Britain's financial watchdog sought to ease investors' nerves about insurance companies today by saying that life assurers had ample reserves to withstand further sharp stock market falls.
Life assurers in Britain and Europe have been hit by tumbling investment returns and policyholders cashing in prematurely, further weakening their funds.
But the Financial Services Authority (FSA) conducted a survey of British life offices and concluded they held enough assets in excess of a realistic estimate of their future liabilities to absorb unexpected losses and support future new business.
But investors continue to dump insurance shares across Europe amid falling share prices. The FTSE 100 blue chip index plunged 4.8 per cent yesterday, ending not far from a six year closing low set last week.
Life companies have taken a number of measures to limit the damage on their funds. Many of them have switched from equities to bonds, cut bonuses to policyholders and raised the penalty on early surrenders.
Yesterday, Standard Life moved to bolster its defences against a run on its fund and said it was imposing a 10 per cent cut on early exits. The firm had been the only life office that did not have a penalty.
The FSA said it was carrying out risk assessments of the largest 200 firms and looking to improve the framework that sets out capital requirements for insurance firms.