European Parliament close to deal that could ease capital burden

The European Parliament has is close to agreeing measures that could ease the burden of Solvency II for insurers.

According to the Financial Times, the European Parliament’s two biggest parties have tentatively agreed compromises that could allow life insurers to hold far less capital.

The parliament’s Economic and Monetary Affairs Committee will vote on the proposals next week.

One of the new measures allows annuity providers to use ‘matching premiums’, which means they will not be exposed to daily movements in bond prices.

The Telegraph quotes ABI director of prudential regulation Hugh Savill as saying that the agreement “could be a turning point for future UK pensioners who need confidence that Solvency II will protect their retirement income.”

While the industry has broadly welcomed the proposed changes, the measures will not ease the equivalency concerns raised by UK life insurer Prudential, which has threatened to leave the UK for Hong Kong over Solvency II. Prudential has a large US life business, Jackson National Life, which means the insurer could face a higher capital burden because the US is not seeking Solvency II equivalency.

The European Commission issued a statement on Wednesday urging insurers not to panic about Prudential’s stance and outlining the positive aspects of Solvency II.

“The Commission fundamentally disagrees with statements made by some insurance companies that Solvency II leaves them with no choice but to leave the EU,” the statement said.

Solvency II is due to come into force in 2014 after being beset by a series of delays. The continued delays and uncertainty about the final form of the new capital regime are the source of rising frustration in the industry.