Insurers welcome FSA's plan to soften capital rules

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The insurance industry yesterday won a concession over incoming capital rules when the Financial Services Authority signalled it might soften regulations governing the amount of cash companies have to hold on their balance sheets.

Publishing its final version of rules for firms with both banking and insurance businesses, which will be implemented from January, the FSA said it had decided not to push ahead at this point with its previous plan of introducing a "hard" test governing capital.

This would have allowed the regulator to take draconian action against banks and insurers whose funds fell below a certain level. Instead, the FSA said, it had taken into account companies' concerns that the test would be particularly onerous because they are also wrestling with incoming international accounting standards.

The regulator will consider the matter further and update the industry in September about the capital adequacy test. At the moment, the UK operates a "soft" system, whereby companies can sometimes persuade the FSA to relax regulations for a period of time if they can prove that their business issound.