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Last Updated: Tuesday, 13 January, 2004, 13:21 GMT
Q&A: New FSA rules for life insurers
Financial Services Authority (FSA) logo
Standard Life is the first insurer to implement the FSA new rules

BBC News Online looks at the new Financial Services Authority (FSA) regulations that have led Standard Life to say it might consider floating on the stock market to raise funds.

Q: Why are the new rules being introduced?

Tough new solvency rules are being introduced by the FSA to ensure the regulator, investors and industry have a clearer picture of the financial strength of insurers.

The new rules were formulated in the aftermath of the near-collapse of insurer Equitable Life in 2000.

Q: What is the main difference being introduced?

A: Insurers will now have to value their assets and liabilities on a more "realistic" basis, and that could have greatest impact on the way liabilities, not assets, are measured.

This year life insurers must file a company balance sheet and a statutory balance sheet as usual. Under the new rules, they now also will have to submit a "realistic" balance sheet within three months of the end of their financial years.

Insurers will have to take account of guarantees they have offered on their policies when calculating liabilities - such as Standard Life's endowment promise.

The new rules also ban the use of accounting tricks such as incorporating unearned "future profits" to make a company's solvency look better.

Q: When is the deadline for Standard Life to file?

A: The new rules give Standard Life until 15 February.

Q: What does Standard Life say about its financial position?

A: Standard Life has been locked in talks with the FSA since December over the impact of the new regime on its balance sheet.

The group would not elaborate on the details of the discussions, but said it had now reached an agreement and stressed that its financial position remained very strong in both relative and absolute terms.

The insurer says it is in a healthy financial position, and that available assets are currently 4.6bn.

However, it is not entirely clear how much capital will appear according to the "realistic" measure on its balance sheet.

Q: What has Standard Life done to meet the FSA's concerns?

A: The FSA said there had been a "significant divergence" in Standard Life's calculation of its liabilities, and the higher level of reserves it now needed under the new regime.

Standard Life said on Tuesday it would immediately set aside increased reserves for guaranteed bonuses to its policyholders.

It also said it would take further steps to improve its calculation of its future liabilities.

And it said it would change the way it illustrated the financial benefits of being a mutual to its with-profits policyholders, but stressed the maturity value of people's investments would not fall as a result.

Q: Why has the issue put just Standard Life in the spotlight?

Standard Life is the first insurer to implement the new rules.

The regulations will come into force across the entire industry by March 2005.

Standard Life considers flotation
13 Jan 04  |  Business

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