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New rules bring risk-based regime closer

The FSA&#39s new risk-based capital regime for insurance companies has moved closer with the publication of rules determining how much capital they must hold.

Under the rules, firms writing with-profits business must hold capital equivalent to the greater of their statutory requirements based on EU directives and a new realistic calculation of their expected liabilities.

Some firms have already published realistic calculations as part of the transition to the new regime, with the requirements finalised by the end of the year.

Companies doing with-profits business will be required to hold capital against bonuses as well as guarantees and generally show clear sets of numbers for assets and liabilities.

Firms writing with-profits business will also be allowed to count subordinated debt as capital.

The new regime will place greater stress on “individual capital assessments” where they demonstrate to the regulator that they hold enough capital to manage all the risks in their business.

FSA sector leader for insurance David Strachan says: “The FSA has undertaken a radical programme of reform of insurance regulation to deal with weaknesses in the rules that we inherited on both capital adequacy and the way in which companies treat their customers.”

ABI head of financial regulation and taxation Peter Vipond says: “The move to a sophisticated risk-based capital framework for the insurance industry is a positive and important development. This should be influential in setting the agenda for the next generation of EU solvency work now under way.”


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I have long believed the asset management industry is ripe for consolidation. There are over 1,000 asset management companies in Europe. The fragmented nature of the industry is even more apparent at the product level, with over 2,000 onshore open-ended funds and well over 11,000 offshore funds available to UK investors alone. In global terms, […]

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