The UK's biggest life insurers are not in immediate danger of breaching solvency requirements, the financial watchdog has said.

There had been fears that the stock market had fallen so low that insurance companies risked going bust.

"None of the large UK life insurers have warned us that they might breach solvency levels," a spokesperson for the Financial Services Authority said.

Individual firms, the weaker siblings if you like, may have problems with the FTSE at these levels Andrew Palmer, group finance director at Legal & General

On Monday, the FTSE 100 share index fell to its lowest level since October 1995, with shares in insurance firms taking a beating on fears they would have to sell more shares to maintain solvency requirements.

Bail-outs

Last year, the insurance sector reportedly told the regulator that it would face serious solvency issues should the FTSE fall below 3,500.

With mounting worries over a war with Iraq, the FTSE 100 index closed in the red for an unprecedented 11th day on Monday, ending 123 points, or 3.4%, lower at 3,481.

It does not take too many weeks like the past couple for insurers to use their safety margin up Evan Davis, BBC economics editor

This means the FTSE has lost more than �500bn since the market peaked three years ago and it has triggered fears that some insurers may need to be bailed out with cash.

"Individual firms, the weaker siblings if you like, may have problems with the FTSE at these levels," said Andrew Palmer, group finance director at Legal & General.

"But for the larger and better capitalised firms, the market would have to fall a lot further before there was a serious problem with solvency levels."

Market experts say alarm bells will have started ringing for small insurance companies, with the FTSE below 3,500.

At less than 3,000 points, alarm bells would start ringing for large companies, they say.

Plan

Although the FSA refused to comment on individual companies, the regulator did tell BBC News Online that if an insurer felt it might breach solvency rules, it would have to submit a plan to the City watchdog outlining how to boost its capital.

This would entail one of four options including reducing new business or closing altogether to new business.

But an insurer could also decide to cut dividends, bonuses or raise capital from shareholders.

Insurers have already closed some products, cut payouts and imposed redemption penalties.

In a vicious cycle of selling, they have also been selling off their stock portfolios, further pushing down the markets.

'Worried'

Last week, Scottish Widows became the latest life insurer to cut policy bonuses, blaming a steep fall in share prices over the past few years.

UK insurers typically hold a greater proportion of their investments in shares than their European counterparts.

The FSA requires that the assets of insurers outweigh liabilities by between 4 and 8% to ensure policyholders get paid.

Twenty million people in the UK have their life savings tied up in endowment, pension, and investment policies run by life insurers.

BBC economics editor Evan Davis says the FSA is worried about the latest stock market falls.

Although the insurance are compelled to store up some of their assets as a safety margin, it does not take too many weeks like the past couple to use that safety margin up, he says.