| Insurance, banks next in line for FRS17 challenge - Fitch |
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| 20/02/2003 | |
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The unknown size of UK insurance company pension scheme deficits represents a further challenge to capitalisation for an industry already facing a number of short-term pressures, according to a report by Fitch Ratings. Although pension fund solvency is incorporated into Fitch's ratings, any significant deficits revealed during the upcoming reporting season could have an impact on capital strength and future net income, the report said. Under the accounting standard FRS17 companies are required to reveal the level of any pension fund deficits in their 2002 year-end results. Government regulations additionally require companies to maintain a minimum 90 per cent regulatory funding level in their pension schemes. If the funds fall below 90 per cent insurers have three years to meet the minimum level. Schemes are also not allowed to remain less than 100% funded for more than 10 years. The regulatory deadlines represent a more immediate challenge to insurers' capital levels, as the pension scheme payments could be up to 30 years away, says Fitch. According to the ratings agency, the deadlines are unlikely to create a cash flow crisis or ratings pressure, at least in the short term. However they represent another "negative development" in an industry facing a number of short-term negative pressures. If the government proceeds with its proposal to rank pension schemes in deficit as a preferential creditor, Fitch believes a widening of the notching between its Insurer Financial Strength ratings and debt ratings would be likely. In a separate report, Fitch said FRS 17 pension deficits are likely to be significant for all the major UK banks, however the banks should be able to make good the position over an extended period. Fitch says it will monitor the situation of the banks "on a case-by-case basis". |
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