The Financial Services Authority (FSA) issued a Dear CEO letter (the Letter) on 23 February 2010 stating that it was concerned that many insurance intermediaries could not demonstrate that they had adequate financial resources.
The Letter notes that this failure has caused some firms to underestimate future demands on them which in turn required additional funding to be injected into the regulated firm. The FSA states in the Letter that as well as complying with the minimum regulatory capital resources requirements under MIPRU (the prudential sourcebook for insurance intermediaries), firms need to have adequate resources to comply with the high-level standard under Threshold Condition 4 (TC4).
The FSA believes the requirement under TC4 does not receive sufficient attention from firms and states that a TC4 assessment should now be conducted by all firms, unless they have completed one recently. Where the intermediary is part of a group, the TC4 assessment should take into account the liabilities and commitments of all group companies and the effect these have on the intermediary.