Equitable Life was the UK's oldest life assurer — then a £1.5B ruling collapsed it

The Equitable Life Assurance Society was founded in 1762, the oldest life assurance company in the world. For over 200 years it operated as a respected mutual society. In the 1990s, it had 1.5 million policyholders and £26 billion in assets. Its financial strength was legendary — so much so that it was a misfeasance, not a market failure, that brought it down.

Between 1956 and 1988, Equitable sold policies with a Guaranteed Annuity Rate (GAR) option. Holders could choose either a fixed rate (calculated on a 4–7% yield depending on the year) or the market rate at retirement. When market annuity rates fell below the GAR in the 1990s, the gap was estimated at £1 billion to £1.5 billion. Equitable tried to reduce terminal bonuses for GAR policyholders to nullify the guarantee. Policyholder Alan Hyman sued. On 20 July 2000, the House of Lords ruled that Equitable could not override the contractual GAR.

The ruling created an immediate £1.5 billion increase in liabilities. The company was already under-funded by £4.5 billion according to the Penrose report. Gross assets fell from £26 billion to £8.75 billion by 2008. Equitable closed to new business in 2000. An estimated 50,000 annuitants suffered a 20% reduction in income. The government eventually paid £1.5 billion in compensation in 2010, but by then an estimated 30,000 policyholders had already died without receiving anything.