Reuters: Regulatory News: UPDATE 1-UK's Prudential urges caution on EU capital rules

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UPDATE 1-UK's Prudential urges caution on EU capital rules Jul 9th 2013, 10:38 Tue Jul 9, 2013 6:38am EDT * Prudential's Thiam urges realistic timetable for Solvency II * EU watchdog EIOPA says 2016 start still possible * EIOPA envisages "soft landing" phase-in for new rules By Huw Jones and Chris Vellacott LONDON, July 9 (Reuters) - Getting new European Union solvency rules for insurers wrong could hinder the flow of capital in the region and crimp economic growth, a top UK insurer said on Tuesday. EU states and lawmakers are due this month to restart negotiations to finalise the long-delayed Solvency II rules to make sure insurers hold enough capital to stay stable and cover their policy commitments. Tidjane Thiam, chief executive of British insurance giant Prudential, said it was also important to have a realistic timetable for phasing in the new rules once finalised. "Getting this wrong will have real consequences for our economy and for jobs, for growth and how we deal with an ageing population," Thiam told the Association of British Insurers, (ABI) which he chairs. He warned that getting Solvency II wrong would jeopardise the flow of capital in Europe. "The risks if we get this wrong are very high... Regulation cannot be developed in a vacuum," Thiam said. Solvency II was meant to be in force by now but was delayed after Britain, Germany and France wanted a rethink over how products that offer guaranteed returns over the long term are treated to avoid overly burdensome capital requirements. The European Insurance and Occupational Pensions Authority (EIOPA) has just published draft solution for the treatment of such products to allow EU states and lawmakers to resume negotiations on a final deal. EIOPA Chairman Gabriel Bernardino said in a speech looking at the sector in 2020 that the watchdog's proposals would be seen as a basis for a political deal in 2013 on Solvency II. "Solvency II proved to have a good effect on insurers' behaviour. We see insurers only investing in assets whose risks they understand," Bernardino told the conference. He also signalled that insurers should expect much tougher scrutiny of whether their products are suited to customers, and echoed Thiam's warning of dire consequences if implementation fails. "If we don't do the right thing the consequences can be really devastating for consumers," he said, while expressing confidence that the final outcome would be a good regime. He said it was possible for the new rules to be in effect by 2016. There would need to be a "transitional period to put important elements of Solvency II into effect", Bernardino told Reuters. "This is in order to have a kind of a soft landing and not to disrupt the markets." Link this Share this Digg this Email Reprints

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