Regulator to deal with 'corporate crises' threat in insurance sector, according to reports.
The FSA will pull together a team of outside advisers to deal with a possible wave of corporate crises in the insurance sector, reports The Times.
The report today said that the regulator, along with government departments are also looking at a range of options to assist insurers, which would include relaxing rules on accounting and capital requirements.
This week the FSA appointed an external team of lawyers following presentations by about ten firms two weeks ago. According to the report, sources close to the process have said the regulator was trying to ready itself for a surge in restructuring or failures among financial services companies.
The appointment process is thought to have been going on since January. One lawyer involved said that presentations had centred on insurance sector failures.
A source said: “This thing has developed a life of its own. It’s all about ensuring the FSA has external advice in place in case something goes very wrong.”
Sources said that the Government was considering changes to the regulatory regime that would be implemented if the stability of the insurance sector was further threatened by falls in the price of equities and corporate bonds.
The Bank of England and the FSA are known to be watching the insurance sector carefully for signs of stress. Although the Government is still some way from intervening, sources said that the FSA and others were monitoring the fast-moving situation closely, the report added.
On Monday the Bank said that insurers did not share banks’ extreme liquidity problems, but added that downgrades by credit ratings agencies could undermine their stability, forcing them to sell assets.
Sources said that the Government was keen to avoid the vicious spiral of forced selling that that would generate in already depressed share and corporate bond markets.
The report explained that one way to relieve pressure on insurers would be to relax FSA rules on how much capital they need to hold. It said the regulator would normally run a consultation process before altering the rules but in an emergency could make a change unilaterally, as it did on short-sellers of financial stocks.
It also said the FSA could press for suspension of mark-to-market accounting for insurers, which forces them to value their assets at market prices. In falling markets that creates a problem for insurers, some of which, particularly in life insurance, argue that they hold assets over many years and should not be forced to value holdings when prices are extraordinarily low.
