The Financial Services Authority has ordered some UK insurers to abandon reinsurance agreements which it believes are mainly cosmetic attempts to hide liabilities and do not transfer risk from the companies' balance sheets.
The regulator would not name the insurers, but they come on top of similar problems unearthed at Equitable Life last year. The collapsed life assurer signed a reinsurance agreement which brought its liabilities down so that it could meet solvency requirements.
But at the same time Equitable appears to have written a letter to the reinsurer promising not to claim fully on its policy. When the FSA discovered the details it forced Equitable to reduce the value of the policy.
Unsatisfactory reinsurance was also discovered at Independent Insurance, which went into administration last summer and is the subject of a Serious Fraud Squad investigation.
Sir Howard Davies, chairman of the Financial Services Authority, warned the annual Association of Insurance and Risk Managers (Airmac) that he would continue to clamp down on sharp accounting. "I believe that a number of companies should be asking themselves some hard questions about the prudence of their reinsurance practices," he said.
Airmac gave Sir Howard's speech a cautious welcome, but fired its own salvo against the FSA becoming too overbearing. "We remain concerned that the FSA ... will need to guard against a possible failure of communication and must promote joined-up thinking within its own ranks," it said.Reuse content