UK regulator throws lifeline to AMP, insurers

An AMP spokesman said yesterday the group was still working through the implications of the moves, which allow life companies to apply for a waiver from having to meet strict regulatory solvency measures. The news led to some healthy rises in the depressed share prices of listed UK life insurers in early London trading last night.

The letter, sent to life insurance chief executives by the British Financial Services Authority, also implies that AMP is not the only life insurer to have breached its minimum capital requirements, as opposed to the situation last year when AMP's problems were uncovered and it was the only life company publicly exposed as having done so.

The admission that AMP's Pearl unit was not meeting regulatory requirements deepened its woes in Britain, where write-offs and weaker than expected earnings will largely contribute to a forecast $900 million loss for 2002.

FSA managing director John Tiner said in the letter that ``few firms" had indicated they were ``pressing against or have breached" minimum capital requirements. These provide a buffer of reserves to ensure policyholder obligations can be met, but for most in the industry they have been rapidly diminished by a one-third fall in the FTSE 100 in past 12 months.

The letter reflects concerns that the financial position of life companies could worsen as they are forced to raise capital to meet policyholder obligations and restore their position above the regulatory minimum,.

``Our prime focus in current market conditions is on life insurance companies maintaining financial resources sufficient to meet their responsibilities to policyholders, including their ability to absorb any further market falls that may occur," Mr Tiner said.

The FSA has previously signalled it would instead adopt a ``realistic" approach to calculating the solvency of life companies, siding with the likes of AMP that regulatory capital is not the only barometer of financial health.

``The calculations which go to make up the regulatory minimum margin are in some respects very conservative, in particular in the way that they value certain liabilities and require firms to maintain certain margins," Mr Tiner said.

He said the pressure on life companies to sell equities, which make up a large portion of their policyholder reserves, risked further falls, ``which in turn trigger additional selling and a downward spiral in equity market prices". Importantly, the letter might provide a confidence boost to the UK sharemarket, which would be critical to any AMP share price recovery.

AMP shares yesterday rose 2c to $19.19.