Big firm 'will fail' warning

SCOTLAND'S financial community was given a stark warning that a major insurer is about to fail and that it could damage all their businesses and reputations, by a senior official of chief City watchdog the Financial Services Authority.

At the I-2-I conference at Gleneagles, attended by senior representatives of all Scotland's big financial institutions, David Kenmir said: "In the next year, or possibly two, a major high- profile company will fail, and there will be ramifications for you all. Public confidence will be hit by the fall-out and it will effect you all."

Last Friday an FSA spokesman attempted to distance the regulator from these remarks, suggesting, contrary to the impression given to the 100 or so attending, that it was not aimed at a particular company.

But he did say: "It is a very stark message, but one which people must hear. With the markets we've had, companies are going to fail and there is a high risk that one of these failures will be a very big name."

Linlithgow adviser Alan Steel said: "He said it all right. He was being asked about Equitable and why the regulator had failed. He ducked that question but then went on to talk about another major failure being on the horizon."

Companies which have been close to or in breach of technical solvency include RSA Life, Britannic Assurance, and Pearl. RSA and Britannic have both been for sale but have failed to attract a buyer.

In RSA's case, potential buyers Aegon and GE Capital pulled out of negotiations at the last moment.

Keith Greenfield, finance director of the RSA's life companies, stressed that the RSA Group had pledged to maintain the solvency of its two weaker funds, Royal Sun Alliance Life and Sun Alliance London, through contingency loans. Pearl Assurance failed to meet its regulatory requirements and was kept afloat by an injection of (pounds) 331m from its Australian parent AMP, which has pledged further support.

Britannic is slightly stronger but incorporates the very weak Alba Life.

Copyright 2002 SMG Sunday Newspapers Ltd.
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