UK insurers warn Darling over new European rules

Sep 3 2009 by Iain Laing, The Journal

UK insurers have warned they would need to turn to shareholders for more than £50bn if "extreme" new European rules get the go-ahead.

The Association of British Insurers (ABI) has written to Chancellor Alistair Darling cautioning over European proposals it claims pose a threat “to the industry, to its customers and even to financial stability”.

It believes the new regulations would require an extra £30bn to £70bn in capital reserves for UK insurers, raising worries they would need to turn to shareholders for cash.

Major insurance groups, such as Axa and Legal & General, are also concerned the capital buffer requirements could impact pension payouts from annuities by as much as 20%.

In his letter to Mr Darling, Stephen Haddrill, director-general of the ABI, wrote: “In the UK, the impact is close to requiring fresh equity capital equal to the industry’s current market capitalisation – more than £50bn. It is hard to see how such a massive recapitalisation could be achieved.”

He added: “This huge over-capitalisation will mean investment returns in insurance will fall.

“Companies will exit the market, prices will rise, cover will reduce and innovation will lessen.”