UK insurers warn against "one size fits all" rules
* UK insurers pose less systemic risk than banks
* UK insurers see regulation hitting profit, innovation
* UK's ABI calls for new macro-prudential committee
LONDON, June 3 (Reuters) - British insurers warned watchdogs on Wednesday against imposing "one size fits all" regulation across financial services and damaging the industry's profits, prosperity and innovation for a generation. The Association of British Insurers (ABI), the top trade body of the second-largest insurance market in the world, said insurers had largely weathered the financial crisis that has felled banks because of their "safety first" approach.
"Insurance is not banking and that has to be recognised," Stephen Haddrill, director general of the ABI, told reporters as he unveiled a report on restoring market confidence.
"We need targeted sector-specific changes, and not lazy adoption of banking rules to other parts of the financial services sector... As a global leader and major UK employer, the consequences of this would be felt throughout the British economy and beyond."
Insurers have long attempted to match assets and liabilities, unlike banks, whose business model relies on lending long and borrowing short, making them more vulnerable to a severe financial downturn.
The cost of any regulatory demand for a larger capital cushion to soften the impact of future crises would ulimately be passed on to policy holders, the ABI said.
The ABI's report was published as a consultation deadline looms on June 15 on the Turner Review, the UK's answer to an international offensive into overhauling financial market regulation after a credit crisis triggered the deepest global recession since the Great Depression.
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The ABI is calling for the creation of a new macro-prudential committee by year-end, which would feed into new European regulatory bodies meant to take a clear view of systemic risks across the continent.
These, in turn, could feed into the Group of 20 leading industrialised and developing economies.
"Joined-up thinking is required to get the best solution ... to avoid different groups of macro-prudential regulators with different agendas setting differing capital requirements," it said.
The ABI, whose members control assets equivalent to one quarter of the UK's capital, wants the new national committee to be composed partly of senior members of the Bank of England and the Financial Services Authority (FSA) regulator, with a remit to set capital requirements and assess asset price risk.
"As economic and financial risk are interwoven and respect no boundaries, both organisation and the Treasury need to work in much closer cooperation," the ABI said.
Monetary policy reforms in 1997 and regulatory reforms of the Financial Serivces and Markets Act separated the remit of the Bank of England and FSA -- and neither wanted to be involved in each other's business.
Insurers also called for tightened accounting rules and improved transparency in areas such as short selling and off-balance sheet risks.
But they focused efforts on urging watchdogs -- lambasted for failing to curb risk-taking so excessive that it forced governments across the world to bail out banks -- to focus regulatory requirements on companies that pose systemic risks.
"I think future generations will make their own mistakes but let's just make sure that this one doesn't make the same mistake again," Haddrill said. (Editing by David Cowell)
