FSA set to change insolvency rules for insurers

FSA set to change insolvency rules for insurers

Rules governing reserves to change

Britain’s biggest insurance companies should be able to free up capital tied
up in reserves to fund growth in other areas, an FSA document to be released
this week will say.

The consultation document is set to recommend overhauling regulations which
many believe impose excessive targets for capital and reserves and will be
included in European Union regulations, by member states by 2010.

The new rules are expected to prevent a repeat of events in 2003 when the FSA
forced Standard Life to sell £7bn of equities following a collapse in stock
market values.

At the same time insurers are expected to adopt more sophisticated
risk-management methods.

Rules dating back to the 1970s currently force insurance groups to keep more
funds in their reserves than rival investment management firms.

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