[A-List] City of London modernisation

["Keaney Michael" <Michael.Keaney@xxxxxx>]

The Enron effect...


Insurers blast back at FSA chief
Paul Armstrong, Evening Standard
30 January 2002

FINANCIAL Services Authority chairman Sir Howard Davies was under fire
today over his attack on UK insurers, with the industry's leading
representative body saying it did not accept his allegations that some
of its members were acting illegally and unethically.

The Association of British Insurers said it was unaware that most of the
problems Davies raised existed although it would like to be told more
about the alleged breaches.

The ABI *'s comments follow Davies's speech on Tuesday night to the
Association of Insurance and Risk Managers, in which he launched a
widespread attack on the industry's methods of managing its finances.

He said some re-insurance arrangements, which are designed to spread
risks around the industry, did nothing to transfer potential
liabilities. Instead, they amounted to no more than window-dressing of
their accounts. As a result, the FSA* had required a number of companies
to renegotiate their reinsurance arrangements.

'I don't accept that people are cooking the books,' an ABI spokesman
said. 'We were not aware of any concerns before he made these comments
but he has raised issues we would like to look at. Our members in the
insurance market want to act in good faith.'

He believed Davies's attack could have been prompted by last year's
collapse of Independent Insurance, which is now being investigated by
the Serious Fraud Office. 'It has caused the FSA to look more closely at
its regime,' the ABI spokesman said. The FSA refused to say which
companies had been forced to alter their re-insurance. But an FSA
spokeswoman said investigations into some of the breaches were under way
and there was a prospect of charges being laid and fines levied.

In what was seen as an unprecedented attack on an industry by a
regulator, Davies also said the FSA was taking a 'heightened interest'
in the complex derivatives * being used by insurers. He said one
investment banker described these instruments, known in the city as
synthetic collateralised debt obligations, as 'the most toxic element of
the financial markets today'.

An FSA spokeswoman said these products were not used by British
insurers. 'We are not saying this is a big problem in the UK at present,
it isn't.'

Full article at:
http://www.thisismoney.com/20020130/nm43618.html

Michael Keaney
Mercuria Business School
Martinlaaksontie 36
01620 Vantaa
Finland

michael.keaney@xxxxxx