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111-505: The Equitable Life Assurance Society ( Equitable Life ), founded in 1762, is a life insurance company in the United Kingdom. The world's oldest mutual insurer , it pioneered age-based premiums based on mortality rate , laying "the framework for scientific insurance practice and development" and "the basis of modern life assurance upon which all life assurance schemes were subsequently based". After closing to new business in 2000, parts of

222-661: A 20 ¯ | r − 1000 ⋅ ( r a ) 20 ¯ | r = 31000 ⋅ 1 − v 20 r − 1000 ⋅ ( 1 + r ) ⋅ a 20 ¯ | r − 20 ⋅ v 20 r = 31000 ⋅ 1 − ( 1 1.05 ) 20 0.05 − 1000 ⋅ ( 1 + r ) ⋅

333-2130: A 20 ¯ | r − 20 ⋅ ( 1 1.05 ) 20 r = 31000 ⋅ 12.462210 − 1000 1.05 ⋅ 12.462210 − 20 ( 1 1.05 ) 20 0.05 = 31000 ⋅ 12.462210 + 1000 ⋅ 110.950616 = 386328.51 + 110950.616 = 497279.126 {\displaystyle {\begin{aligned}PV&={30000}\cdot v+{29000}\cdot v^{2}+\cdots +{11000}\cdot v^{20}\\&={31000}(v+v^{2}+\cdots +v^{20})-{1000}\cdot (v+2v^{2}+\cdots +20v^{20})\\&={31000}\cdot a_{{\overline {20}}|r}-1000\cdot (ra)_{{\overline {20}}|r}\\&={31000}\cdot {\frac {1-v^{20}}{r}}-{1000}\cdot {\frac {(1+r)\cdot a_{{\overline {20}}|r}-20\cdot v^{20}}{r}}\\&={31000}\cdot {\frac {1-{\left({\frac {1}{1.05}}\right)}^{20}}{0.05}}-1000\cdot {\frac {(1+r)\cdot a_{{\overline {20}}|r}-20\cdot {\left({\frac {1}{1.05}}\right)}^{20}}{r}}\\&={31000}\cdot {12.462210}-1000{\frac {1.05\cdot {12.462210}-20{\left({\frac {1}{1.05}}\right)}^{20}}{0.05}}\\&=31000\cdot 12.462210+1000\cdot 110.950616\\&=386328.51+110950.616\\&=497279.126\end{aligned}}} where 30000 ⋅ v = 31000 ⋅ v − 1000 ⋅ v = ( 310000 − 1000 ) ⋅ v = 30000 ⋅ v {\displaystyle 30000\cdot v=31000\cdot v-1000\cdot v=(310000-1000)\cdot v=30000\cdot v} and 29000 ⋅ v 2 = 31000 ⋅ v 2 − 1000 ⋅ 2 v 2 = ( 310000 − 1000 ⋅ 2 ) ⋅ v 2 = 29000 ⋅ v 2 {\displaystyle 29000\cdot v^{2}=31000\cdot v^{2}-1000\cdot 2v^{2}=(310000-1000\cdot 2)\cdot v^{2}=29000\cdot v^{2}} etc. The plans were introduced under section 226 of

444-515: A 60 ¯ | 1 % {\displaystyle _{240|}a_{{\overline {60}}|1\%}} ...lump sum payment, v = 1 1 + r {\displaystyle v={\frac {1}{1+r}}} ...discount factor, a n ¯ | r = 1 − v n r {\displaystyle a_{{\overline {n}}|r}={\frac {1-v^{n}}{r}}} ...the present value of $ 1 annuity immediate. Calculate

555-691: A 60 ¯ | 1 % = 500 ⋅ v 240 ⋅ a 60 ¯ | 1 % = 500 ⋅ ( 1 1.01 ) 240 ⋅ ( 1 − ( 1 1.01 ) 60 0.01 ) = 2063.46 $ {\displaystyle _{240|}a_{{\overline {60}}|1\%}=500\cdot v^{240}\cdot a_{{\overline {60}}|1\%}=500\cdot {\left({\frac {1}{1.01}}\right)^{240}}\cdot \left({\frac {1-{\left({\frac {1}{1.01}}\right)}^{60}}{0.01}}\right)=2063.46\$ } ; where 240 |

666-527: A Market Value Adjustment of 10% which was later increased to 15%. On 19 December, HM Treasury announced a review of the Financial Services Authority (FSA)'s regulation of Equitable. The following day, Equitable announced that their President and seven non-executive directors would step down. Vanni Treves became Chairman in March 2001, with Charles Thomson as Chief Executive. On 4 February 2001

777-414: A cash value up to its date of maturation. The owner can access the money in the cash value by withdrawing money, borrowing the cash value, or surrendering the policy and receiving the surrender value. The three basic types of permanent insurance are whole life , universal life , and endowment . Whole life insurance provides lifetime coverage for a set premium amount. Universal life insurance (ULl)

888-407: A rider . If a rider is purchased, the policy generally pays double the face amount if the insured dies from an accident. This was once called double indemnity insurance . In some cases, triple indemnity coverage may be available. Retirement annuity plan Retirement annuity plan is a financial product that ensures regular income to retirees in later years. A 'Retirement annuity plan (RAP)

