regulator plans shake-up to improve transparency of information released by life offices
The FSA is to tighten up on the way life companies disclose information about their with-profits funds.
Changes designed to improve the governance of life offices will make with-profits more transparent, according to the regulator. It proposes to require life offices to disclose how they use discretion in managing with-profits funds and how conflicts of interests are managed.
Life insurance analyst Ned Cazlet, who helped draw up the consultation paper, said the changes are needed to ensure another collapse like Equitable does not occur. He added: 'These changes are common sense. We need better accountability. Life offices need to change the 'trust us, we know best' culture and open up to outside scrutiny.'
The FSA has proposed life offices be required to produce a document called Principles and Practices of Financial Management (PPFM) by the end of 2003. Directors would have to certify annually the with-profits business had been run in accordance with the document.
Issues covered in the document would include how insurers manage inherited estates and how they are to be used. Groups will also have to explain how they set annual and final bonus rates and how they smooth the value of with-profits business. The investment strategy for with-profits assets would also have to be explained.
The changes would see directors and senior management explicitly responsible for all decisions of their business, according to the FSA. This would mean the role of the appointed actuary would be discontinued.
The proposals advocate two distinct actuarial roles with one actuary concentrating explicitly on the with-profits business. This person would provide technical advice but ultimate responsibility for decisions would remain with the board. Cazalet pointed out that in Equitable Life's case, the appointed actuary was also the managing director of the company.
Life offices will be expected to run with-profits funds in compliance with PPFM by early 2004. They will have to explain to policyholders how they have done this in their annual report.
The FSA is inviting responses to a consultation on changes to governance arrangements until 25 April.
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