After banks, will life assurers be the next casualties of the credit crunch? Financial regulators are right to be worried by the effect on insurers’ balance sheets of sharp falls in stock markets, commercial property and corporate bond prices. Many life assurers have sought to spread risk by investing in all three asset classes. They now face the perfect storm. But a forced recapitalisation of the industry would be a mistake. That is not warranted and could even add to uncertainty.

As the US and some European economies contract, as they almost certainly will, the risk of defaults on corporate bonds held by insurers will rise. Because of the large quantities of bonds held by UK life assurers – more than half all sterling-denominated corporate bonds are issued by financial companies – the impact on their capital bases could be severe.