The Association of British Insurers has rejected the Financial Services Authority's criticisms of the insurance industry.
In a letter published in today's Financial Times, Mary Francis, director-general of the ABI, says: "It is important that individuals and small businesses should not gain the impression that the UK industry generally faces a 'toxic financial shock'."
The Financial Times reported that the ABI said it "did not recognise" the figure of an estimated £7.5bn in losses to corporate and personal policyholders over the past decade that had been cited by Sir Howard Davies earlier this week.
Davies had said regulators were concerned by two industry trends - financial reinsurance and insurance-based investment banking, where there had been rapid growth of credit risk transfers between the banking and investment banking sectors and insurers.
He said these transfers had recently taken more exotic forms such as synthetic collateralised debt obligations, which one investment banker had described as "the most toxic element of the financial markets today".
In the letter, Francis says: "The credit risk transfer instruments to which Sir Howard refers are, so far as we are aware, almost exclusively written by reinsurance companies based outside the UK.
"Of the 39 insurance company insolvencies which Sir Howard mentions, only a minority did business in the UK domestic market."
However, Francis also uses the letter to welcome Davies' efforts to "introduce a genuinely risk-based approach to regulation".
She says: "It is clearly right to ensure that all financial arrangements are robust."
