One of the most unpleasant
chapters in the history of the UK’s insurance industry, the
Equitable Life Assurance Society (ELAS) saga, is drawing to a
close.

The finale comes with the
government’s announcement that it has accepted the Independent
Commission on Equitable Life Payments scheme to compensate
policyholders that suffered losses following the near collapse of
the mutual insurer a decade ago.

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Under the compensation
scheme, £775m ($1.24bn) is to be distributed to 945,000 aggrieved
non-with profits policyholders over the next three years. Of those
to be compensated are some 460,000 holders of individual policies
and 586,000 holders of group pension policies.

The salient points of the
commission’s recommendations for non-with profit policyholders
are:

  • A pro rata allocation of the
    available funds, in proportion to the size of relative losses
    suffered;
  • Where policyholders have
    multiple policies, where possible, a single policyholder view will
    be taken with the aim of offsetting relative gains against relative
    losses;
  • The minimum payment will be
    about £10 and beneath this amount payments should not be
    made.

The £775m forms part of a
total compensation package of £1.5bn announced by the Chancellor of
the Exchequer George Osborne, on 15 October 2010. Of the £1.5bn, it
is anticipated that £1bn will be paid out upfront over the first
three years.

The £1.5bn is far higher than
the envisaged total of between £400m and £500m announced by
financial secretary to the Treasury Mark Hoban in July 2010.
Hoban’s figures were based on a recommendation by former judge John
Chadwick in a report undertaken by him for the
government.

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Already compensated are
37,000 with-profits annuitants who will share £620m, an amount that
represents their full loss. They have received £120m with the
balance to be paid to them after three years for as long as they
live.

The amount to be paid to non-with policyholders equates to
just over 22% of a total loss estimated at £3.5bn by actuarial
advisers to the government, Towers Watson. Total losses suffered by
all policyholders are estimated by Towers Watson at
£4.1bn.