U.K.’s Equitable Receives Policyholder Accord on GAR Plan

January 29, 2002

Policyholders, including representatives of some 6000 pension funds, overwhelmingly approved a proposal by the U.K.’s beleaguered Equitable Life to accept a compromise cap on Guaranteed Annuity Rate policies that have been threatening to bankrupt the company for almost two years.

A decision by the House of Lords, the U.K.’s highest court, ordered Equitable to honor the terms of the policies, which had been written when returns were much higher than they are currently. Equitable, faced with a collapse, if it were forced to pay the maximum rates it had agreed to, asked for court protection, and the approval of its policyholders to compromise on the amounts to be paid out in order to save the company.

There’s been a great deal of criticism of the plan, as many policyholders, including some 6000 pension funds, have regarded its terms as unfair, but following yesterday’s overwhelming approval of the plan (an estimated 98 percent voted in favor), Equitable will be able to cap its GAR liabilities at £1.1 billion ($1.55 billion), rather than being liable to pay out close to $$3 billion.

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