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Resilience tests eased again amid volatility

The FSA has again eased the resilience tests for life insurance companies to avoid forcing them to sell shares in a declining market.

Life companies have had to maintain a cushion to withstand a 25 per cent fall in equity prices. But they will now be able to take a three-month smoothed average from the FTSE All Share index and reduce the cushion to 15 per cent.

Falling stockmarkets can force life companies to sell shares at an unfavourable time to meet solvency requirements. The requirements were eased twice last year.

The latest move has been welcomed by the industry, which says it is a sensible move in volatile markets.

Cazalet Consulting principal Ned Cazalet says: “The FSA has done this for the markets. But perhaps the life companies should taking fewer risks and be selling equities after loosing a massive chunk of their capital.”

FSA managing director John Tiner says: “The existing resilience test is insufficiently sensitive to the effect of past equity prices and can cause perverse asset allocation. The new test will assist firms in their asset allocations across a range of market conditions, while maintaining prudent levels of capital.”

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