999-472: A $ 100,000 policy in the competitive US life insurance market. Most of the revenue received by insurance companies consists of premiums, but revenue from investing the premiums forms an important source of profit for most life insurance companies. Group insurance policies are an exception to this. In the United States, life insurance companies are never legally required to provide coverage to everyone, with

1110-553: A 20% reduction in income. In February 2007, Equitable completed the transfer of £4.6 billion of annuities to Canada Life , and in November transferred all £1.8 billion of with-profits annuity policies to Prudential, a deal accepted by 98% of members voting at a meeting. In November 2008, Equitable announced that the sale of the Society would be put on hold and that the Board would instead review

1221-425: A baseline for the cost of insurance, but the health and family history of the individual applicant is also taken into account (except in the case of Group policies). This investigation and resulting evaluation is termed underwriting . Health and lifestyle questions are asked, with certain responses possibly meriting further investigation. Specific factors that may be considered by underwriters include: Based on

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1332-459: A certain age limit. Some policies also pay out in the case of critical illness. Policies are typically traditional with-profits or unit-linked (including those with unitized with-profits funds). Endowments can be cashed in early (or surrendered) and the holder then receives the surrender value which is determined by the insurance company depending on how long the policy has been running and how much has been paid into it. Accidental death insurance

1443-671: A four-year investigation, described by Equitable's chief executive as the "best chance of compensation". Her 2,819-page report accused the regulators, i.e. the DTI, GAD, and FSA, of "comprehensive failure", found the Government guilty of ten counts of maladministration, and called for a compensation scheme "to put those people who have suffered a relative loss back into the position that they would have been in, had maladministration not occurred". Equitable's chairman estimated that 30,000 policyholders had already died without receiving compensation. In December,

1554-469: A further period of rapid growth. It developed market-leading personal pension and additional voluntary contribution plans while maintaining its record of operating with one of the lowest expense ratios in the industry. Its success was "partly based on its reputation, its strategy of paying no commissions to insurance agents or independent advisers and its tactic of always keeping reserves low and returning to its members more money than other companies". In 1993

1665-463: A life insurance company would have to collect approximately $ 50 a year from each participant to cover the relatively few expected claims. (0.35 to 0.66 expected deaths in each year × $ 100,000 payout per death = $ 35 per policy.) Other costs, such as administrative and sales expenses, also need to be considered when setting the premiums. A 10-year policy for a 25-year-old non-smoking male with preferred medical history may get offers as low as $ 90 per year for

1776-405: A loan secured by real property and usually features a level premium amount for a declining policy face value because what is insured is the principal and interest outstanding on a mortgage that is constantly being reduced by mortgage payments. The face amount of the policy is always the amount of the principal and interest outstanding that are paid should the applicant die before the final installment

1887-763: A lump sum payment that and individual should pay to insurance organisation, in order to for the next 20 years receive annual variable distributions. The first distribution of $ 30.000 in the first year is decreasing each next year by $ 1.000.  Assume constant annual rate of return 5%. P V = 30000 ⋅ v + 29000 ⋅ v 2 + ⋯ + 11000 ⋅ v 20 = 31000 ( v + v 2 + ⋯ + v 20 ) − 1000 ⋅ ( v + 2 v 2 + ⋯ + 20 v 20 ) = 31000 ⋅

1998-427: A lump upfront or to make regular deposits to the insurance institution. The money individuals pay to the insurance companies is then reinvested into the market. Money grows until the day when an individual decides to retire. The payback phase starts as soon as distributions are paid to the insured individuals. There are different ways how insurance organizations can distribute payments. Payments could be distributed for

2109-468: A million policyholders (UK-wide) hit by the near-collapse of the insurer. The Government also announced that the final report from Sir John Chadwick in relation to Equitable Life would be received by mid-July. A statement on the HM Treasury website confirmed two elements of the design of the scheme: that there should be no means testing, and that the dependents of deceased policyholders should be included in

2220-570: A modern with-profits policy . The society sought to treat its members equitably and the directors tried to ensure that the policyholders received a fair return on their respective investments. Throughout the society's history, the allocation of bonuses (at regular intervals of up to five years) was a carefully thought-through decision based on actuarial advice, designed to promote fairness and equity between different groups and generations of policyholders. Its methods were successful enough for it to be able to reduce its premiums by 10% in 1777, and there

2331-405: A policy is the policy owner, while the insured is the person whose death will trigger payment of the death benefit. The owner and insured may or may not be the same person. For example, if Joe buys a policy on his own life, he is both the owner and the insured. But if Jane, his wife, buys a policy on Joe's life, she is the owner and he is the insured. The policy owner is the guarantor and they will be

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2442-428: A predetermined period of time (e. g. 15 years) annually, semi-annually, etc.; as well as in the form of a life annuity or a single payment. Payments could be paid immediately after the retirement of an individual or after some period of time. Individuals that enter into a fixed annuity have the opportunity to decide ahead of time how much they will receive when the distribution phase begins. A Fixed annuity enables fixing

2553-441: A profit. The cost of insurance is determined using mortality tables calculated by actuaries . Mortality tables are statistically based tables showing expected annual mortality rates of people at different ages. As people are more likely to die as they get older, the mortality tables enable insurance companies to calculate the risk and increase premiums with age accordingly. Such estimates can be important in taxation regulation. In

