Nearly one in five general insurance companies would currently fail to meet the FSA's enhanced capital requirements (ECRs) if they were introduced immediately, revealed research from Towers Perrin subsidiary Tillinghast.
The professional services firm said general insurance companies would need to either raise capital or reduce their ECRs by turning away business and reducing their premium income.
Tillinghast consultant Julian Leigh said: “The new solvency regime is intended to increase formal capital requirements by an amount that depends on risk.
“The FSA currently has said that the capital it expects insurers to hold is at least twice the statutory minimum solvency margin (SMSM), and higher, sometimes much higher, for companies writing the riskier books of business.
“We understand that the intention is that the new formal requirement should be roughly equal to what the FSA now regards as a practical minimum for each company.”
Research conducted by the company revealed that while most companies hold capital that is comfortably above the new requirements, 20% would fail under the new regime.
It also said that one in three insurers will have ECRs that are between double and triple their current SMSM. Interestingly, 7% of insurers will actually have a lower formal capital requirement under the new regime.
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