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.
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 £50bn a year if implemented in their current form.
But the ABI urged regulators to go further to make the new system fairer on both sides of the Channel.
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.
Solvency II would disproportionately affect insurers like Legal & General, Prudential and Aviva because they sell far more annuities than their European rivals.
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 “significant impact in some types of business and certain segments of some concrete national markets”, saying it was willing to “analyse and develop” sticking points.
It also raised the possibility of an “illiquidity premium” to reduce capital that insurers would have to hold.
Solvency II is not due to be implemented until 2012.
ABI’s director of financial regulation Peter Vipond said: “It is pleasing that CEIOPS has recognised that the liquidity premium must be included, although it has restricted this to business-in-force.”
More progress is needed here and we will continue our efforts to find a suitable solution.