2664-762: A similar fund in 1769. Between 1787 and 1837 more than two dozen life insurance companies were started, but fewer than half a dozen survived. In the 1870s, military officers banded together to found both the Army ( AAFMAA ) and the Navy Mutual Aid Association (Navy Mutual), inspired by the plight of widows and orphans left stranded in the West after the Battle of the Little Big Horn , and of the families of U.S. sailors who died at sea. The person responsible for making payments for

2775-404: A statistician. The first modern actuary, William Morgan , was appointed in 1775 and served until 1830. In 1776 the Society carried out the first actuarial valuation of liabilities and subsequently distributed the first reversionary bonus (1781) and interim bonus (1809) among its members. It also used regular valuations to balance competing interests. Its products therefore met the description of

2886-653: Is a relatively new insurance product, intended to combine permanent insurance coverage with greater flexibility in premium payments, along with the potential for greater growth of cash values. There are several types of universal life insurance policies, including interest-sensitive (also known as "traditional fixed universal life insurance"), variable universal life (VUL) , guaranteed death benefit , and has equity-indexed universal life insurance . Universal life insurance policies have cash values. Paid-in premiums increase their cash values; administrative and other costs reduce their cash values. Universal life insurance addresses

2997-565: Is a type of limited life insurance that is designed to cover the insured should they die as a result of an accident. "Accidents" run the gamut from abrasions to catastrophes but normally do not include deaths resulting from non-accident-related health problems or suicide. Because they only cover accidents, these policies are much less expensive than other life insurance policies. Such insurance can also be accidental death and dismemberment insurance or AD&D . In an AD&D policy, benefits are available not only for accidental death but also for

3108-695: Is a type of retirement plan similar to IRA that provides a stream of regular (single) distributions to an insured retiree. Time intervals between distributions as well as their amount are defined by conditions and type of the annuity between issuer organization and client. Nowadays many types of retirement annuities are offered on the market. The Accumulation Phase of a retirement plan is a period of an individual's life in which they are working and are able to save money for retirement. The accumulation phase begins when an individual starts to save money for retirement and ends when they start to receive distributions. When individuals decide to buy an annuity they agree to pay

3219-784: Is any coverage that determines benefits based on actual losses whereas "assurance" is coverage with predetermined benefits irrespective of the losses incurred. Life insurance may be divided into two basic classes: temporary and permanent; or the following subclasses: term, universal, whole life , and endowment life insurance. Term assurance provides life insurance coverage for a specified term (usually 10–30 years). Term life insurance policies do not accumulate cash value, but are significantly less expensive than permanent life insurance policies with equivalent face amounts. Policyholders can save to provide for increased term premiums or decrease insurance needs (by paying off debts or saving to provide for survivor needs). Mortgage life insurance insures

3330-470: Is given below and closely follows the wording. The evidence suggests that the regulator focused exclusively on solvency margins, and took little or no account of accrued terminal bonuses in its overall analysis of the financial health of the company. It quotes Penrose as saying that the Policyholders' Reasonable Expectations (PRE) would have included terminal bonus even if the amount was not defined; however

3441-462: Is not widely used as there is no accumulation phase, but it is suitable for rich people that would like to retire and purchase a passive source of income. A purchase of a retirement annuity could help individuals to shift the financial risks of retirement to the insurance company. With fixed retirement annuities insured retirees will receive the fixed amounts of money no matter how the financial markets are moving. Another great benefit of an annuity

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3552-439: Is paid. Group life insurance (also known as wholesale life insurance or institutional life insurance ) is term insurance covering a group of people, usually employees of a company, members of a union or association, or members of a pension or superannuation fund. Individual proof of insurability is not normally a consideration in its underwriting. Rather, the underwriter considers the size, turnover, and financial strength of

3663-432: Is reserved only for the healthiest individuals in the general population. This may mean, that the proposed insured has no adverse medical history, is not under medication, and has no family history of early-onset cancer , diabetes , or other conditions. Preferred means that the proposed insured is currently under medication and has a family history of particular illnesses. Most people are in the standard category. People in

3774-555: Is that it is not taxed until the payout phase. The annuitant is responsible to pay the taxes on the distribution, but generally on the income earned on top of the original investment. This insurance product is very flexible and there are many types of annuity plans that can suit almost anyone recording to their own preferences. One of the main downsides of retirement annuity is costs. Comparing to other financial instruments such as investing in mutual funds and certificates of deposit. As retirement annuities are often sold by intermediaries

3885-410: Is typically determined at the time the policy is purchased, and it is based on factors such as the policyholder's age, health, and occupation. The death benefit is only payable if the policyholder dies while the policy is in effect. If the policyholder outlives the policy, the death benefit is not paid, and the policy will typically expire. Some policies may allow the policyholder to receive a portion of

3996-480: The Income and Corporation Taxes Act 1970 and are often referred to as section 226 contracts. However they are currently legislated under section 620 of the Income and Corporation Taxes Act 1988 and are therefore also known as section 620 contracts. Part of the lump sum must be used to buy an annuity and part can be taken a tax-free lump sum. Contributions receive basic tax relief claimed at source (although this

4107-545: The Appointed Actuary should require that there is a process for reviewing communications to policyholders, and should resist holding a dual role as Chief Executive, and that his work should be subject to peer review. In October, the Baird Report was published. This covered the Financial Services Authority 's regulation of Equitable from 1 January 1999 to 8 December 2000, when the Society closed to new business. The report

