(Bloomberg) — U.K. insurers had another $4.2 billion wiped off their market value today as regulators said they plan a probe into policies stretching back to the 1970s, the second government threat to earnings in as many weeks.
The Financial Conduct Authority will publish a plan of its priorities for this year on March 31 that will include an examination of how customers in the life-insurance market have been treated, the London-based regulator said in a statement.
Shares of Prudential Plc, Aviva Plc, Resolution Plc and Legal & General Group Plc all fell in London trading. They pared their losses in the afternoon after the FCA said it wouldn't apply current standards retroactively on old policies, dubbed "zombie funds" by analysts including Tom McPhail of Hargreaves Lansdown Plc.
"These are huge challenges for insurance companies to deal with," said McPhail, the brokerage's London-based head of pensions research. "It could provoke certain questions to those companies with closed books of business. It's been a perfect storm of news."
The FTSE 350 Life Insurance Index fell 2.6 percent. That added to the 3.6 billion pounds ($6 billion) wiped off the industry's market value on March 19, when Chancellor of the Exchequer George Osborne's budget scrapped rules that pushed retirees to buy an annuity.
'Customer Inertia'
The "shock" from the FCA "does highlight a trend with the regulator for concern around long-term policies, coupled with customer inertia," said Nick Henderson, an insurance partner at KPMG in London.
The FCA said this afternoon it would review a sample of insurers and did not intend to individually examine every policy written dating back to the 1970s. It also has no plans to disallow exit fees charged on holders that want to leave their policies, if those levies were compliant with the law at the time they were written.
The Daily Telegraph reported earlier that the FCA would review 30 million policies, citing Director of Supervision Clive Adamson.
