Insurers blast back at FSA chief

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.'