary contribution plans while maintaining its record of operating with one of the lowest expense ratios in the industry . 2 its success was partly based on its reputation its strategy of paying no commissions to insurance agents or independent advisers and its tactic of always keeping reserves low and returning to its members more money than other companies . . 13 in 1993 the car fell below the guarantee prompting gar policyholders to exercise their rights . according to actuary christopher headdon policies issued from 1975 to 1988 were worth approximately 25 % more than cars a cost if paid of 1b 1.5 b. 7 based on an affidavit sworn by christopher headdon on 28 june 1999 from the 1980s onwards equitable was aware of the gar risk . ... at no time did equitable ever hedge or reinsure adequately against the gar risk to counteract it . the reason for this was equitable s belief that it could ... neutralise the potential effect of the gar risk through the exercise of its discretion to allocate final bonuses under article 65 . 12 in 1994 equitable exercised its discretion under article 65 to reduce the terminal bonus of policies with guaranteed annuity rates 8 negating any benefit from the guarantee but preserving the assets of non gar policyholders . by july 1998 there were a number of complaints to the personal investment authority ombudsman and it was decided to seek a declaratory judgement . alan hyman was selected as the representative gar . hearings started in july 1999 and in september the high court ruled in its favour but this was reversed by the appeal court in january 2000 . equitable now sought a ruling by the house of lords . house of lords ruling on the hyman case edit main article equitable life assurance society v hyman on 20 july 2000 the house of lords upheld the appeal court ruling . 7 14 they concluded that gar policies required that the guaranteed rate was applied to calculate the contractual annuity . the effect of the differential bonus scheme was that the annuity was calculated at current annuity rates not at the guaranteed rate and was not lawful . the self evident commercial object of the inclusion of guaranteed rates in the policy is to protect the policyholder against a fall in market annuity rates ... the supposition of the parties must be presumed to have been that the directors would not exercise their discretion in article 65 in conflict with contractual rights . 15 even before that stage equitable which had long claimed to be more transparent than its rivals had assets worth 3b less than communication with policyholders had indicated . 16 aftermath of the hyman case sale of business and current trading edit having not insured against loss of the case and with no other way to make provision for the immediate 1.5 b increase in long term liabilites equitable put itself up for sale . by the end of july about 10 companies including the prudential had considered but rejected a bid . equitable had intended using money from the sale to allocate bonuses for the first 7 months of 2000 but now this was not available . 14 on 8 december 2000 it closed for new business and immediately set a market value adjustment of 10 % peaking at 15 % . 17 on 19 december the treasury announced a review of the financial services authority fsa s regulation of equitable . the following day equitable announced that their president and seven non executive directors would step down . vanni treves became chairman in march 2001 with charles thomson as chief executive . on 4 february 2001 the halifax agreed to buy equitable s operating assets sales force and non profit business for a payment of up to 1 billion into the with profits fund subject to policyholder agreement . on 20 september 2001 the compromise proposals were published offering 17.5 % increase for gars in exchange for the guarantee and 2.5 % for non gars in exchange for abandoning any legal claim . the deal was accepted by 98 % of gar policyholders and was sanctioned in the high court in february 2002 . both policyholders and pensioners received further bad news . in july 2001 policyholders were angered to be told their savings had been reduced by 16 % . 14 whilst in november 2002 pensioners were told that with profits annuities like yours are now out of line by about 30 % . 18 50 000 annuitants suffered a 20 % reduction in