In addition, the guaranteed policy holders could still make any amount of further investment at the guaranteed rate. This made equitable life’s liabilities not hedged and unlimited.In essence, therefore, the company was getting around 6% for any investment it made while it paid the guaranteed policy holders a minimum of 11%. This left equitable life with a colossal black hole that culminated with the company using profits made from investing the money from the majority of the policy holders who had no a minimum return guaranteed, to their detriment.Another factor that contributed to equitable life’s imminent financial instability was failure to maintain a reserve. This way, they failed to cushion the policy holders in case of a financial meltdown. This was what made equitable life more unprotected unlike other companies that offered a guaranteed return rate. Indeed, the company gratified itself with the fact that it distributed nearly all its profits to policy holders and, therefore, had higher bonuses. Moreover, the company boasted of the fact that it left a small reserve.As a result of its distribution rate, their policy became a darling of many investors. People criticized many companies that held reserves. They argued that the surplus was inaccessible to the policy holders. Consequently, equitable life lacked the means to offset any potential liability that would arise and indeed arose. Had the company built up a reserve, it would have spread the loss over time making it unnoticeable. The question then was who to blame.Lord Penrose in his report stated that the society was the principal author of its own misfortune. Nevertheless, he pointed out that the management could not sustain this practice over material part 1990s had there been an appropriate regulatory structure.K regulators failed to intervene to protect the public from this deceit, even though the company was technically insolvent for the better part of 1990s. Ms Abraham in her report points to the inactiveness of different regulator under which the scandal slipped their attention.In the report, she concluded that a series of regulatory failures occurred as the result of the regulators approaching equitable life in a casual manner. The regulator did not question nor seek explanation for the issues in equitable life’s regulatory returns, permitting misleading information concerning the insurer and failing to identify the problems, all which a reasonable
"Equitable Life: Regulators failed you, says report." The Guardian. Web. 7 Oct. 2011
"Issue 26 - March 2003 - Financial Ombudsman Service." Financial ombudsman service. Web. 7 Oct.
2011 <http://www.financialombudsman.org.uk/publications/ombudsman-news/26/high- income-26.htm>.
“08 The inequitability of Equitable Life." Larkar online. Web. 7 Oct. 2011
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