The Financial Services Authority (FSA) has proposed rules to bring the protection of policyholders with unit-linked and index-linked life insurance products in line with new European legislation.
Unit-linked policies are used within individual pensions, endowments, investment bonds and whole of life insurance policies. They are also used as investments for defined contribution (DC) and defined benefit (DB) occupational pensions.
Policyholders, and not the insurer, suffer detriment if the assets backing the policies turn out to be inappropriately risky.
Under the proposed new rules, the regulator will implement high-level requirements from European legislation Solvency II which strengthens current rules stating insurers should only invest in assets they can properly value and monitor.
This replaces the current FSA approach which lists the particular assets insurers can use.
However, where individuals bear the direct risk of investing in unit-linked and index-linked policies, Solvency II allows the FSA to continue to specify which assets can be used for such policies.
Recent figures show the UK unit-linked long-term life sector has assets of £815bn under management and a further £24bn in index-linked policies, according to the FSA.
Sheila Nicoll, director of policy, said:"Millions of people rely on unit-linked policies to keep them secure in their retirement.
"While regulation cannot protect policyholders from market movements, these rules are designed to ensure that they can be confident that their money is being invested prudently."
The consultation will close on 15 February 2012. The FSA plans to publish a Policy Statement giving feedback in the second quarter of 2012.
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