UK – The Financial Services Authority says it may grant waivers to life insurance firms to prevent them having to sell shares and breach insolvency margins.

The FSA, the UK’s financial watchdog, said firms can “apply to us to waive or modify particular rules which form part of the existing regulatory minimum margin calculation, so long as they continue to meet the EC minima”.

“In considering requests for waivers, we would take into account the firm’s realistic position. This would help us satisfy ourselves that, if the waiver were to be granted, there would be no undue risk to consumers,” the FSA said in a letter to chief executives of life insurers.

The FSA added: “There is no doubt that falling equity prices have had, and will continue to have, a significant impact on the financial position of life insurance companies.

“As always, we stand ready to discuss these decisions with individual firms, particularly how they might affect their regulatory obligations.

“We therefore thought that it would be helpful for both life insurance firms and the public to set out particular considerations that we would take into account in these discussions with individual firms.

It says its prime focus in current market conditions is on life insurance companies maintaining financial resources sufficient to meet their responsibilities to policyholders, including their ability to absorb any further market falls that may occur.

It says current regulations require firms to maintain a “minimum margin over solvency”, known as the regulatory minimum margin, or RMM.

“Although the RMM is an important indicator of the financial health of a life insurance company, it is by no means the only indicator,” the FSA acknowledges. It has begun to collect solvency data using what it calls the “realistic” approach.

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