report proposes life offices Should be required to disclose asset shares for consumers to view
The FSA is advocating a significant change in the way life offices disclose information on with-profits so consumers can see how life offices are allocating their funds.
The report published last week, proposes that life offices should be required to disclose asset shares. This would mean that consumers would be able to see to what extent offices were holding back funds for future years, or to what extent they might be over-committing for the current year.
Currently only the FSA and ratings agencies are privy to this information. Ned Cazalet, principal of Cazalet Financial Consulting said the changes were needed because the current reporting rules allow life offices to ignore liabilities like guaranteed annuity rate commitments and mis-selling claims in their annual reports.
He claimed that the inadequacy of information systems of life offices would mean that they could find it hard to work out reliable asset share figures. Cazalet said: 'Some life offices have very poor internal reporting and astonishingly bad information management systems so they don't always know their true position.'
The FSA also said underlying investment returns should be made public. Some life companies already make this information available on request but others are more reluctant to do so.
Leslie Gray, pensions technical director at Scottish Mutual, said: 'I think the changes will help the public understand how life companies operate. It would shift the basis of judgement to the public away and from the regulator and the industry.'
Gray added that it would be difficult for life companies to get figures where policies went back 20 years as all information would not be available.
Nigel Stammers, pensions strategy manager at Clerical Medical also stressed that practicalities would need to be sorted out. He said: 'Different generations of with-profit holders and those with different types of products have different asset shares so it could be difficult to assess how exactly the figures should be calculated.'
Alasdair Buchanan head of communications at Scottish Life said: 'Average policyholders are already mind-numbed by the information they have. I think there should be a two tier disclosure system where the media and industry pundits get detailed information and consumers get a simplified version.'
The report also proposes that information is made available more quickly. Currently regulatory returns from offices are only required to be posted to Companies House after six months. The FSA proposals say that they should be available after just three months and that they should be available on the FSA website.
There is also a suggestion that a summary of key information, plus additional details of financing and capital, should be made available to consumers. The FSA said that this could also include a change in disclosure to show an insurer's ability to meet full discretionary as well as guaranteed benefits.
This is the second of five consultation documents responding to the enquiry into the FSA's role in the Equitable affair. Responses are sought to this consultation by 11 January 2002 and the FSA will draw responses to this and other consultation documents to bring together the With-Profits Review in Spring 2002.
Options for improving transparency of with-profits funds
1. Presenting certain information currently in the returns in summary form, but also including additional details of financing and capital support.
2. Requiring additional disclosure, based on asset shares. This would be a major change over current disclosure requirements and would be a significant step towards better understanding of the with-profits business.
3. Publishing regulatory returns on the FSA's website to make them easily accessible to analysts, commentators and consumers.
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