Insurers struggled in 2002 with the worst bear market in 30 years, and 2003 could prove even worse. That's the stark warning from the FSA's Financial Risk Outlook report.

Insurers struggled in 2002 with the worst bear market in 30 years, and 2003 could prove even worse. That's the stark warning from the FSA's "Financial Risk Outlook" report.

The FSA report warned that revenues in the financial sector are likely to remain depressed in 2003.

The report warned that continued trading losses would force insurers to dig into their earnings this year.

FSA managing director Carol Sergeant said: "The prospect of revenues remaining depressed during 2003 increases the risk of further losses across insurance, asset management and stock broking."

Forecasting a modest recovery for the UK economy, the City watchdog claimed that weak corporate credit combined with the possibility of war in Iraq, could lead to a slowdown.

FSA managing director Carol Sergeant said: "The year ahead should be one of modest recovery.

"But there are considerable uncertainties and plenty of reasons for caution at a time when consumers and capital reserves reduce markedly."

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