The Financial Services Authority has banned Christopher Headdon, the former appointed actuary and then chief executive of Equitable Life, from holding a significant management role until May 2010.
The prohibition is a result of Mr Headdon's failure to disclose a side letter to the FSA that raised questions about the true value of a reinsurance contract entered into by Equitable Life Assurance Society.
Andrew Procter, director of enforcement at the FSA, says: “Headdon should have provided information to the FSA about the side letter to the reinsurance contract and as a result of his failure to do so the FSA has concluded that he is not fit and proper.
“The FSA sets high standards by which it judges senior management. This includes the requirement that individuals deal with the FSA in an open and co-operative way. Where behaviour falls below our high standards we will take the necessary action to make sure customers are protected and markets properly informed.”
In 1999 Equitable agreed to bolster its reserves in respect of its Guaranteed Annuity Rate exposure with a reinsurance arrangement valued at approximately £800m. That reinsurance was ultimately provided through a treaty between Equitable and the Irish EuropeanReinsurance Company.
The treaty contained a clause that allowed for it to be renegotiated if withheld claims reached £100m. Separately, IRECO and Headdon, on behalf of Equitable, agreed to a side letter that recorded the parties intentions to cancel the Treaty if those renegotiations failed.
Cancellation of the treaty may have put Equitable in breach of the FSA's requirements and significantly weakened the regulatory balance sheet.
In meetings with Equitable the FSA expressed concern about the renegotiation clause.
Headdon told the FSA that there was no intention that reaching the £100m limit should provide grounds for cancellation and that it was only intended that the limit should provide a right to review the terms of the treaty. He did not mention the proposed side letter.
The FSA should have been informed about the side letter and Mr Headdon's failure to do so was not a matter of inadvertence but followed from a decision on his part. He also prepared and signed the annual regulatory returns for Equitable without any qualification in respect ofthe side letter.
Headdon has subsequently accepted that it was reasonable for the FSA to expect to be made aware of the full extent of any agreement reached between Equitable and IRECO, including any aspects of the agreement set out in a separate document.