Regulation
The Financial Services Authority (FSA) has published its new risk-based capital regime for insurance companies. The rules determine how much capital insurance companies will have to hold.
The requirements, which will be finalised by the end of 2004, apply to life insurers' with-profits funds, non-life insurance companies and reinsurers. They will ensure that the capital held by insurance firms is more closely aligned to the risks of the business they write. The aim of the requirements is to provide consumers with greater protection as firms make better assessments of the capital they need to meet their liabilities.
Large firms writing with-profits business will be required to hold capital equivalent to the greater of their statutory requirements - based on EU Directives - and a new realistic calculation of their expected liabilities. Non-life insurers will continue to meet the statutory solvency requirements, also based on EU Directives, but will also provide a risk-based enhanced capital calculation to the FSA on a private basis.
David Strachan, sector leader for insurance at the FSA, said the new requirements seek to address current weaknesses. "We have worked closely with the industry to refine the new capital requirements, resulting in a balanced approach that will better align the capital that firms hold to the risks they run," he said.
Peter Vipond, head of financial regulation and taxation at the Association of British Insurers, said: "The move to a sophisticated risk-based capital framework for the insurance industry in the UK is a positive and important development."
