UK urged to strengthen insurance regulation

The UK insurance sector is suffering "significant difficulties" according to the International Monetary Fund, the premier global financial watchdog.

The IMF urged the British authorities to monitor the health of the sector closely although it said that it did not pose a systemic risk to the financial system.

The fund also appeared to suggest the insurance business would benefit from better regulation. The IMF is the latest body to flash a warning light over the UK insurance sector, which has been hit by the impact on the 43 per cent slump in the value of British shares on its investments.

Last week Prudential's share prices tumbled by a fifth after the company warned it might change its dividend policy and trimmed bonuses on long-term savings products.

But the IMF gave an otherwise clean bill of health to the financial sector. It said the financial stability policy framework had been strengthened significantly in recent years and was "in many respects is at the forefront internationally".

It said that "overall, UK banks are sufficiently profitable and well capitalised to absorb the effects of likely macroeconomic shocks without systemic distress".

The Financial Services Authority said that it was strengthening the system of insurance regulation.

Sir Howard Davies, the chairman of the City watchdog, said: "We will continue to develop our risk-based regulatory system to meet the ever-changing challenges arising with the financial services sector."