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The Actuary The magazine of the Institute & Faculty of Actuaries
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FSA moves to protect unit-linked life policyholders under Solvency II

Among the Solvency II requirements due to come into effect in 2013/14 are new high-level principles around how insurers' assets, including unit-linked and index-linked funds, must be managed, the regulator said.

The new principles replace the current FSA approach which lists the particular assets insurers can use. However, where individuals bear the direct risk of investing in unit-linked and index-linked policies, Solvency II allows the FSA to continue to specify which assets can be used for such policies.

The proposed new rules will largely continue the existing FSA requirements, but will expand them to permit investment in some indices-based investments and bonds. The FSA says that it will implement high-level requirements from Solvency II that strengthen the current rules saying insurers should only invest in assets that they can properly value and monitor.

The consultation on the proposals Solvency II and linked long-term insurance business closes on 15 February 2012.

Sheila Nicoll, FSA director of policy, said: "Millions of people rely on unit-linked policies to keep them secure in their retirement. While regulation cannot protect policyholders from market movements, these rules are designed to ensure that they can be confident that their money is being invested prudently."

The FSA has also published a consultation paper Transposition of Solvency II - Part 1 setting out proposed Handbook changes to transpose the prudential aspects of the Solvency II directive into FSA rules.

The UK unit-linked long-term life sector has assets of £815 billion under management and a further £24 billion in index-linked policies.