Insurers facing huge fundraising

INSURERS are worried that they will be forced to raise more than &pound;50bn in fresh equity should new European rules on capital and reserve requirements come into force in 2012 as planned.<br /><br />The Association of British Insurers (ABI) wrote to chancellor Alistair Darling last month urging him to intervene over the proposals laid out in the Solvency II directive, which it says poses a threat to &ldquo;the industry, to its customers and even to financial stability&rdquo;.<br /><br />The new rules were originally designed to improve capital management and transparency and harmonise the capital requirement standards across the European Union.<br /><br />But, in the letter, ABI director general Stephen Haddrill says that they would lead to an increase in capital and reserves requirements &ndash; of between &pound;30bn and &pound;70bn &ndash; which would in turn require fresh equity capital &ldquo;equal to the industry&rsquo;s current value&rdquo;.<br /><br />With the industry currently valued at &pound;50bn, Haddrill added &ldquo;it is hard to see how such a massive recapitalisation could be achieved&rdquo;.<br /><br />He warned that if such a huge fundraising were to succeed, investment returns would fall, forcing companies to exit the market and reducing insurance cover.<br /><br />The Solvency II directive was passed into law by the European Parliament earlier this year.