Britannic fails to ease solvency fears

FTSE 100 resumes its downward path as credit agency downgrades and war fears take their toll

Britannic, the embattled life assurer, was forced to reassure the markets yesterday that it could withstand further significant falls in the stock market without becoming insolvent.

But the company's statement that it could maintain its solvency margins even if the FTSE 100 fell to "appreciably" lower levels failed to stem the slide in its share price.

Britannic shares ended 12 per cent lower at 101p, having fallen by as much as 29 per cent before the statement. On Tuesday, the shares fell by as much as 17 per cent.

Britannic has lost 70 per cent of its value since it axed its annual bonus payment to policyholders and decided to hold off on dividend payments in order to conserve capital earlier this month.

The slide in Britannic's shares gained momentum in early trade yesterday as the FTSE 100 headed closer to 3,300, the point which the insurer had previously identified as a critical level for its solvency margins.

But the company's statement, issued during early afternoon trade, said Britannic had continued to take action to protect the solvency position of the company since its profits warning in early January. It said it was confident that solvency can be maintained at "appreciably lower" equity markets than yesterday's levels.

The FTSE 100 ended the day down 6.2 points at 3,483.8.

Britannic's move to scale back its exposure to equities significantly, however, will mean the impact of recent market falls has been reduced.

Ned Cazalet, an independent insurance analyst, said: "If Britannic is insolvent, then so is half the UK life sector.Britannic is suffering, but many others are to a worse degree.

"Some of the trading movements have been a knee-jerk reaction to what is affecting the whole industry."

Britannic has been the biggest casualty as shares across the insurance sector have been hit by concerns about the impact of falling markets, though larger market players across Europe such as Aviva, the Dutch group ING and Swiss Life have been hurt by the same worries.

Standard & Poor's, the credit ratings agency, yesterday confirmed the pressure facing life insurers from the continuing fall in the value of their stock market assets by downgrading two of the strongest companies, Standard Life and Prudential.

Standard Life yesterday lost its S&P triple-A crown to slip two notches to AA. S&P said Standard had taken a sizeable risk in its bullish stance on equities, and its "options to manage capital in response to immediate volatility and further falls in equity markets are more limited." It expects this leaves Standard with little choice but to sell more equities.

Prudential was also downgraded to AA- from AA+ to account for the cost of its generous dividend policy and the strain of supporting its US subsidiary Jackson National. It was also put on a negative outlook, as was Legal & General.

The Financial Services Authority said this week it would allow some companies to temporarily breach their statutory solvency margin, which requires companies to have assets worth at least 4 per cent more than their liabilities, while they acted to strengthen their balance sheets.