The underlying position of a life company is crucial for investors in with-profits policies, where the payouts depend to a large extent on the state of the reserves.
Money Management, a monthly magazine for financial advisers, has conducted a survey of life offices in an attempt to try to reveal the weak and strong of the pack.
The picture is not entirely rosy. The magazine concludes that if interest rates had stayed at 15 per cent some life insurers would have been in the uncomfortable position of seeing their assets drop below their liabilities.
Free asset ratios, which show the proportion of assets not already earmarked to provide future benefits, are one crucial measure of strength.
Of 41 companies, 21 had lower ratios in 1991 than the previous year. The biggest fall was at Britannia Life, from 8 to 4 per cent, the lowest figure, while Eagle Star dropped from 8 to 5 per cent and GRE fell from 12 to 8 per cent.
Norwich Union, which has been the subject of persistent rumours of financial problems, has seen its ratio drop from 14 per cent to 11 per cent.
Free asset ratios are not absolute guidelines and should be looked at alongside other indicators, but Money Management says that financial advisers should feel uncomfortable about recommending life offices where the free asset ratios are in single figures.
These also include Ecclesiastical, Equitable Life, Life Association of Scotland, MGM and National Provident Institution.
Offices with the highest ratios include Pearl (48 per cent), General Accident (39 per cent), Commercial Union (38 per cent), and AXA Equity & Law and Royal London (36 per cent).
Scottish Mutual, which has been taken over by Abbey National and received a pounds 285m injection, has improved its ratio from 5 per cent last year to 17 per cent - a six-year high.Reuse content