The press release issued by HM Treasury on 31 August 2001.

INDEPENDENT INQUIRY INTO EQUITABLE LIFE

An independent inquiry into Equitable Life, to be headed by Lord Penrose, was announced today by Ruth Kelly, Economic Secretary to the Treasury.

The Inquiry will examine the circumstances leading to the current situation at Equitable Life and identify any lessons to be learned for the conduct, administration and regulation of life assurance. The Inquiry will report to Treasury Ministers.

Announcing the Inquiry, Ruth Kelly said

“The Government has considered carefully the concerns of policyholders and representative bodies including the Select Committee of the House of Commons.  Equitable Life raises important issues which deserve consideration by a full independent inquiry. We are announcing today that we have asked Lord Penrose to conduct an independent inquiry into Equitable Life and to consider what lessons can be drawn for the conduct, administration and regulation of the life assurance business. It is important that lessons are learnt from what has happened – this Inquiry will allow us to do that.

The Inquiry is being established on a non-statutory basis.  We hope everyone concerned will feel able to cooperate fully and frankly.  However, the Government will, if necessary, establish a statutory basis for the Inquiry.

Equitable Life is currently preparing proposals for a compromise deal which we understand are likely to be put to policyholders in the coming weeks.  In announcing the Inquiry now, rather than waiting until Parliament resumes at a time when policyholders would be considering the compromise deal, the Government is keen to ensure that there is no confusion between the Inquiry and the compromise deal.

The Inquiry will look into the circumstances leading to the current situation of the Equitable.  It will not comment or offer advice on the merits of any compromise deal proposed to Equitable Life policyholders; nor will it review past judicial decisions in relation to Equitable or pre-judge future decisions properly taken by the courts.

A review is currently being carried out by the FSA into the FSA’s role in the period from 1 January 1999 until the Equitable closed to new business in December 2000.  The Government looks forward to receiving that review.  However, the Government believes it is now in the public interest to have a wider, independent review that can look back as far as is necessary.  The Government expects the FSA review to be an important input into the Lord Penrose Inquiry.  The Government has said that the FSA review will be published.  The actual timing will need to be considered in the light of the timetable for Lord Penrose’s inquiry.

The Inquiry will take some time to complete and we want Lord Penrose to start work without unnecessary delay.”

Lord Penrose said:

“I am pleased to have been asked to lead this Inquiry. I believe it will cover some important and complex issues and I am looking forward to tackling the work ahead.”

Letter from Ruth Kelly, Economic Secretary to the Treasury, to Lord Penrose

Rt Hon Lord Penrose
Equitable Life Inquiry
Room 35a/G
Government Offices
Great George Street
Parliament Street
London SW1P 3AG

31 August 2001

Dear Lord Penrose

I am grateful to you for agreeing to conduct an Inquiry into the circumstances giving rise to the current situation at the Equitable Life Assurance Society. You will be aware of the public concern about this. It is in light of this general concern that the Government has decided to launch this Inquiry at this time.

The terms of reference for the Inquiry are:

to enquire into the circumstances leading to the current situation of the Equitable Life Assurance Society, taking account of relevant life market background; to identify any lessons to be learnt for the conduct, administration and regulation of life assurance business; and to give a report thereon to Treasury Ministers.

Within these terms of reference set out above, questions of how the Inquiry should be conducted, and what matters in particular should be examined, will be a matter for you.

However, for the avoidance of doubt, I should make clear that we are not asking you to review the decisions taken by the courts in litigation relating to the Equitable Life’s situation, in particular the decision of the House of Lords in Equitable Life Assurance Society v Hyman. That would clearly be inappropriate. It would be equally inappropriate to seek to resolve issues which ought to be dealt with by the ordinary courts in the event of a dispute which cannot be resolved otherwise.

Your Inquiry will look at circumstances which go back many years, even decades, up to today’s date.  Its purpose is to provide an authoritative account of the circumstances and to draw lessons for the future on the conduct, administration and regulation of life assurance business. It is important that these lessons are identified and learnt. The purpose of the Inquiry is not therefore, and could not be, to offer guidance to policy-holders of the Equitable Life on what course of action they might now pursue. In particular, it is not the function of your Inquiry to offer advice in relation to the Equitable’s arrangements with the Halifax plc, or on the scheme the Board of Equitable Life envisage consulting their members on shortly.  Particularly when looking at the recent past, I know you will be mindful of the fact that the Equitable is an ongoing business, which the Inquiry should not disrupt.

The Inquiry is a non-statutory Inquiry, so you will not have powers to compel the production of information or require the attendance of witnesses. We hope that everyone concerned will feel able to co-operate fully and frankly. However, if it proves necessary we  will consider putting the Inquiry on a statutory basis.

Much or all of the evidence will be private and confidential, some of which will be covered by restrictions on disclosure under UK and EC law. Because of this, we envisage that the Inquiry will generally be conducted in private, although you may consider it appropriate to hold some sessions in public.

Once again, thank you for agreeing to conduct this inquiry on behalf of the Treasury. The Treasury will co-operate fully with your Inquiry, which will have appropriate support, and will ensure that you are enabled to carry it out without undue impediment.

I look forward to reading your report.

RUTH KELLY MP