Reforms For UK Insurers Come Into Force

by Robin Pilgrim, LawAndTax-News.com, London

05 January 2005

The UK's Financial Services Authority (FSA) last week announced that the new prudential requirements for insurance firms in the United Kingdom have come into force.

With effect from December 31, the regulator revealed that large firms writing with-profits business will be required to hold capital equivalent to the greater of their statutory requirements and a new realistic calculation of their expected liabilities.

General insurance companies will need to continue to meet the statutory solvency requirements, but will also provide a risk-based enhanced capital calculation to the FSA on a private basis. In addition, all firms will be required to make their own assessments of their capital needs.

David Strachan, the FSA's insurance chief, observed of the reforms that:

"The new capital requirements lie at the very heart of the FSA's reform programme for UK insurers. The introduction of the new requirements...marks the culmination of extensive work by the FSA, insurance companies and their trade bodies. They place much greater emphasis on the need for all insurers to analyse their businesses and hold capital in line with their analysis."

The newly introduced requirements for insurance firms represent the penultimate stage of the FSA's review of the industry, which began in 2001. The final component of what is known as the "Tiner Review" will be put in place this summer with the introduction of new guidelines for the treatment of with-profits policyholders.

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