LONDON, Feb 7 (Reuters) - A senior official at Britain’s financial watchdog said the “shocking cost” of Europe’s new solvency regulations could not be justified, given that they are expected to total billions of pounds to implement.
Andrew Bailey, managing director of the Prudential Business Unit - part of the Financial Services Authority (FSA) - condemned the European Union for creating “such a vast cost for an industry for the implementation of a directive which has not even yet been finally agreed, and for which I cannot give you a date”.
The cost to insurers is “indefensible and ever rising,” Bailey told an audience of insurers in London on Wednesday.
The rules, known as “Solvency II”, aim to better protect consumers by insisting insurers improve risk management and more closely match their capital to the risks on their books.
But they have faced repeated delays amid industry lobbying to change details to the rules, such as the treatment of investments like infrastructure loans.
Some life insurance companies have also said that Solvency II would make their products unworkable because they would be forced to hold so much more capital in exchange for selling products guaranteeing returns to customers that the products themselves would become uneconomic to offer
As a result implementation of the new regulation is now unlikely to happen before 2016 or 2017.
The European Insurance and Occupational Pensions Authority said in January insurance companies would have nine weeks to test options in the proposed Solvency II rules. [ID: nL5N0AX821]
Insurers expect the study to show that a major rewrite of rules applying to life insurance will be needed, adding to those repeated delays in the introduction of the new regime.
Britain’s FSA is being replaced next year by the Prudential Regulatory Authority and the Financial Conduct Authority, responsible for making sure banks and insurers treat customers fairly, as part of a revamp of the regulatory regime launched by the British government in response to the 2008 crisis.