An insurer ceases trading with liabilities far outweighing its assets. Which organization will compensate the insurer's policyholders?

The Financial Services Compensation Scheme (FSCS) is the correct answer because it is specifically designed to provide protection to consumers in the event that financial institutions, including insurers, become unable to meet their obligations due to insolvency. When an insurer ceases trading with liabilities exceeding its assets, the FSCS steps in to compensate policyholders for their losses, ensuring that they are not left without coverage or financial support.

This organization plays a crucial role in maintaining consumer confidence in the financial services industry by guaranteeing compensation for policyholders and claimants. The FSCS covers various types of financial products, including insurance, and offers a safety net for individuals who have purchased policies from firms that can no longer fulfill their commitments.

Other organizations mentioned have different purposes. The Association of British Insurers primarily represents insurance companies and works to promote best practices in the industry, while the Chartered Insurance Institute focuses on professional development and standards within the insurance profession. The Financial Ombudsman Service, on the other hand, provides a dispute resolution mechanism for consumers against financial service providers but does not offer compensation when a firm fails financially.