4218-484: The European Parliament issued a press release describing the regulatory failure as an outrage. In January 2009 the Government issued their response and appointed retired judge Sir John Chadwick as an independent advisor to design an ex-gratia scheme for some policyholders "who have suffered a disproportionate impact as a result of the relevant maladministration". The Ombudsman accused the government of twisting

4329-567: The Government Actuary's Department (GAD) and the Treasury deny PRE existed as the terminal bonus was not guaranteed. The report goes on to say that if it is considered that these types of bonuses are an integral part of the company's "entire business", the regulatory authorities should have taken them into account. Although the regulator was given the option of not forcing Equitable to build reserves for discretionary bonuses, that did not absolve

4440-481: The Halifax agreed to buy Equitable's operating assets, salesforce and non-profit business for a payment of up to £1 billion into the with-profits fund, subject to policyholder agreement. On 20 September 2001, compromise proposals were published offering 17.5% increase for GARs in exchange for the guarantee and 2.5% for non-GARs in exchange for abandoning any legal claim. The deal was accepted by 98% of GAR policyholders, and

4551-600: The Treasury in August 2001 and expected in 2002, was finally published in March 2004 after delays due to vetting by Treasury lawyers. The 818-page report found that the company had made over-generous payouts to policyholders, reaching the stage where "The Society was under-funded to the extent of £4½ billion in the summer of 2001" (chapter 19, para 82). Penrose said: "Principally, the Society was author of its own misfortunes. Regulatory system failures were secondary factors". He also accused

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4662-498: The 1980s and 1990s, the SOA 1975-80 Basic Select & Ultimate tables were the typical reference points, while the 2001 VBT and 2001 CSO tables were published more recently. As well as the basic parameters of age and gender, the newer tables include separate mortality tables for smokers and non-smokers, and the CSO tables include separate tables for preferred classes. The mortality tables provide

4773-457: The CAR fell below the guaranteed annuity rate, thus prompting GAR policyholders to exercise their rights. According to actuary Christopher Headdon, policies issued from 1975 to 1988 were worth approximately 25% more than CARs; the total difference amounted to some £1 billion to £1.5 billion. Based on an affidavit sworn by Christopher Headdon on 28 June 1999, "from the 1980s onwards, Equitable was aware of

4884-493: The CQV for the proceeds), was found liable in court for contributing to the wrongful death of the victim ( Liberty National Life v. Weldon , 267 Ala.171 (1957)). Special exclusions may apply, such as suicide clauses, whereby the policy becomes null and void if the insured dies by suicide within a specified time (usually two years after the purchase date; some states provide a statutory one-year suicide clause). Any misrepresentations by

4995-658: The Directors tried to ensure that policyholders received a fair return on their investments. Premiums were regulated according to age, and anybody could be admitted regardless of their state of health and other circumstances. The sale of life insurance in the U.S. began in the 1760s. The Presbyterian Synods in Philadelphia and New York City created the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers in 1759; Episcopalian priests organized

5106-584: The ELAS case was deficient and that UK regulators and authorities did not adequately respect the ultimate purpose of the Directive." In April 2005, in the light of Penrose's findings, Equitable started a £2 billion High Court action against auditors Ernst & Young , reduced 3 months later to £0.7 billion, claiming they had failed to inform the directors of the seriousness of its position. However lawyers advised they could not prove that correct advice would have changed

5217-873: The Equitable had breached the rules of its former regulators, the Life Assurance and Unit Trust Regulatory Organisation (Lautro) and the Personal Investment Authority (PIA) in failing to disclose the risk of the existing GAR policies in the Product Particulars, Key Features and With-Profits Guide to new non-GAR policy holders. This was followed in September by the Corley Report on behalf of the Institute of Actuaries, which recommended, amongst other things, that

5328-710: The Equitable." In the 20th century, Henry Manly devised the concept and theory of staff pensions, which the Society marketed from 1913. Pensions became available to the self-employed in 1957 when the Society launched the Retirement annuity plan . Corporate pension scheme members included employees of the NHS , Unilever and the Post Office . The society's first offices were in the parsonage of St Nicholas Acons in Nicholas Lane, London, moving to Blackfriars in 1774. Approval of policies,

5439-514: The GAR risk. ... At no time did Equitable ever hedge or reinsure adequately against the GAR risk to counteract it. The reason for this was Equitable's belief that it could ... neutralise the potential effect of the GAR risk through the exercise of its discretion to allocate final bonuses under Article 65" (of the Articles of Association). In 1994, Equitable exercised its discretion under that Article to reduce

5550-721: The High Court ruled in the Equitable's favour; but this was reversed by the Appeal Court in January 2000. The Equitable now sought a ruling by the House of Lords . On 20 July 2000 the House of Lords upheld the Appeal Court ruling. They concluded that GAR policies required that the guaranteed rate was applied to calculate the contractual annuity; and that the effect of the differential terminal bonus rates

5661-565: The Ombudsman's criticism that it had acted as judge on its own behalf. In May, the Ombudsman issued a supplementary report to the government's reply. In August 2009, Chadwick issued an interim report. In the Queen's Speech following the formation of a Conservative-LibDem coalition government in 2010, the Equitable Life (Payments) Bill was announced. The bill sought to secure compensation for nearly

