According the Financial Times reports, British life insurer Legal & General (L&G) Plc was negotiating with the Financial Services Authority (FSA) regarding the amounts it should lay down for covering bond defaults.

The FSA has worked out new "stress tests" for confirming the insurers' ability to survive dramatic stock markets falls or bond defaults' increases. This move has amplified assumptions with regard to L&G requiring a keep back of additional cash.

Deutsche Bank analysts opine that L&G has put aside less money than its competitors for covering corporate bond defaults that may rise amid the intensifying recession. They said: "L&G appears the most vulnerable to any regulatory pressure with an assumption that looks low in a sector context."

Nonetheless, L&G has termed its reported talks with the financial market regulator as a 'routine' dialogue, before putting together its results for the full-year 2008. A company spokesman clarified: "There are no conversations with the FSA beyond the usual year-end process."

With L&G shares having fallen 35 percent in value during January, investors are apprehensive the may be pressed upon to either initiate a rights issue or slash its dividend, in order to preserve its capital buffer. Adding to the concerns of the investors is the fact that L&G has not presented an anticipated revision of its capital position along with its figures for full-year sales.