European insurance regulators need a little more time to thrash out a compromise on rules for annuity providers that UK insurers fear could force them to raise up to £50 billion ($81 billion) of capital.
Regulators want insurers to put more cash aside to cover against any slide in the value of assets used to fund the annuities, but insurers believe the proposed rules would be unnecessarily restrictive.
A special task force at insurance watchdog CEIOPS, the Committee of European Insurance and Occupational Pensions Supervisors, is honing the rules in light of concerns at big annuity writers like Legal & General, Prudential and Aviva, while remaining consistent with the overall insurer capital rules known as Solvency II.
“We are actively working with industry to find a global solution, but it’s not over yet,” a spokeswoman for CEIOPS said on Friday.
The CEIOPS-led task force will propose rules on the so-called “liquidity premium”, which would limit insurers’ regulatory capital costs on their commitments to annuity customers in times of market stress.
The group, which also includes the European Commission, industry and academia, had planned to release its report at the end of January, but now expects to finish around mid-February, after a final round of discussions next week.
The report then goes to the full body of CEIOPS’ members – national insurance supervisors such as the UK’s FSA and Germany’s Bafin – to agree on a proposal for regulation.
The report and proposal then go to the Commission, which can accept or reject CEIOPS’ advice when drafting the rules for implementing the regulations, drafts that are due in October.
The task force is trying to resolve regulatory inconsistencies in dealing with insurers’ assets and liabilities in times of stress, such as in the financial market ructions of the last two years.
The CEIOPS spokeswoman declined to comment on the possible outlines of the compromise, saying only that the task force was still working on ways of calculating the liquidity premium and linking it to an insurer’s liabilities.
CEIOPS is working to overhaul the entirety of regulatory capital rules for the insurance industry, making sure that insurers have appropriate capital cushions to continue to pay policyholders even if financial markets turn sour.
Regulators aim to ensure a level playing field among insurers around the European Union and hope to minimize national exceptions such as for the UK’s annuity writers.
(Editing by Simon Jessop)
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