In addition, te guaranteed policy holders could still make any amount of further investment at the guaranteed rate. Tis made equitable life’s liabilities not hedged and unlimited. I essence, terefore, te company was getting around 6% for any investment it made while it paid the guaranteed policy holders a minimum of 11%. Tis 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, t Aother factor that contributed to equitable life’s imminent financial instability was failure to maintain a reserve.
Tis way, tey failed to cushion the policy holders in case of a financial meltdown. Tis was what made equitable life more unprotected unlike other companies that offered a guaranteed return rate. Ideed, te company gratified itself with the fact that it distributed nearly all its profits to policy holders and, terefore, hd higher bonuses. Mreover, te company boasted of the fact that it left a small reserve. A a result of its teir policy became a darling of many investors.
Pople criticized many companies that held reserves. Tey argued that the surplus was inaccessible to the policy holders. Cnsequently, euitable life lacked the means to offset any potential liability that would arise and indeed arose. Hd the company built up a reserve, i would have spread the loss over time making it unnoticeable. Te question then was who to blame. Lrd Penrose in his report stated that the society was the principal author of its own misfortune. Nvertheless, h pointed that management could not sustain this practice over material part 1990s had there been an appropriate regulatory structure.
Kregulators failed to intervene to protect the public from this deceit, een though the company was technically insolvent for the better part of 1990s. M Abraham in her report points to the inactiveness of different regulator under which the scandal slipped their attention. I the report, se concluded that a series of regulatory failures occurred as the result of the regulators approaching equitable life in a casual manner. Te regulator not question seek explanation for the issues in equitable life’s regulatory returns, prmitting misleading information concerning the insurer and failing to identify the problems, al which a reasonable. ..
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