UPDATE 2-EU lawmakers back insurer-friendly capital rules

Wed Mar 21, 2012 10:14am EDT

* MEP says parliament committee backs changes

* Moves could save insurers 100 bln eur

* Changes include "matching premiums" for annuity writers

* Vote paves way for "constructive discussions" -ABI

By Huw Jones and Myles Neligan

LONDON, March 21 (Reuters) - The European Parliament's influential economic affairs committee on Wednesday overwhelmingly backed a draft proposal for a new capital regime for insurers, including amendments that make the new rules less burdensome for the industry.

The 37-to-five vote makes it virtually certain the changes will survive in the final version of the so-called Solvency II regime, potentially saving insurers billions of euros, and boosts the chances of the rules taking effect on time in 2014.

"Today's vote comes as a great relief to the insurance sector and enables Solvency II to move one step closer to reality," said Janine Hawes, Solvency II director at KPMG.

"The industry has won some important battles."

Parliament and European Union governments will meet next month to thrash out a compromise draft which will be voted on by the full assembly in July.

EU states have already backed a version that includes the industry-friendly measures, regarded as critically important by insurers in Germany, France, Britain, Spain and Ireland.

"We have turned this around to a very sensibly balanced package," Peter Skinner, a British centre-left member of the committee, said after the vote.

The industry-friendly package approved on Wednesday represents a compromise among the biggest EU states, ensuring it will make it to the final law.

It allows for the continued use of so-called matching premiums, which allow insurers to hold less capital than they would otherwise have to against annuities, products that are popular in Britain, Spain and Ireland.

They also allow insurers, especially in France, to smooth out the capital impact of short-term market fluctuations, and to use extrapolation techniques to estimate future interest rates, a practice common in Germany.

The amendments were initially due to be ditched from parliament's text, raising concerns among insurers in Britain, Ireland and Spain in particular, but were reinserted after a last-minute deal on March 15.

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Sven Giegold, a German Green Party member of the committee who opposed the changes, estimated they would reduce insurers' capital burden by over 100 billion euros, and said they had been pushed through by aggressive industry lobbying.

"We hope that it will not be in the end the policyholders and taxpayers who have to pay for this lobby-driven regulation which was unfortunately voted through today," he told reporters on a conference call, conceding that the modified proposals now looked like "a done deal."

Insurers cautiously welcomed the vote.

The measures agreed on Wednesday "are far from perfect, but pave the way for a constructive discussion in the next phase of negotiations of Solvency II," said Otto Thoresen, Director General of the Association of British Insurers.

Thoresen said the next stage of talks should focus on making sure the new rules do not make it harder for European insurers to compete globally.

Solvency II could force insurers to hold extra capital against operations in countries deemed by European regulators to have less exacting rules, making those subsidiaries less competitive against local rivals.

KPMG's Hawes said the draft rules backed on Wednesday included conditions that the U.S., a big market for leading European insurers including Prudential, Aegon, Axa and Allianz, would not be able to meet.

Prudential, Britain's biggest insurer, has said it might relocate outside the EU to prevent its lucrative U.S. business from being penalised.

"I am confident we will find the necessary way so we can include those countries that need to be included," Skinner told Reuters.

Solvency II, due to become law in January 2013 ahead of full implementation a year later, is designed to make insurers hold capital in strict proportion to the risks they underwrite, replacing a patchwork of less sophisticated national rules.

The industry has said the new regime, expected to lead to higher capital requirements for many insurers, could force up the cost of insurance and pensions products for European consumers.

Insurers have also expressed concern over the length of time it has taken to develop the rules, complaining that prolonged uncertainty over the sector's capital requirements is deterring investors.

Solvency II has been ten years in the making, and its original 2012 implementation date was postponed last year.

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