Insurers under threat from EU insolvency rules, says IUA

London Market insurers are under threat from new European Union (EU) legislation designed to protect policyholders. That's the warning from the International Underwriting Association (IUA).

The Insurers' Reorganisation and Winding Up Directive is aimed at harmonising national approaches to insolvency by creating different classes of creditor.

Under the directive, if an insurer becomes insolvent, priority will be given to individual customers. Any purchasers of reinsurance will gain a lower priority.

Some London Market insurers, reportedly speaking to the FT.com, said they are concerned about this because they sell as mixed providers - selling insurance and reinsurance.

The IUA warned the rules could weaken the financial security of reinsurance offered by mixed providers.

Paul Evans, insurance insolvency partner with PricewaterhouseCoopers said: "It drives a coach and horses through traditional English insolvency procedure by fundamentally affecting the priority with which people are treated."

Evans said the companies caught by this directive might be forced to restructure, splitting the capital allocated to insurance and reinsurance.