European insurers to face capital squeeze

EUROPE’s insurers would see their free capital cut by more than a third by new higher solvency requirements imposed from 2013, regulators said yesterday.

Incoming Solvency II regulation would cut firms’ surplus capital by 44 per cent or a total €86bn (£74bn) if implemented without any relaxation of the rules, the European Insurance and Occupational Pensions Authority found.

Where insurers applied their own internal risk assessment models, or calculated the value of their assets using transitional measures, their free capital would be cut by just €3bn, or one per cent. But the new rules do not yet specify when and to what extent regulators would allow companies to use such internal models or transitional arrangements. “QIS5 has shown that Solvency II will be more onerous than the existing regime,” said PwC partner Philippe Guijarro.