Following the recent terrorist attacks in New York, the Financial Services Authority (FSA) has given...
Following the recent terrorist attacks in New York, the Financial Services Authority (FSA) has given life insurers permission to hold lower reserves, in order to prevent a spiral of share selling and falling markets.
The authority has relaxed its resilience test guide that obliges insurers to stress test their share portfolios to ensure that they can pay out in worst case scenarios.
Prior to the events in New York, falling markets had prompted the FSA to relax the rules stating insurers must be able to withstand a 25% drop in their portfolio and a 3% rise in interest rates.
Many life insurers had difficulties due to falling markets before 11 September and were thinly capitalised. On 11 September, hours before the attacks, this was reduced to a 10% drop in portfolio value.
In response, the rule was relaxed to the point where actuaries may apply their professional judgement to their own particular company circumstances.
William Hewitson, head of the FSA actuary's department, said: 'We recognise that in current unusual market conditions further steps are necessary to avert the need for some insurance companies to sell equities for short-term technical reasons in a way which would be damaging to the interests of their policyholders.'
Although the FSA is concentrating on life assurers many general insurers will find themselves selling equities to raise cash to meet claims
l Although the large reinsurers have been badly affected by the events in the US, the proportion of their obligations pertaining to life and health insurance is small.
Swiss Re is expecting overall losses of £846m, but less than £63m on the life side of the business. Munich Re faces overall losses of £1.313bn with no breakdown of figures. .
