Europe warned that Solvency II will have dire consequences if implemented

Europe’s insurance industry warned EU lawmakers yesterday that Solvency 11 would have “dire consequences” if implemented in its current form, according to City AM.

Europe’s four major industry bodies signed a joint letter to EU commissioner Michel Barnier objecting to onerous new capital requirements imposed by Brussels.

The unprecedented step reflects growing concern at how the regulation will damage the industry.

The letter from industry bodies the PEIF, CEA and the CRO and CFO Forums, slammed parts of the draft rules as “excessively conservative and prescriptive” and said the changes would “risk driving insurers out of their long-term business”.

“Stakes are high and time is running out,” they warned. “A failure to properly implement this reform would have dire consequences for an industry that represents a significant component of the EU economy, capital markets, old age savings and jobs.”

Insurers have repeatedly voiced fears that Solvency II’s demands are complex, poorly drafted and demand companies hold too much capital.

Lord Levene, chairman of Lloyd’s of London, has said it will cost the market’s members £300m to implement.

Solvency II, which has been under discussion for a decade, aims to match firms’ capital better to different risks but the capital levels were hastily revised to far higher levels after the financial crisis. It is due to come into effect in January 2013 but is still not finalised and recent tests found it to be prohibitive in areas such as disaster insurance.

“The current proposals impose excessive capital requirements on catastrophe risk,” Lloyd’s general counsel Sean McGovern said.