EU watchdog tests new capital rules

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Frankfurt - The European Union's insurance watchdog has invited feedback on new rules about capital requirements and risk management, after life insurers complained they would make products with long-term guarantees too financially burdensome to be viable.

The European Insurance and Occupational Pensions Authority (EIOPA) said on Monday insurance companies would have nine weeks to test options in the proposed rules, known as Solvency II.

Some life insurance companies have said that the proposed new rules 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.

With traditional guaranteed life insurance products, the insurance company bears the risk of covering the future guarantee, as opposed to index-linked life insurance, where the consumer bears all the investment risk. The former type of products are particularly popular in Germany, France and Spain.

European life insurance premiums totalled 633 billion euros ($853 billion) in 2011, according to industry trade body Insurance Europe. Insurers expect the study's results to show that a major rewrite of the rules applying to life insurance will be needed.

This could hold up the formal introduction of Solvency II, which EIOPA expects will come into force no earlier than January 1, 2016. Germany's insurance watchdog has said that a 2017 start may be more realistic.

EIOPA has said it will try to bring forward other parts of the rules, where there is widespread agreement.

The Chairman of EIOPA said in a statement on Monday that the study would provide a “reliable basis for an informed political decision” on what requirements for long-term guarantees will be included in Solvency II.

“It is essential for policyholder protection and financial stability that Solvency II appropriately reflects the long-term financial position and risk exposure of insurance and reinsurance undertakings carrying out insurance business of a long-term nature,” Gabriel Bernardino said in the statement.

Insurers are not required to participate in the assessment but EIOPA said it hoped as many as possible would take part.

Big insurers like Allianz, Axa and Generali are expected to be well-prepared for Solvency II, but many smaller insurers feel the rules are too complex or should not apply to them to the same extent.

Insurers will have until March 31 to carry out the assessment, with national supervisors reviewing the data in April and May before handing them over to EIOPA and the European Commission for analysis.

The technical results and EIOPA's conclusions are due to be published in the second half of June, the watchdog said. - Reuters


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