UK ASSURERS NOT TOO EXPOSED TO BOND MARKETS, FINDS FSA

An inquiry conducted by UK regulator the Financial Services Authority (FSA) has found that leading local life assurers are not unduly exposed to the bond market, with few of those surveyed having significant holdings of credit derivatives, as had been feared. The research by the watchdog led it to estimate that UK life companies have sold about £30bn of equities from with-profits funds in the past year and reinvested most of the proceeds in bonds, but the FSA also found that the quality of firms’ bond portfolios was reassuring. “The results of this survey indicate that the industry in the UK has generally adopted investment policies that set appropriate limits for credit risk appetite and for exposures to individual counterparties”, noted the watchdog. “The investment portfolios generally comprise good-quality credit risks consistent with the stated investment policies, and the reserves set up for credit risk are, on average, what we would expect”. Last year FSA chair Sir Howard Davies expressed some doubts about the risks being assumed by some participants in the credit derivatives market, which he described as the most “toxic” threat to financial markets. Subsequently, however, the FSA qualified its stance by noting that the risk was less than had been perceived, with many “firms, including UK and overseas insurance companies, [having] only dabbled in the market”.