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Tiner plumps cushion for consumers&#39 comfort

Amid plunging stockmarkets and the continuing troubles of Equitable Life, it is not surprising to see the FSA move to provide reassurance that all is well with life companies.

At the same time as publishing a progress report from the Tiner project – The Future Regulation of Insurance – FSA managing director John Tiner last week announced that life companies can withstand further falls in equity prices from a FTSE level of 4,000.

Quietly, some life offices are suggesting that there is nothing new in the progress report. Industry figures say it is simply a New Labour-style repetition and repackaging of various initiatives that have already been announced, designed to persuade the Government that the FSA is doing its job.

FSA spokeswoman Deborah Fowler says: “There is no harm in getting relevant factual information out there to counter speculation and unfactual coverage in the media.”

She has the support of Legal & General head of public relations John Morgan, who says there is nothing wrong with a PR exercise to reassure people about life insurers&#39 solvency.

Part of the report shows how the FSA is addressing the recommendations of the Baird report -the scathing analysis of regulatory failure surrounding Equitable Life, commissioned by the Government and published a year ago.

Standard Life group risk management director Cameron Mills says: “It is right and to be expected that the shadow of Equitable falls on this report. After all, Howard Davies did not get his bonus. It is a sad story and one that should never have happened. It should have been picked up and is clearly regulatory failure.”

While the report contains little that is new, it does come with a demonstration of how the new model of risk-based regulation works. The FSA has in the last few weeks written to the 20 biggest insurers – which between them have 90 per cent of the market – to ask what contingency plans they have for further falls in equity markets.

Fowler says the purpose of the exercise was to understand the safety cushion that companies have above the minimum level required by regulation. The answer, the FSA believes, is a comforting one.

One of the most important changes is to move to new ways of measuring solvency. Gone is the use of free-asset ratios. It is an initiative that life companies welcome. Morgan says: “It is not just a fill-a-form, tick-a-box approach.”

As a director of Standard Life, Mills says he will now have a chat with the FSA every fortnight and welcomes the move away from “meaningless and formulaic” statutory returns and the “jiggery-pokery” of free-asset ratios. He says the new regime allows the FSA to understand the realistic position of the company and not just its statutory declarations.

But life companies admit there is a lot of work to be done, not least in winning over some IFAs. Hargreaves Lansdown pensions research manager Tom McPhail is not reassured by the FSA&#39s statement and sees no reason for the firm to change its policy of not selling withprofits. “In isolation, the announcement is of no reassurance to us. It is too wishy-washy to be meaningful,” he says.

But other IFAs have welcomed the FSA&#39s reassurance. Informed Choice managing director Nick Bamford says: “It is good that the FSA has kept its finger on the pulse and I hope it will lead to a revival in consumer confidence.”

He believes the FSA should share information on financial strength with advisers who recommend the companies and would ultimately be held responsible for recommending the wrong provider.

Other commentators have questioned what the FSA means when it refers to companies withstanding further stockmarket falls. Influential analyst Ned Cazalet says Equitable Life has withstood stockmarket falls but at great expense to policyholders.

He points out that there is a difference between going bust and companies being forced to slowly cut payouts until very little of the with-profits bonuses is left.

While it will be little comfort for Equitable policyholders, their predicament has at least hastened a move to a new kind of regulation designed to ensure their experience will not be repeated.

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