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&#39Life firms should hold only 15% in equities&#39

Credit Suisse First Boston analysts are warning that UK insurance companies should hold little more than 15 per cent of their assets in equities because of their high level of guarantees.

It would mean a drastic reduction from insurance firms&#39 current equities average of about 40 per cent.

The CSFB report, published last week, says that if the equity markets fall further, some smaller insurers could not meet their guarantees and could face insolvency. In the last year, equity weightings have been cut across the sector due to both reductions in share values and increasing equity sales.

Norwich Union&#39s equity weighting is down to 41 per cent from 62 per cent and Scottish Widows weighting is down to 38 per cent from 60 per cent. Scottish Mutual says it is actively reducing its equity weighting from its last disclosed figure of 40 per cent.

CSFB&#39s report says: “Given the reduction over the past three years in the proportion of the total payout that is discretionary and the corresponding increase in what is guaranteed, UK insurers should hold little more than 15 per cent of their life assets in equities.”

Wentworth Rose chief executive Philip Rose says: “Insurance firms are facing the same challenge as the private investor – is the era of the equity at an end? Our fathers and grandfathers would have thought equity holdings over 50 per cent is too risky but to say 15 per cent is excessive.”

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