UK insurers warn Darling over new European rules

Sep 3 2009 by Iain Laing, The Journal

Shares in the major insurance groups plunged yesterday as investors feared mammoth equity raisings, with L&G down 7% and Aviva off more than 4%.

But the hit to insurance customers is also causing industry concern.

Axa and L&G cautioned in recent results announcements that insurers would have to reduce annuity payments if the strict new capital surplus requirements came into effect.

Tim Breedon, chief executive of L&G, said on releasing interim figures last month that the rules were “a betrayal of savers”, estimating retirement income from annuities could be slashed by a fifth as insurers are forced to set aside more capital. The new rules are being put forward under European Commission regulations, called the Solvency II Directive, which is due to come into force in 2012.

Europe is currently consulting on the proposals, with the first deadline for initial responses due in mid-September and a further consultation period closing towards the end of the year.

The new European standards are designed to protect customers by improving capital management and transparency among insurers and creating a single requirement for capital surplus across the region.

Insurers have already been battling to increase their capital buffers after last autumn’s financial crisis put their reserves under pressure as equity markets plummeted.

But the ABI fears the new European rules will be “regulatory overkill”.

A spokesman for the body said it was “doing all it could to work in the interests of insurers and their customers”.