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European Insurers See Capital Rules at Crossroads.

Byline: Steve Scherer, Reuters, Jonathan Gould, Reuters

ROME/FRANKFURT, (Reuters) - Europe's insurers warned that their ability to help to boost economic growth could be harmed if the EU insurance watchdog does not take account of industry demands in a report to be unveiled on Friday.

Insurers and regulators have been battling over the treatment of insurance savings products with long-term guarantees, popular with consumers and a core business for life insurers, particularly in Germany and the Netherlands.

The European Insurance and Occupational Pensions Authority (EIOPA), which is drafting the rules aimed at improving consumer protection, is due to publish the findings of its study on long-term guarantees on Friday.

The report will set the course for a deal on a broader set of risk rules for the industry, known as Solvency II.

"EIOPA's proposals are key, not only for the Solvency II project itself, but also for the wider EU economy," said Sergio Balbinot, president of industry lobby group Insurance Europe.

If EIOPA ignores calls to take into account the industry's "long-term perspective", then "this will further delay or even put at risk the Solvency II project", Balbinot told the group's annual gathering in Rome.

Regulators say that existing supervisory rules are outdated and do not give them adequate information to avert potential problems in future financial crises. While calling for changes, Balbinot said "the industry fully backs Solvency II".

German insurance trade body GDV on Thursday said that the long-term guarantee assessment (LTGA) had turned up a number of areas that still needed improvement.

"The future supervisory system has to function in all market situations and must not stand in contradiction to long-term insurance business," GDV Managing Director Joerg von Fuerstenwerth told a journalist briefing.

The European Commission will take the LTGA report into account in finalising the Solvency II rules, which EIOPA has said could still take effect in 2016, barring further delay.

OFFERING CARROTS

Insurers have not been shy about their potential to help Europe's struggling economies to escape the debt crisis downturn, provided that insurance regulations allow them to invest.

The Solvency II rules will protect consumers by requiring insurers to improve their risk management, making them more accurately match their current assets to their obligations to policyholders payable decades in the future, for example.

However, insurers have disagreed with the way EIOPA calculates capital needs and future obligations, saying that the regulator's proposed formulas make balance sheets too volatile.

"If regulations create unnecessary and artificial volatility on long-term guarantee products, (insurers) have only two options: stop selling these guarantees or change radically their asset allocation ... by investing in less volatile assets," Balbinot said.

"The unforeseen consequences of well-intentioned initiatives could be huge, not just for the financial services industry but also for the economy."

European insurers are the region's biggest institutional investors, holding 8.5 trillion euros ($11.3 trillion) in assets at the end of last year, up more than 10 percent from a year earlier, Insurance Europe said.

The insurance lobby said that higher capital requirements for banks will create a liquidity shortfall of 4-5 trillion euros between 2012 and 2016, making insurers' future investments even more crucial to the European economy.
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Publication:Property and Casualty 360
Date:Jun 13, 2013
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