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MPs Call For Changes To Use Of Insurance Surpluses

While it has been a bone of contention for many years it seems as though the subject of so called orphan funds may soon be cleared up with news that MPs are set to press the FSA to introduce strict new guidelines. Orphan funds are basically funds which have been set aside to smooth the natural economic cycle of returns and cover any claims. Many UK insurers now have funds in the billions of pounds, ownership of which is unclear even in the eyes of the law.

The FSA has been looking at the situation for some time but it is likely they will come under increasing pressure from MPs to lay down a formal code of practice. Many people are concerned that these excess funds, which some say belong to shareholders, policyholders and the insurance companies, are being used to settle disputes and mis-selling claims.

Until the legal framework for ownership is agreed it seems highly likely that many insurers in the UK will continue to use the orphan funds for their own benefit and to increase returns for shareholders. When you consider that many of these asset first materialised decades ago, it is a little concerning that the issue has yet to be resolved.

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