Insurers face up to new solvency rules

From today insurance companies will have to match assets more closely to liabilities, which the Financial Service Authority sees as a key consumer protection. The new rules have been brought in after a five-month consultation.

Large firms writing with-profits business will have to hold capital equal to the greater of either their statutory requirements or a new, realistic calculation of expected liabilities. General insurance companies will have to give the FSA privately a risk-based enhanced capital calculation.

All firms will be given individual guidance by the FSA on how much capital they need, based on their own assessments of capital requirements.

David Strachan, the FSA's leader for insurance, said: "The new capital requirements lie at the very heart of the FSA's reform programme for UK insurers, ultimately leading to a stronger and healthier insurance industry. This will increase consumers' confidence that insurers are able to meet commitments to policyholders."

The new requirements form the penultimate part of the Tiner Review of the insurance industry, which began in 2001. The final piece falls into place next summer, when new rules for treating with-profits policyholders take effect. These will deal with the charges levied on those leaving with-profits funds early, target ranges for payouts and the closure of funds.

In two weeks' time, the FSA will take responsibility for regulating the sales, advice and administration of general insurance and protection insurance, covering 36,000 firms. Consumers will have to be given clear pre-sale information in a policy summary. Only suitable policies can be recommended, for which consumers will receive a suitability statement. They will also have to be told about "significant and unusual exclusions" from the policy, highlighting loopholes.