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FSA confident that life offices can take strain

The FSA has moved to reassure investors and advisers that life companies are capable of withstanding the stresses of plummeting stockmarkets.

But while the regulator says the companies can cope with further big falls, it would not give a figure as to the size of fall they could withstand.

In the progress report from the Tiner Project, the FSA reveals that the implementation of the new regulatory regime for insurers is an immediate priority. It has recruited 35 industry specialists as well as transferring senior staff to the project.

Many life companies are believed to have projected that FTSE levels would be around 5,000 by year-end but it closed at 3,787 on Tuesday.

FSA managing director John Tiner says: “On the basis of our work so far, it is fair to say the survey revealed that, on a realistic basis, life offices have significant ability to withstand further large falls in equity values from the level at which the exercise was commissioned – the FTSE100 at around 4,000.”

ABI director general Mary Francis says: “We are pleased the FSA has confirmed its confidence in the financial strength of life offices. We believe the FSA should press on with its review of realistic liabilities so that more accurate market numbers can be used in the near term for regulatory purposes.”

Cazalet Financial Consulting principal Ned Cazalet says: “The risk controls and internal analytics of the life companies have left a lot to be desired. They got away with it when they were awash with money from the stockmarkets in the 80s and 90s. There is a big difference between being able to withstand falls and being in good shape.”

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