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The Downfall of Equitable Life in the United Kingdom: The Mismatch of Strategy and Risk Management

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Abstract:

Abstract

This article considers the downfall of Equitable Life Assurance Society in the United Kingdom, founded in 1762 and the first life insurer to operate on an actuarial basis. Its failure to manage the risks implicit in guaranteed annuity options led to a financial crisis, and it ceased to write new business in 2000. We analyze the Society's risk management practices, and find that they were inconsistent with its strategy, which highlighted customer focus. It lacked the discipline to balance short-term advantage to customers with the long-term needs of the organization. We also highlight the use of participating policies, and the way in which they were used to transfer risk to policyholders. Finally, we draw some lessons for other life insurers from Equitable Life's experience.

Document Type: Research Article

DOI: https://doi.org/10.1111/j.1540-6296.2006.00093.x

Affiliations: Chris O'Brien is the director of the Centre for Risk and Insurance Studies, Nottingham University Business School, Jubilee Campus, Wollaton Road, Nottingham NG8 1BB, UK; phone: +44(0) 115 846 6519;, Email: christopher.obrien@nottingham.ac.uk.

Publication date: 2006-09-01

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