The Financial Services Authority (FSA) has warned insurers of the need to boost their capital base to ensure the long-term health of the industry.
FSA chairman Howard Davies told the Association of Insurance and Risk Managers annual lecture that the growing trend for "insurance-based investment banking", credit risk transfers between banking, insurers and reinsurers, was a cause for concern.
Davies said: "One investment banker recently described these instruments to me as `the most toxic element of the financial markets today'.
"It's not surprising we have been taking a heightened interest in this area."
The full version of Davies' speech spoke to the Association of Insurance and Risk Managers is available at www.airmic.co.uk.
