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Cazalet says FSA to crack down on FARs

Top industry analyst Ned Cazalet is predicting an FSA clampdown next year on what he claims to be the risky way some life offices calculate their free-asset ratios.

Speaking at Pims 2002 on the Aurora on Monday, Caza-let picked out Royal & Sun Alliance and Friends Provident as the worst offenders, saying the FSA was concerned about the way life offices determine their financial strength and would be seeking to crack down on FAR manipulation.

He said FARs were pinpointed in the Myners&#39 review as a method that companies use to impress IFAs but which would no longer be tolerated.

The FSA has already revealed in its with-profits proposals it is working on alter- native rating measures other than FARs. It says FARs are only “part of the picture”.

Another practice criticised by Cazalet is the “financial boomerang” of offices hiding liabilities in the reinsurance closet for up to five years.

He said: “Free-asset ratios are rubbish and the FSA is very concerned about the use of them. They are absurdly naive – a detailed assessment of the operational and financial prospects of a life office takes more than three seconds.”

Friends Provident director of corporate development Rocco Sepe says: “The FSA reviewed our reinsurance in July last year when we demutualised and gave us a clean bill of health. I do not think the FSA has said anything about free-asset ratios so this sounds like speculation.”

Royal & Sun Alliance PR manager UK life Jay Aitken says: “We disagree with the point that Ned makes about being in the red, referring to our Sun Alliance fund. This is incorrect – we are part of a worldwide group that would play a part in that scenario and we had a surplus at the end of last year.”

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