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5772-466: The US population male mortality rates of 1.3 per 1,000 at age 25 and 19.3 at age 65 (without regard to health or smoking status). Upon the insured's death, the insurer requires acceptable proof of death before it pays the claim. If the insured's death is suspicious and the policy amount is large, the insurer may investigate the circumstances surrounding the death before deciding whether it has an obligation to pay

5883-482: The above and additional factors, applicants will be placed into one of several classes of health ratings which will determine the premium paid in exchange for insurance at that particular carrier. Life insurance companies in the United States support the Medical Information Bureau (MIB), which is a clearing house of information on persons who have applied for life insurance with participating companies in

5994-427: The accumulation phase in it can last until a certain age of the annuitant. An immediate retirement annuity is an annuity that is purchased in a single lump sum, and payments on it begin immediately (30 days to 12 months), after the entry into force of the contract (there is no accumulation phase). An immediate annuity is good for turning a large amount of money into a source of permanent income (some kind of pension). It

6105-406: The accumulation phase is directly dependent on the performance of the investment options that would be chosen by the client. Individuals typically use mutual funds that invest in market instruments, bonds, and (or) stocks. Payments on it begin after a certain period of time. This period can vary widely (from one year to several decades). A deferred annuity is often used to organize pension payments -

6216-419: The adequacy of remedies available to policyholders including the 15,000 non-UK members. The 22-member committee heard evidence from 38 witnesses and analysed 92 public documents, and its report is the only one completely independent of UK Government influence. Whilst a detailed summary of the full document is well outside the scope of this article, an examination of the effectiveness of the supervision of Equitable

6327-439: The agreement of the original beneficiary. In cases where the policy owner is not the insured (also referred to as the celui qui vit or CQV), insurance companies have sought to limit policy purchases to those with an insurable interest in the CQV. For life insurance policies, close family members and business partners will usually be found to have an insurable interest. The insurable interest requirement usually demonstrates that

6438-407: The arrangements to run off its existing business. Gross assets as of December 2008 were £8,754 million, around 25% of the value in 2000. Treves stepped down as chairman in September 2009 and was replaced by Ian Brimecome. In May 2001, Ian Glick QC and Richard Snowden published their joint opinion on behalf of the Financial Services Authority . This concluded that there was an arguable case that

6549-446: The authorities from their duty of financial supervision covering the "assurance undertaking's entire business". The overall evidence received suggested that by not taking swift action on this matter, the UK regulator did not fulfil its obligation to require from Equitable sound administrative and accounting procedures and adequate internal control mechanisms, as required explicitly. The UK had

6660-463: The business were sold off and the remainder of the company became a subsidiary of Utmost Life and Pensions in January 2020. At its peak in the 1990s, Equitable had 1.5 million policyholders with funds worth £ 26 billion under management, but it had allowed large unhedged liabilities to accumulate in respect of guaranteed fixed returns to investors without making provision for adverse market changes. Many policyholders lost half their life savings, and

6771-511: The case, and with no other way to make provision for the immediate £1.5 billion increase in long-term liabilities, Equitable put itself up for sale. By the end of July, about ten companies, including the Prudential , had considered, but rejected a bid. Equitable had intended using money from the sale to allocate bonuses for the first seven months of 2000, but now this was not available. On 8 December 2000 it closed to new business, and immediately set

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6882-403: The claim. Payment from the policy may be as a lump sum or as an annuity , which is paid in regular installments for either a specified period or for the beneficiary's lifetime . Death benefits are the primary feature of life insurance policies, and they provide a lump sum payment to the beneficiaries of the policyholder in the event of the policyholder's death. The amount of the death benefit

6993-514: The company came close to collapse. Following a July 2000 House of Lords ruling and the failure of attempts to find a buyer for the business, it closed to new business in December 2000 and reduced payouts to existing members. Lord Penrose's 2004 Equitable Life Inquiry found that the company had made over-generous payouts leading it to be under-funded. A 2007 European report concluded that regulators had focused on solvency margins and failed to consider

7104-415: The cost of commission is shifted to a buyer. Very often individuals who closed deferred retirement annuities will have to pay a surrender fee if they unexpectedly will withdraw funds during the early years of the contract. However, most annuities allow for emergency purposes a penalty-free withdrawal, which varies from 10% to 15% of the account. Calculate a lump sum payment that an individual should pay to

7215-702: The cost of members' funeral expenses and assisted survivors financially. In 1816, an archeological excavation in Minya, Egypt (under an Eyalet of the Ottoman Empire ) produced a Nerva–Antonine dynasty -era tablet from the ruins of the Temple of Antinous in Antinoöpolis , Aegyptus that prescribed the rules and membership dues of a burial society collegium established in Lanuvium , Italia in approximately 133 AD during

7326-498: The exception of Civil Rights Act compliance requirements. Insurance companies alone determine insurability, and some people are deemed uninsurable. The policy can be declined or rated (increasing the premium amount to compensate for the higher risk), and the amount of the premium will be proportional to the face value of the policy. Many companies separate applicants into four general categories. These categories are preferred best , preferred , standard , and tobacco . Preferred best

7437-615: The findings of her report by suggesting that whatever the regulators had done, it would have made no difference to the events which followed. She also said it had failed to give "cogent reasons" for rejecting some of her findings, mandatory since the Pensions Action Group Judicial Review . In March, the Public Administration Select Committee issued a second report in which it described the government response as "morally unacceptable", and repeated

