Hopes rise for deal on delayed EU insurance rules

Tue May 21, 2013 12:50pm EDT

* EU lawmaker expects more flexibility in new rules

* Some parts could be phased in

* Flexibility on infrastructure investments less likely

By Huw Jones

LONDON, May 21 (Reuters) - The European Union is nearing a deal on long-delayed insurance rules that the bloc has touted as a regulatory benchmark for the world to follow, regulatory and policy officials said.

The rules, known as "Solvency II", will seek to improve the method for deciding how much capital an insurer must hold as a safety buffer by better assessing risks and liabilities from customer policies.

A decade in the making and originally due to take effect in late 2012, the EU rules were delayed to apply lessons from the financial crisis.

They hit a second speed bump when insurers in Germany, France and Britain called for more leniency over how much capital should be set aside for products offering guaranteed returns.

"There is a deal on the table to be done," Peter Skinner, a British member of the European Parliament, told Reuters on Tuesday.

"More has been understood about long-term guarantees so that a far more practical approach can therefore be implemented," said Skinner, one of a team of lawmakers negotiating the deal with EU member states.

He declined to say when the new rules would start, although regulators have indicated 2016 as a possibility. Some elements could be phased in, regarding German products for example.

"Transitions are one of the possibilities in the regulatory tool bag," he said.

The lawmakers and member states are awaiting a report from the European Insurance and Occupational Pensions Authority (EIOPA) in June on the capital treatment of products with guaranteed returns.

Regulators have said that such guarantees are risky given the likelihood of interest rates staying very low for a long period, hitting investment returns used to pay out on policies.

But Skinner said he expects the review by EIOPA, the pan-European insurance regulator, to show how national insurance markets differ and to highlight problems that could arise in a low-interest rate economy if rules are too narrow.

Separately on Tuesday, Justin Wray, EIOPA's head of policy, told an Insurance Day conference that more confident signals were emerging from the European Parliament over the rules.

"We believe it will happen. The signs are much better than in the past for an agreement," Wray said.

Skinner said the mood among lawmakers was for a political deal well before the parliamentary elections in June 2014, with the assembly's work tailing off weeks before then.

Top insurers have spent millions of euros preparing for the new rules. The delay has raised the hackles of UK regulators and led to concerns that they may never take effect.

While facing intense pressure to be flexible on guaranteed-return products, EIOPA signalled on Tuesday it would stand firm in the face of calls to ease capital requirements on investments in infrastructure projects.

Cash-strapped governments are looking to insurers to invest in new roads and transport networks, but may be disappointed.

"We are genuinely open-minded about what is the right capital requirement. For the most part ... the evidence is not there for making recommendations to change capital requirements," Wray said.

EIOPA will report on the issue in July.

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