UK Watchdog Tests Life Assurers

December 16, 2008 by admin · Leave a Comment
Filed under: Business News 

According to report by Financial Times, the UK’s biggest life assurers have been asked by regulators to test if their financial strength could withstand a series of further shocks, sparking industry speculation that the move could be a prelude to enforce capital raising.
The chief City watchdog has written to life assureres requiring them to test their ability to cope with a number of extreme scenarios with a 40% fall in equity markets. This move underlines the concern of Financial Services Authority about the strength of the life insurance industry. Some life assurers are anxious about that the FSA will use the results of the exercise, which also includes testing for further cuts in interest rates and a significant rise in corporate bond defaults, to force the industry to raise capital at the bottom of the market.
It is indicated by the regulator that in order to avoid forcing life assurers to sell equities or bonds in falling markets, it will be flexible if insurers are struggling to meet some of the capital demands amid the turmoil.
Some executives are worried about the impact of any speculation over the results of the “knee jerk” test on life assurers’ share price. It is possible that the exercise could put UK insurers at a competitive disadvantage compared with overseas rivals.

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