The FSA's decision to set capital requirements for shaky companies is good news but, in truth, the risky companies are already known, says Elliot Lane

The Financial Services Authority's (FSA) decision to set capital requirements for shaky companies should be welcomed. It is a concerted effort by the new, improved regulator to stop another Independent Insurance and bring stability to the market.

And, if many people were honest about it, the industry already knows which companies are "risky", which are financially sound, and which are teetering like a small child trying to walk. What the FSA has yet to decide is how the capital ratio will be calculated.

For example, Royal & SunAlliance (R&SA) is on the regulator's watchlist because its solvency ratio is currently 37% - a standard insurer would normally have a ratio between 40% and 45%. At first glance it looks vulnerable. But, assessing its reserves versus liabilities, gross written premium and rate hikes, its overall capital ratio, on a risk-based format, should hold it steady.

R&SA chief executive Bob Mendelsohn told Insurance Times last month that the company had stress-tested the organisation and he was "99.99%" certain the solvency ratio would never go below 25%, even after another WTC-size disaster.

However, the real problem lies with Lloyd's. The 314-year-old institution is now under the FSA's remit, so the capital requirements regime will apply to all managing agents, syndicates and Stock Exchange-listed companies.

Rumour has it that Lloyd's ring-fencing lifeline to the beleaguered Cox has caused resentment within the market.

Sources say Euclidian went to Lloyd's and asked for a similar deal to hive off some business. No joy. Why? Because Euclidian doesn't have 1.3 million motor policyholders and its failure would not be as embarrassing to Lloyd's reputation as Cox's failure.

Or drain the depleted Central Fund for that matter.

The question now is, how many others, like Kiln, Chaucer, Goshawk and SVB Holdings, have been shown the door by Lloyd's?

Lawsuits are definitely pending.