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FSA aims to illuminate with-profits practices

Life office accounts will have to show details of smoothing, bonus policy and investment strategy for their with-profits funds under new FSA proposals.

Consultation paper 167, published last week, will see some of the work carried out by by the appointed actuary replaced by a requirement for the board to seek independent actuarial advice.

The FSA says it will also bring forward proposals which will give IFAs more information on the financial strength of individual companies and their with-profits funds.

Details of the management of a with-profits fund will for the first time have to be included in the certified accounts, including smoothing and bonus policy, investment strategy, use of orphan assets and how conflicts between shareholder and policyholder interests are resolved. Auditors will have to take independent actuarial advice on the liabilities of life companies. Equitable Life is currently suing auditors Ernst & Young for £2.6bn amid claims of incorrect accounts.

As proposed in the FSA&#39s with-profits review last year, life offices will also have to set up a with-profits committee as a sub-set of the board.

But the proposals have been attacked by the Faculty and Institute of Actuaries for not going far enough, as they do not allow for public scrutiny of any actuarial advice given.

FIA president Jeremy Gosford says: “We believe it is essential that the actuarial opinion should, as a matter of course, be made publicly available.”

FSA managing director John Tiner says: “This package of measures will shine a searchlight into the life insurers&#39 boardrooms.

“It will show how discretion is exercised in with-profits funds and ensure that boards and senior management are accountable not only for the decisions they take but also for ensuring that they obtain actuarial advice where appropriate and can demonstrate they have given proper attention to policyholders&#39 interests.”

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