U.K. Regulators May Ease Solvency Rules to Help Embattled Life Sector

February 3, 2003

The U.K.’s Financial Services Authority, the body that regulates the country’s financial and insurance industries, has indicated that it will consider requests from the U.K.’s troubled life insurers for waivers of certain solvency requirements that have forced many companies to sell equity investments at depressed prices.

The life insurers are basically in a “Catch-22” situation. The solvency margins dictate that they must maintain a certain level of reserves. In order to do so many companies have had to sell equity investments in the currently depressed global stock markets. Their selling then creates additional downward pressure that depresses share prices still further. In an effort to stop, or at least slow, the cycle the FSA will review requests for waivers on a case-by case basis, and will give its permission to temporarily deviate from the reserve requirements in cases where it does not feel that solvency is actually threatened

The FSA has indicated that neither the U.K.’s largest life insurers, nor the P/C sector, have solvency problems, but it nevertheless realized the necessity to ease the rules in order to slow the downward slide in equity values and help stabilize the market.

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