Daykin eases pressure on insurers' solvency ratios
Monday 17 August 1992
Chris Daykin, the Government Actuary, has written to life insurance companies saying that they may breach some of what were seen as inviolable regulatory requirements.
Mr Daykin said the letter was sent to reassure worried insurance companies that had run up against minimum funding requirements following the recent slump in equity prices.
Mr Daykin and the Department of Trade and Industry monitor insurers closely to ensure they have the money to make payouts. Life companies hold assets in many forms, including bonds and shares, but are required to hold enough funds to meet claims even if share prices, and thus asset values, drop.
A spokesman for the DTI said yesterday that to talk of relaxing the rules was alarmist. Mr Daykin had simply re-affirmed the original intentions.
Mr Daykin is prepared to relax the regulations only if companies consult his office. The one rule is that life companies must have enough liquidity to meet commitments, and have something to spare, if share prices fall 25 per cent.
The summer's 15 per cent slump in share prices means life insurers are much nearer the point when they may break into the 25 per cent cushion.
Without Mr Daykin's allowance, some life companies would have been obliged to switch from shares into less volatile investments like bonds. Several smaller institutions are believed to have switched already from equities to bonds.
On Thursday the FT-SE 100 Index ended seven successive falls with two days of rises. Selling by big institutions to comply with solvency ratio requirements could have sent the markets down further.
Mr Daykin does not propose that the 25 per cent rule be abandoned but that companies be able to work with a 20 or 22 per cent margin.
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