The FSA is reinstating one of the resilience tests for life offices that it suspended in the wake of September 11 after deciding that the pressure for unnecessary selling of equities has abated.
The regulator withdrew the tests just weeks after the terrorist attacks as it feared that attempts by life offices to meet statutory reserve requirements could trigger unnecessary equity sales and drive the stockmarket downwards.
But now the FSA has written to life office chief executives and appointed actuaries, advising them to revert to the guidance as it believes that equity markets have become more stable.
The test aims to ensure life offices have reserves to cover liabilities if equity prices fall by 10 per cent on a day-to-day basis. But providers and analysts say they doubt whether the test will affect provider behaviour and want the FSA to consider alternative action.
Prudential intermediary business distribution director Tony Kempster says: “We welcome the reintroduction of the test but wonder whether the FSA should consider restricting the flow of new business under similar circumstances.”
Cazalet Financial Consulting principal Ned Cazalet says: “I don't think the reinstatement of this test is going to make that much difference. Life offices will just carry on selling equities as before.”
An FSA spokesman says: “We suspended the tests as we were worried equity prices would fall. That has not happened. It was only ever a temporary measure and now there is more stability.”