AN AUTOCRATIC and bullying management combined with a “clueless” board brought Equitable Life near to collapse, Lord Penrose concluded in a damning report into the insurer’s woes.

Lord Penrose’s report, published yesterday, more than 2½ years after it was commissioned by the Treasury, described a management dominated by unaccountable actuaries, a board of non- executives who had no idea what was going on at the company they were charged with overseeing, and a regulator that failed to act as any kind of protector for policyholders.

Equitable was forced to close to new business in 2000, after a decision in the House of Lords forced the insurer to honour pledges made to policyholders with guarantees on their pensions. But Lord Penrose concluded that at the time of the House of Lords decision the 242-year-old society already had a £4.4 billion black hole because it had been paying out more to policyholders than it held in reserves for more than a decade.

The report concluded that the House of Lords decision was the catalyst for a crisis that was inevitable by 1998, because of the black hole. Lord Penrose lays the blame for this policy of paying out too much cash on Roy Ranson, who was the society’s actuary from 1982 until 1992, and chief executive until 1997. He says that Mr Ranson, whom Lord Penrose describes as a “manipulative” witness to the inquiry, failed to provide sufficient information to the board or to the regulators, effectively running the society as a private fiefdom.

As a result the board was completely clueless about the true state of the society’s position. Lord Penrose said: “The board at no stage got fully to grips with the financial situation faced by the Society: information was too fragmented, their collective skills were inadequate for the task.”

The report concluded that the Equitable’s non-executive directors were “so wholly dependent on actuarial input” from Mr Ranson and his successor, Chris Headdon, that “they were largely incapable of exercising any influence on the actuarial management of the society”.

Lord Penrose also said that even though Equitable is theoretically owned by its policyholders, they were “effectively powerless, and the board was a self-perpetuating oligarchy”. Lord Penrose primarily blames the nature of regulation in the 1990s, when the Department for Trade and Industry (DTI) had responsibility for supervising financial services firms. But he also exposes significant failures by those implementing the flawed system.

He says that the regulatory system was flawed because it placed too much faith in the actuary at each firm, in this case Mr Ranson and Mr Headdon. The individuals responsible for supervising Equitable pointed out to the inquiry team that “the Government required a light touch approach to regulation and allocated resources accordingly”.

But the regulators themselves are critiscised by the report. Lord Penrose describes the DTI’s insurance regulation unit in the 1990s as “ill-equipped to participate in the regulatory process”. The DTI had “inadequate staff” who were “not qualified to make any significant contribution to the process”.

The DTI was “fundamentally dependent” on the Government Actuary Department (GAD) to assess the financial health of the companies it was supervising. But Lord Penrose is scathing about GAD, whose actuaries he accuses of being part of the “introspective and exclusive professional group” they were supposed to be supervising. GAD’s scrutiny was “complacent, lacking in challenge and hesitant in criticism”.

Lord Penrose said that Mr Ranson was “frequently aggressive in his dealings with regulators. He was dismissive of regulators’ views and concerns, he was obstructive to scrutiny and often failed to answer questions put to him.”

But the report points out that the regulators should have stood up to bullying by Mr Ranson. Instead, the report concluded that the actuaries did attempt to challenge Mr Ranson, but failed.

“There was challenge, but it was ineffective. Unsatisfactory answers were accepted without follow-up. Lines of inquiry were abandoned or postponed in the face of resistance.” Lord Penrose added damningly: “No problem was considered serious enough that it could not be left until next time.”