The Financial Services Compensation Scheme (FSCS) has announced its intention to refund a surplus of £42m
to relevant firms in the general insurance contribution group A31 before the end of the financial year 2005/06.
The FSCS said this is a result of significant recoveries made from general insurance estates and lower than anticipated compensation payments in the sector.
The FSCS also announced that, based on current information, it is unlikely to need to raise a levy on this contribution group during 2006/07.
This is said to be due to a short-term reduction in the funding requirements for general insurance compensation claims during 2005/06 and into 2006/07.
Loretta Minghella, chief executive said: “This is great news for insurance firms. In recent years, the general insurance sector has had to pay significant amounts for compensation payments relating to the defaults of insurers such as Independent, Chester Street, Drake and KWELM.
Whilst our primary role is to pay valid compensation claims we work hard to secure recoveries wherever we can. The timing and actual amount of any recoveries is difficult to predict, and during 2005/06 we recovered significantly more in the insurance sector than we anticipated.
"In the general insurance area our costs are largely dictated by the liabilities that emerge in relation to insolvent insurance estates and the timing of any recoveries made are dependent on the insolvency practitioners.
We are experiencing a short-term reduction in funding requirements, which means we should have sufficient funds to pay general insurance compensation claims during 2006/07 and up to the next expected levy collection in the Summer of 2007.
"Although we currently estimate that a significant levy will be required to fund general insurance compensation claims in 2007/08, possibly over £100m, it was clear after discussions with the ABI that a refund now would be appropriate.”
