The FSA has today published its consultation paper 195 - Enhanced capital requirements and individu...
The FSA has today published its consultation paper 195 – Enhanced capital requirements and individual capital assessments for life insurers - setting out proposals for more flexible calculations of "mathematical reserves" and suggesting more self-assessment of capital needs.
The changes would be effected by altering rules in the integrated prudential sourcebook (PSB), which provides guidance on provisioning for liabilities and capital requirements.
Although changes to capital adequacy rules have been discussed for some time, it was only with the forced selling of equities from life company funds into the stock market this spring that the FSA finally decided to act.
A letter issued to all chief executives of life insurers on 11 March outlined a relaxation of strict mathematical formulas that had been forcing life funds into selling their equity assets in order to meet liability provisions.
On 12 March, the FTSE 100 reached its low point, from which it has recovered some 30%.
Alterning the mathematical formulas should give life companies the added flexibility they need to avoid falling into the forced-selling trap, while remaining in business in line with capital requirement rules.
The FSA warns, however, that like the existing rules, the new rules will not reduce to zero the risk of a company's liabilities overwhelming its business.
The regulator wants responses to CP 195 by 30 November. It proposes to implement any changes to the PSB and controls, capital and reserving requirements for life insurers in the second half of 2004.
An ambitious objective
'Something completely new'
'Illusion of control'
Reasons to be cheerful
Total investment reaches £9m