Insurers call for rethink on capital limits

INSURERS yesterday called on European regulators to widen their rethink on draconian capital restrictions proposed under the Solvency II reforms.<br /><br />The Association of British Insurers (ABI) welcomed indications that Europe was open to relaxing some rules for annuity providers that could potentially cost UK insurers up to &pound;50bn a year if implemented in their current form.<br /><br />But the ABI urged regulators to go further to make the new system fairer on both sides of the Channel. <br /><br />If Solvency II was implemented today insurers would have to hold much more capital as a reserve in case of declines in the market value of the corporate bonds they use to fund payments to customers.<br /><br />Solvency II would disproportionately affect insurers like Legal &amp; General, Prudential and Aviva because they sell far more annuities than their European rivals.<br /><br />The European regulator, known as the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS), said it was aware that the proposed framework would have a &ldquo;significant impact in some types of business and certain segments of some concrete national markets&rdquo;, saying it was willing to &ldquo;analyse and develop&rdquo; sticking points.<br /><br />It also raised the possibility of an &ldquo;illiquidity premium&rdquo; to reduce capital that insurers would have to hold. <br /><br />Solvency II is not due to be implemented until 2012.<br /><br />ABI&rsquo;s director of financial regulation Peter Vipond said: &ldquo;It is pleasing that CEIOPS has recognised that the liquidity premium must be included, although it has restricted this to business-in-force.&rdquo; <br /><br />More progress is needed here and we will continue our efforts to find a suitable solution.