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Insurers say PRA’s tough line on with-profits is expected

FSA Letters 480

Providers say they are not concerned about the Prudential Regulation Authority’s hard line on with-profits funds, after the FSA announced it will take a more interventionist approach and could veto annual or terminal bonuses.

In a speech at the Prudential Regulation Authority insurance conference this week, FSA director of insurance Julian Adams said the new regulator will intervene “decisively” to protect funds from risky decisions.

He said: “Where the solvency of the fund may be compromised to an extent that we believe challenges our prudential objectives, then the PRA will intervene in a decisive manner and has the ability to veto a proposed course of action on annual or terminal bonuses.”

Adams also pledged to watch insurers that “chase yields”, warning the sustained low interest rate environment is pushing insurers to increase their exposire to risk to maintain high returns.

A Prudential spokesman says the provider’s stress tests already exceed regulatory requirements.

He says: “Difficult market conditions place a downward pressure on investment returns across the market, but in the case of our with-profits funds this is countered by our multi-asset approach to investing.”

Aviva and Standard Life claim the PRA’s approach is in line with its expectations of the new regulator.

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