7548-516: The former Equitable management team of "dubious" practices and nurturing a "culture of manipulation and concealment". The Report was debated in parliament on 24 March 2004. In June 2007 the European Parliament issued a 385-page report on Equitable Life. Its fifteen-month investigation followed the implementation in July 2004 of EC Directive 92/96/EEC (the Third Life Directive or 3LD), which governs

7659-427: The group. Contract provisions will attempt to exclude the possibility of adverse selection . Group life insurance often allows members exiting the group to maintain their coverage by buying individual coverage. The underwriting is carried out for the whole group instead of individuals. Permanent life insurance is life insurance that covers the remaining lifetime of the insured. A permanent insurance policy accumulates

7770-402: The increasing risk of accrued terminal bonuses. In 2010, government announced compensation to policy-holders of £1.5bn. In June 2018, Equitable Life announced that Life Company Consolidation Group (now Utmost Life and Pensions) had agreed to buy the company for £1.8bn, with most policies to be transferred to Utmost's Reliance Life subsidiary and converted to unit-linked . Some of the proceeds of

7881-465: The insurance organization, in order to in 20 years receive monthly distributions in the amount of $ 500 for 5 years, assuming a constant annual rate of return 12%. Calculation of a monthly nominal ROR...r r = j m = 0.12 12 = 0.01 = 1 % {\displaystyle r={j \over m}={0.12 \over 12}=0.01=1\%} ; where j...constant annual ROR, m...number of months 240 |

7992-483: The insured knowingly incurred a risk by consenting to an experimental medical procedure or by taking medication resulting in injury or death. Modern life insurance bears some similarity to the asset-management industry, and life insurers have diversified their product offerings into retirement products such as annuities . Life-based contracts tend to fall into two major categories: An early form of life insurance dates to Ancient Rome ; "burial clubs" covered

8103-410: The insured on the application may also be grounds for nullification. Most US states, for example, specify a maximum contestability period, often no more than two years. Only if the insured dies within this period will the insurer have a legal right to contest the claim on the basis of misrepresentation and request additional information before deciding whether to pay or deny the claim. The face amount of

8214-487: The last seven years. As part of the application, the insurer often requires the applicant's permission to obtain information from their physicians. Automated Life Underwriting is a technology solution which is designed to perform all or some of the screening functions traditionally completed by underwriters, and thus seeks to reduce the work effort, time and data necessary to underwrite a life insurance application. These systems allow point of sale distribution and can shorten

8325-480: The legal power to supervise Equitable. The Baird report stated that in January 1999, the total number of staff involved in the Government's prudential regulation of about 200 insurance companies was less than 135. The Penrose report also states that "the DTI insurance division was ill equipped to participate in the regulatory process. It had inadequate staff and those involved at line supervisor level in particular were not qualified to make any significant contribution to

8436-406: The letter and the aim of the Directive, and were used inappropriately (particularly when granting authorisation on numerous occasions to include future profits in the assets available to meet the solvency margin), and that therefore ... there are serious concerns that the 3LD was not correctly transposed in full. "The committee is of the opinion that the application of the 3LD by the UK in respect of

8547-558: The loss of limbs or body functions such as sight and hearing. Accidental death and AD&D policies pay actual benefits only very rarely, either because the cause of death is not covered by the policy or because death occurs well after the accident, by which time the premiums have gone unpaid. Various AD&D policies have different terms and exclusions. Risky activities such as parachuting, flying, professional sports, or military service are often omitted from coverage. Accidental death insurance can also supplement standard life insurance as

8658-405: The lump sum to be transferred to another annuity provider. As a result, communications with policyholders increasingly focused on the lump sum rather than annuity benefits. The GAR was calculated using an interest yield of 4% per annum until 1975 when it was increased to 7%. By May 2001, of Equitable's 1.1m policyholders about 16% held a GAR option. During the 1980s and 1990s Equitable experienced

8769-541: The main business of the Society, was undertaken by the Court of Directors; whilst resolutions had to be approved at two meetings of the General Court which all members were entitled to attend. From 1786 this court also dealt with grievances, and there was early tension between initial subscribers wanting a return on investment and those wanting to recruit new members. In 1816 a waiting period was introduced for new members, and only

8880-495: The name actuary to the chief official—the earliest known reference to the position as a business concern. The first modern actuary was William Morgan , who served from 1775 to 1830. In 1776 the Society carried out the first actuarial valuation of liabilities and subsequently distributed the first reversionary bonus (1781) and interim bonus (1809) among its members. It also used regular valuations to balance competing interests. The Society sought to treat its members equitably and

8991-405: The number of shares the heirs owned. The Amicable Society started with 2000 members. The first life table was written by Edmund Halley in 1693, but it was only in the 1750s that the necessary mathematical and statistical tools were in place for the development of modern life insurance. James Dodson , a mathematician and actuary, tried to establish a new company aimed at correctly offsetting

9102-551: The oldest 5,000 policies were entitled to bonuses. In 1893 the memorandum and articles of association were adopted, incorporating the society as "The Equitable Life Assurance Society" and transferring power to the directors; the 1816 membership and bonus restrictions were removed. The society moved to Mansion House Street in 1863, Coleman Street in 1924 (both in the City of London) and new offices in Aylesbury in January 1983. The archives of

