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Daily Insurance Industry News
Thursday 18th of January 2018
June 20, 2008

MPs attacks FSA’s regulation of inherited estates

by Gill Montia

Story link: MPs attacks FSA’s regulation of inherited estates

MPs attacks FSA’s regulation of inherited estates

A select committee of MP’s has criticised the Financial Services Authority (FSA) over its regulation of the with-profit funds of insurance companies.

In a report by a Treasury select committee the FSA is accused of not having clear principles for regulating the inherited estates of insurers.

The money, which is sometimes referred to as an “orphan fund” is defined by the FSA “as the excess of assets maintained within the long-term fund over and above the amount required to meet liabilities.”

The excess arises because insurers hold back a proportion of policyholders’ investment returns during profitable years, to cover payouts during years when returns are poor.

In recent months the way in which the funds are reattributed has been at the centre of a debate.

Both the consumer group Which? and Clare Spottiswoode, who holds the post of policyholder advocate, believe the current FSA regulations favouring shareholders.

In its report the committee says that the FSA has been caught up “micro-regulating” particular firms and that it could give no assurance that policyholders’ interests were protected.

MPs also rejected the practice of using surplus money from with-profit funds for paying compensation to customers who have been mis-sold policies.

The committee is asking the FSA to review its regulation of the way in which insurers calculate and reattribute their inherited estates, taking into account the authority’s principle of treating customers fairly.

Last month, Norwich Union said it was close to completing proposals for the reattribution of the £2.6 billion of surplus capital in its with-profits fund and Prudential expects to issue an update on its inherited estate (which is estimated to be worth £8.7 billion) by the end of this month.

 

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