UPDATE 2-EU's insurer capital rules need rethink - L&G
* EU could allow national variations to Solvency II - CEO
* L&G spent 129 mln stg preparing for Solvency II - CEO
* L&G 9-month sales ahead of forecasts, shares up 2.9 pct
LONDON, Nov 1 (Reuters) - Strict proposed capital rules for insurers based in the European Union are unlikely to work in their current form and may be redrawn, the head of Britain's Legal & General Plc (L&G) said.
L&G chief Nigel Wilson said the EU was likely to abandon efforts to agree a harmonised set of rules and would instead allow European governments to modify their approach to suit the needs of insurers based in their countries.
"I suspect there'll be a more pragmatic solution developed over the next few years which meets the needs of customers and regulators in France, Germany, the UK, Italy etc," Wilson said on a conference call on Thursday.
"To try and harmonise 27 countries across Europe in the midst of a financial crisis is an extraordinarily difficult task, and everybody's realising that this is just going to be continually delayed."
Solvency II, aimed at making insurers hold capital in proportion to the risks they cover, is officially due to take effect in 2014, but has been held up by wrangling between EU governments over how it should apply to life insurers.
Insurers and regulators now say the rules are unlikely to come into force before 2016 at the earliest. The European Commission, author of the Solvency II project, has not set a new implementation deadline despite pressure to do so from the industry.
Wilson said there was a growing realisation that Solvency II could penalise insurers and restrict their ability to invest, increasingly seen as vital to kick-starting Europe's flagging economy.
He also hit out at the cost of getting ready for Solvency II, with L&G spending 129 million pounds ($207.8 million) over the last three years, a small part of the "many many billions" committed by the EU industry as a whole.
"The fact we've spent an incredible amount of money so far is the thing that's galling," Wilson said.
L&G, Britain's fourth-biggest insurer, would be among the companies most directly affected by Solvency II due to its strong presence in the market for annuities, which could attract a higher capital charge under the new regime.
Wilson was speaking shortly after L&G reported a higher-than-expected 6 percent increase in nine-month sales, helped by strong demand for protection policies as more companies and consumers seek cover against financial risk.
L&G's sales rose 6 percent to 1.42 billion pounds in the period, beating the 1.34 billion expected by analysts in a company poll.
L&G shares were up 2.9 percent by 0935 GMT, making them the fourth-biggest riser in the FTSE 100 share index at that time.
The stock has risen 35 percent so far this year, beating a 24 percent increase for the STOXX Europe 600 insurance index .