9213-474: The outcome, and the case was dropped in September. Ernst & Young described the case as "ill conceived". Simultaneously, Equitable started a £3.3 billion claim against former directors, claiming that they failed in their duties to policyholders. This claim was abandoned in December 2005; the costs of the two cases amounted to around £40m. In July 2008, the Parliamentary and Health Service Ombudsman completed

9324-448: The perceived disadvantages of whole life—namely that premiums and death benefits are fixed. With universal life, both the premiums and death benefit are flexible. With the exception of guaranteed-death-benefit universal life policies, universal life policies trade their greater flexibility for fewer guarantees. "Flexible death benefit" means the policy owner can choose to decrease the death benefit. The death benefit can also be increased by

9435-504: The person to pay for the policy. The insured is a participant in the contract, but not necessarily a party to it. The beneficiary receives policy proceeds upon the insured person's death. The owner designates the beneficiary, but the beneficiary is not a party to the policy. The owner can change the beneficiary unless the policy has an irrevocable beneficiary designation. If a policy has an irrevocable beneficiary, any beneficiary changes, policy assignments, or cash value borrowing would require

9546-440: The policy is the initial amount that the policy will pay at the death of the insured or when the policy matures , although the actual death benefit can provide for greater or lesser than the face amount. The policy matures when the insured dies or reaches a specified age (such as 100 years old). The insurance company calculates the policy prices (premiums) at a level sufficient to fund claims, cover administrative costs, and provide

9657-420: The policy owner, usually requiring new underwriting. Another feature of flexible death benefit is the ability to choose option A or option B death benefits and to change those options over the course of the life of the insured. Option A is often referred to as a "level death benefit"; death benefits remain level for the life of the insured, and premiums are lower than policies with Option B death benefits, which pay

9768-458: The policy's cash value—i.e., a face amount plus earnings/interest. If the cash value grows over time, the death benefits do too. If the cash value declines, the death benefit also declines. Option B policies normally feature higher premiums than option A policies. The endowment policy is a life insurance contract designed to pay a lump sum after a specific term (on its 'maturity') or on death. Typical maturities are ten, fifteen, or twenty years up to

9879-414: The policy, were based on a method devised by the mathematician James Dodson using mortality figures for Northampton and the amount payable on death, the basic sum assured , was guaranteed, a major advantage at the time. As Dodson had died five years earlier, Edward Rowe Mores became its chief executive officer with the title of actuary —the first use of the term—though he was an administrator rather than

9990-541: The premiums paid if they outlive the policy. The specific uses of the terms "insurance" and "assurance" are sometimes confused. In general, in jurisdictions where both terms are used, "insurance" refers to providing coverage for an event that might happen (fire, theft, flood, etc.), while "assurance" is the provision of coverage for an event that is certain to happen. In the United States, both forms of coverage are called "insurance" for reasons of simplicity in companies selling both products. By some definitions, "insurance"

10101-420: The process. For all practical purposes, scrutiny of the actuarial functioning of life offices was in the hands of GAD until the reorganisation under FSA was in place". More evidence also strongly suggests that the regulator adopted a conscious and deliberate "hands-off" approach with regard to the Equitable case. If this were proven to be the case, it would constitute a breach of the regulator's obligation to ensure

10212-449: The purchaser will actually suffer some kind of loss if the CQV dies. Such a requirement prevents people from benefiting from the purchase of purely speculative policies on people they expect to die. With no insurable interest requirement, the risk that a purchaser would murder the CQV for insurance proceeds would be great. In at least one case, an insurance company that sold a policy to a purchaser with no insurable interest (who later murdered

10323-403: The rate of return for a predefined number of distribution periods or for life. Generally, fixed annuities are conservative insurance products as the rate of return is approximately equal to the rate of return that certificate of deposit (CD) would offer. Variable annuities operate in other ways. The final value of distributions that would accumulate from investments an individual had made during

10434-622: The reign of Elagabalus (218–222) that was included in the Digesta seu Pandectae (533) codification ordered by Justinian I (527–565) of the Eastern Roman Empire . The earliest known life insurance policy was made in Royal Exchange, London on 18 June 1583. A Richard Martin insured a William Gybbons, paying thirteen merchants 30 pounds for 400 if the insured dies within one year. The first company to offer life insurance in modern times

10545-666: The reign of Hadrian (117–138) of the Roman Empire . In 1851, future U.S. Supreme Court Associate Justice Joseph P. Bradley (1870–1892), once employed as an actuary for the Mutual Benefit Life Insurance Company , submitted an article to the Journal of the Institute of Actuaries detailing an historical account of a Severan dynasty -era life table compiled by the Roman jurist Ulpian in approximately 220 AD during

10656-612: The respect of PRE and therefore a breach of the letter and aim of Article 10 of the 3LD. Both the Baird and Penrose reports contain criticisms of the regulator's lack of a "pro-active approach". In its conclusion on p. 117, the report said that the powers bestowed on the Secretary of State (as prescribed by Section 68 of the Insurance Companies Act 1982) to waive the application of prudential regulations appear to be incompatible with

10767-495: The retirement date between a fixed Guaranteed Annuity Rate (GAR) or the Current Annuity Rate (i.e. the market annuity rate at that time) (CAR). The latter reflected the anticipated investment return on the lump sum over the annuity holder's lifetime and often changed depending on long-term interest yields and views on future longevity. No additional premium was charged in respect of the guarantee. In 1979, legislation allowed

