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‘New business must not adversely affect policyholders’

The regulator has tightened the rules for with-profits providers which write loss-leading new business due to concerns at the impact this could have on existing and future policyholders.

Under the revised regulations, published last week, insurers will be forced to demonstrate that writing new with-profits business will not adversely affect policyholders’ interests.

The FSA says the new stricter rules are needed because pricing business on loss-leading terms or generating new business with insufficient volume to cover the associated costs, could result in an “inappropriate depletion” of members’ estates.

In its original consultation, published in March 2011, the regulator said it was concerned that a “significant minority” of firms were writing loss-leading new business.

The FSA says: “This change was intended as a modest tightening of an existing rule in response to concerns about the possibility of inappropriate depletion of the estate causing detriment to the prospects for distributions to existing and future policyholders.

“This could be through either new business being deliberately priced on loss-making terms or new business generating insufficient volume to cover all the costs associated with it.”

In addition, a firm facing a “significant” fall in new business volumes will be required to discuss the adequacy of its planning with the regulator.

The FSA has decided not to force providers to draw up fair distribution and management plans after concerns were raised about the cost burden this could place on smaller funds.

Radcliffe & Newlands chartered financial planner Mel Kenny says: “The FSA has learned from the enticing bonuses that with-profits providers churned out in the 1990s, only to close the funds to new business and subsequently deliver poor returns.”


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Guide: Johnson Fleming produces auto-enrolment checklist

For a job as big as managing the auto-enrolment changes, it’s important to know what has been completed and what still lies in front of you to give you the reassurance that everything is in hand. Getting the planning and project management right at the outset can help you see the path ahead and ensure everyone knows their roles and responsibilities. To help with this, Johnson Fleming has produced a checklist outlining every step that needs to be taken when preparing for auto-enrolment.


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