"We are very close to a lifeboat situation." That's how one senior insurance industry executive interpreted the effect of WorldCom on the insurance industry. Of course, he was referring to the life insurance industry and should win plaudits for a clever pun. Nonetheless, the Financial Services Authority (FSA) took encouraging action in the wake of the FTSE's plummet to 4,500 last week and relaxed its solvency requirements.
While this was aimed at the life market, it should act as a positive indicator for the non-life industry. The message was loud and clear. Despite some tough talking by FSA chairman Howard Davies, the regulator will not stand by and watch financial services companies burn up in an equity meltdown.
This will be especially welcome at Royal & SunAlliance which is employing a risk-based capital approach to solvency (see page 14).
As Stockwatch went to press, the FTSE 100 was back up to 4,700 - pretty much the same level as two weeks ago. And while DIY chain Focus Wickes and business directory Yell abandoned plans to float on the stock market, Heath Lambert - or HLF as the company prefers to be known these days - held its nerve. No plans to abandon its float, said the press man.
The most recent float, Professional Risks Insurance, was given an A- rating by AM Best this week.
Meanwhile, the Account-ing Standards Board afforded financial directors the chance of a peaceful holiday by extending the deadline for adopting FRS17 - the pension accounting standard that has caused companies to declare pension shortfalls due to suppressed equity prices.
Capita Eastgate will be watching events at Abbey National very closely over the coming weeks. Abbey National is effectively open for offers and rumours have emerged that National Australia Bank is on the prowl. The two organisations have very different attitudes to general insurance. Abbey has an innovative outsourcing deal with Capita, whereby the outsourcing giant runs the whole broking, underwriting and claims operation for the bank. The Aussie bank runs more traditional broking operations through its Yorkshire, Clydesdale and Northern Bank operations.