10878-785: The risks of long-term life assurance policies, after being refused admission to the Amicable Life Assurance Society because of his advanced age. He was unsuccessful in his attempts at procuring a charter from the government . His disciple, Edward Rowe Mores , was able to establish the Society for Equitable Assurances on Lives and Survivorship in 1762. It was the world's first mutual insurer and it pioneered age based premiums based on mortality rate laying "the framework for scientific insurance practice and development" and "the basis of modern life assurance upon which all life assurance schemes were subsequently based". Mores also gave

10989-410: The sale would be returned to the remaining 400,000 policyholders in the form of increased bonuses on their policies. The sale completed at the end of 2019. The society, established via a deed of trust in September 1762 with the name of the "Society for Equitable Assurances on Lives and Survivorships", offered both whole life and fixed term policies. Premiums, which were constant for the duration of

11100-411: The scheme. Life insurance Life policies are legal contracts and the terms of each contract describe the limitations of the insured events. Often, specific exclusions written into the contract limit the liability of the insurer; common examples include claims relating to suicide , fraud, war, riot, and civil commotion. Difficulties may arise where an event is not clearly defined, for example,

11211-437: The single market in life insurance. This directive required the UK, where Equitable's headquarters were, to supervise its "entire business", and curtailed the supervisory power of other EU countries where Equitable operated. The EU Parliament's remit was to investigate, without prejudice , alleged breaches of Community law in relation to the collapse, to assess the UK regulatory regime in respect of Equitable Life, and to look at

11322-690: The society from 1762 to 1975 are held by the Institute of Actuaries . The society acquired the University Life Assurance Society and the Reversionary Interest Society in 1919 and the Equitable Reversionary Interest Society in 1920. Many of Equitable's with-profits policies were designed to provide a pension for the policyholder on retirement, and the lump sum available to buy an annuity depended on

11433-452: The sum assured, the reversionary bonuses and the larger terminal bonus . Both types of bonus were allocated at the discretion of the directors in accordance with Article 65 of the Articles of Association, the total being intended to reflect the investment return earned over the lifetime of the policy, subject to smoothing . Between 1956 and the advent of Personal Pension Schemes in July 1988, Equitable sold policies with an option to choose at

11544-420: The terminal bonus of those policies with Guaranteed Annuity Rates, negating the benefit from the guarantee but preserving the assets of non-GAR policyholders. By July 1998 there were a number of complaints to the Personal Investment Authority ombudsman and it was decided to seek a declaratory judgement . David Hyman was selected as the representative policyholder. Hearings started in July 1999, and in September

11655-423: The time frame for issuance from weeks or even months to hours or minutes, depending on the amount of insurance being purchased. The mortality of underwritten persons rises much more quickly than the general population. At the end of 10 years, the mortality of that 25-year-old, non-smoking male is 0.66/1000/year. Consequently, in a group of one thousand 25-year-old males with a $ 100,000 policy, all of average health,

11766-407: The tobacco category typically have to pay higher premiums due to higher mortality. Recent US mortality tables predict that roughly 0.35 in 1,000 non-smoking males aged 25 will die during the first year of a policy. Mortality approximately doubles for every additional ten years of age, so the mortality rate in the first year for non-smoking men is about 2.5 in 1,000 people at age 65. Compare this with

11877-420: Was a further reduction in 1781. By 1799 the society had assets of £4m and its 5,000 membership subsequently doubled to 10,000 in 1810. Famous 19th-century policyholders included Samuel Taylor Coleridge , William Wilberforce and Sir Walter Scott . The Life Assurance Companies Act 1870 ( 33 & 34 Vict. c. 61) was passed, "requiring all life offices to publish financial data on the lines so long followed by

11988-524: Was produced by the FSA's director of internal audit with the help of independent accountants and lawyers. The review found that – with hindsight – there had been some "deficiencies" on the part of the FSA in the discharge of their regulatory responsibilities, but also stated that "the die had been cast" by the time the FSA had assumed regulatory responsibility for the Society, in relation to those who had already invested in Equitable. The Penrose report, commissioned by

12099-482: Was sanctioned by the High Court in February 2002. Both groups of policyholders (those whose pensions had vested and those that had not) received further bad news. In July 2001 deferred pensioners (the second group) were angered to be told their savings had been reduced by 16%, and then in November 2002 pensioners were told that "with-profits annuities, like yours, are now out of line by about 30%." 50,000 annuitants suffered

12210-713: Was that the annuity was calculated at current annuity rates, not at the guaranteed rate, and was not lawful. "The self-evident commercial object of the inclusion of guaranteed rates in the policy is to protect the policyholder against a fall in market annuity rates ... The supposition of the parties must be presumed to have been that the directors would not exercise their discretion [in Article 65] in conflict with contractual rights." Even before that stage, Equitable, which had long claimed to be more transparent than its rivals, had assets worth £3 billion less than communications with policyholders had indicated. Having not insured against losing

12321-519: Was the Amicable Society for a Perpetual Assurance Office , founded in London in 1706 by William Talbot and Sir Thomas Allen . Each member made an annual payment per share on one to three shares with consideration to age of the members being twelve to fifty-five. At the end of the year a portion of the "amicable contribution" was divided among the wives and children of deceased members, in proportion to

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