The FSA has warned mutuals to ensure existing with-profits policyholders are protected when they seek to launch new products.
Following questions from a number of mutual firms over how to deal with the decline in with-profits business, the regulator has written to CEOs outlining their options and responsibilities.
A number of mutuals are facing a significant decline in new with-profits business, and many are now considering closing their funds or creating new products.
Jon Pain, managing director of supervision at the FSA, says firms must ensure they can fairly distribute assets to with-profits policyholders when closing a with-profits fund while continuing to write new non-profit business.
If they are unable to run-off their with-profits fund fairly, then they may be required to close to all new business.
"If the mutual wishes to continue to write new non-profit business, it may do so, providing that it can show that the new non-profit business can be written on a basis which is unlikely to have a material adverse effect on the interests of its existing with-profits policyholders," Pain says.
The FSA says firms can also write new with-profits if they wish, but must ensure they do not disadvantage existing policyholders by offering a product with a substantially different risk/reward profiles that is still required to support contractual obligations for existing funds.
A number of mutuals are looking into new product development, prompting today's letter, and firms will need to communicate their plans to the FSA by the end of December 2009.
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