FSA puts watch on Royal & Sun solvency

City watchdog fears FTSE 100 fall to 3,500 level could inflict severe pressure on sector

Royal & SunAlliance, the cash-strapped insurance giant, is holding frequent talks with the Financial Services Authority in a bid to reassure the City regulator about its financial strength.

The FSA is thought to be concerned about the insurer's reserves, and has been monitoring liabilities on its books such as guaranteed-annuity policies, which promise to pay policyholders a fixed sum, and future asbestosis claims.

The City watchdog has been keeping a close eye on RSA for sometime. It is understood that it has become even closer to the company in recent weeks after it emerged that RSA was planning to try to raise around £1bn through a rights issue and also sacrificed its chief executive, Bob Mendelsohn, following criticism of its performance.

The fundraising has yet to be announced but speculation that the insurer needs such a large sum has prompted fears that it needs the cash to shore up its existing business as well as to finance new business.

Due to these fears, the regulator has been exercising its right to a "close and continuous relationship" with the company. The FSA never comments on specific companies, but it is always keen to be in regular contact with struggling companies, such as the mutual life assurer Equitable Life, which it made daily calls to at certain points last year.

The FSA's interventionist approach towards RSA – the UK's fourth largest insurer – is consistent with its new "risk-based approach" to regulation. This requires the FSA to spend most of its time looking at companies with large numbers of policyholders because they would have the biggest adverse impact on the public if they went bust.

A spokesperson for RSA denied that the insurer was in "crisis talks" with the FSA, saying: "They know our plans and are kept informed of any developments."

The insurer, which is expected to announce a rights issue on or before its third-quarter results on 7 November, is considering appointing external consultants to assess various parts of its business to give credence to its own estimate of liabilities.

Areas it might tender for external consultation include its pension fund, which is thought to have a funding gap, and its life fund, which contains the problematic guaranteed-annuity policies similar to those which brought down Equitable Life.

RSA stressed this was not an unusual step to take, saying "companies employ consultants to look at their business all the time". However it is thought that the consultants' views would be used to boost confidence that the bulk of money raised through RSA's intended rights issue would not be used to fill existing holes in the balance sheet.

The volatility of current market conditions and the fresh falls of the FTSE 100 have prompted renewed concerns by the FSA about the insurance sector. It takes the view that the industry could cope if the FTSE fell to 3,500, but that it would be under severe strain.

Sir Edward George, Governor of the Bank of England, echoed this cautious tone, saying he was "monitoring very closely" the risks posed to recovery prospects posed by ailing stock markets.

Speaking at a Birmingham conference organised by the Institute of Chartered Accountants, Sir Edward sounded a more upbeat note than previously, saying there were tentative signs of a recovery in manufacturing. "Looking forward, there is a reasonable prospect that global demand will pick up gradually," he said.

Separately, the UK's largest mortgage lender, Halifax, said the top end of the housing market continued to be very strong, reporting an 11-fold increase in the number of houses being sold for £1m or more since 1995.

Start your day with The Independent, sign up for daily news emails
Life and Style
love + sex
Life and Style
Tikka Masala has been overtaken by Jalfrezi as the nation's most popular curry
food + drink
News
people
Voices
A propaganda video shows Isis forces near Tikrit
voicesAdam Walker: The Koran has violent passages, but it also has others that explicitly tells us how to interpret them
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Reach Volunteering: External Finance Trustee Needed!

Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

Christine McCleave: FP&A Analyst

£36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Austen Lloyd: Law Costs HOD - Southampton

£50000 - £60000 per annum + Excellent Salary: Austen Lloyd: An outstanding new...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn