Solvency scares likely to have triggered regulator's action

The review will cover general insurance firms in run-off, run …

The FSA is to begin a review of the run-off market.

The regulator confirmed that it had written to a "sample of firms" in order to gather initial information prior to undertaking visits.

The review will cover general insurance firms in run-off, run-off service providers, trade associations and professional advisers.

A spokesman for the FSA said the thematic review was "to understand the market and issues".

A senior compliance source said the review was likely to have been influenced by "solvency scares" in the run-off sector.

"The FSA will be checking for capital adequacy. There have also been questions over the quality of people involved in run-off businesses."

The source added: "There are also worries about capital coming in from overseas as this restricts getting hold of the money."

The FSA said its review would encompass a number of issues including:

  • How funding is organised to achieve finality
  • Acquisitions and exit strategies
  • Whether customers are treated fairly
  • The management of outsourcing, insourcing and offshoring.
  • An FSA spokesman said the decision was not influenced by the High Court's recent landmark decision on British Aviation Insurance Company's solvent scheme of arrangement.

    In that case the High Court refused to sanction the scheme because it was "unfair to certain policyholders". The FSA had previously approved the arrangement.

    The judgment cast doubt on the future of such arrangements.

    "These reviews are planned well in advance. I don't know whether solvent schemes will be looked at," said the spokesman.

    A spokesman for the Association of Run Off Companies said: "It is good the FSA is taking an interest. It is a welcome initiative."