UK - The Financial Services Authority has eased the pressure on life insurers to meet regulatory solvency levels by reducing its "resilience" test.
Under the previous resilience test, companies had to be able to withstand a 25% drop in market values.
The new guidance issued by the FSA states that firms can now take account of equity price movements in their calculations.
As an example, FSA managing director John Tiner said that if equities fall 10% below the 90-day market average, then firms will only have to test their portfolios against a 15% drop, instead of the standard 25%.
The FSA’s actions coincide with several insurers reporting solvency problems in relation to their liabilities on with-profits funds and guaranteed annuities.
The City had expressed fears that insurers would have to sell equities to meet solvency requirements, which would have further depressed markets.
Prior to the resiliency test changes, ratings agency Fitch claimed that nearly a quarter of the UK’s insurers were at “high risk” of not being able to meet minimum solvency levels.
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