... while UK insurers say they will lose out to EU rivals
New FSA chief executive John Tiner has defended the regulator's proposals to require UK general insurers to hold twice as much capital as their European counterparts.
He was responding to criticism by insurance company heads that the proposals in CP190: Enhanced capital requirements and individual capital assessments for non-life insurers will make UK general insurers uncompetitive.
Tiner described the solvency requirements under the current EU Directive, which dates back to 1973, as "hideously low".
"There is no relation to risk," Tiner said. "For years UK solvency was set at an informal limit. Now it will be properly risk-based."
But Groupama chairman and chief executive Pierre Lefèvre has criticised the FSA for acting before the EU finishes Solvency II, its review of current EU solvency requirements. "I believe we should wait for that project to finish rather than embarking on new capital requirements," he said.
The FSA has said that Solvency II is not due to be implemented until 2009, and describes the revised capital requirements to be implemented by the EU in 2004 as "modest".
Lefèvre said he was "very concerned" about the impact that the FSA's capital requirements would have, particularly on small and medium-sized UK insurers. But he said that French-owned Groupama would not wind down its UK operations and re-establish them under a different structure in order to fall within existing EU regulations and avoid the FSA. The cost would be prohibitive.
Insurers also fear that the new requirements will give Gibraltar-based companies a competitive advantage. But Gibraltar Financial Services Commission insurance commissioner Chris Collins said that Gibraltar was required to "match, but not necessarily replicate" UK standards. He said that risk-based capital requirements were high on the commission's agenda, but that it was waiting to see the outcome of the FSA's consultation before designing any policy.