The government will push for a relaxation of draft EU rules which could force UK insurers to bolster reserves by 50 billion pounds ($82.88 billion), financial services minister Paul Myners said.
The government wants to make sure the proposed Solvency II rules do not result in higher costs for pensioners as insurers seek to meet “excessively conservative” capital requirements, Myners said on Thursday in a speech to the Association of British Insurers.
“We absolutely cannot allow this to happen,” Myners said.
“Government is committed to ensuring that these regulatory reforms do not unintentionally impact the lives and wellbeing of pensioners in the UK and elsewhere in Europe.”
As currently drafted, Solvency II would force annuity providers to hold extra capital as a reserve in case of declines in the value of the corporate bonds they use to fund payments to their customers.
British insurers including Legal & General, Prudential and Aviva would be disproportionately affected as they sell far more annuities than their continental European rivals.
The ABI warned in August that the rules could expose a capital shortfall of up to 50 billion pounds among its members.
EU insurance regulatory body CEIOPS, tasked with drawing up final recommendations for Solvency II legislation, indicated this week that it may be necessary to amend the rules so as to limit their capital impact on annuity writers.
“We welcome Lord Myners’ effort and commitment to achieving the right result in Europe for UK savers and pensioners,” said Tim Breedon, chief executive of L&G, regarded by analysts as particularly vulnerable to Solvency II due to its heavy reliance on annuities.
“The direction of travel is now more positive, but sustained effort will still be required to build a pan-European consensus on capital issues.”
Myners also said the current Solvency II proposals ran the risk of creating “structural imbalances” in the financial markets by imposing higher capital charges on corporate bonds than on other assets such as equities or gilts.
