Watchdog warns EU not to water down insurance rules

Reuters

* EIOPA says watering down rules harms policyholders

* Insurers to be stress tested in 2014

* EIOPA wants powers to ban harmful insurance products

By Huw Jones

LONDON, Sept 30 (Reuters) - The European Union's topinsurance regulator warned the bloc's member states on Mondaynot to dilute rules forcing the sector to hold enough capitaland protect policyholders.

Gabriel Bernardino, chairman of the European Insurance andOccupational Pensions Authority (EIOPA) said it was a matter ofurgency to finalise the rules known as Solvency II.

Talks between the European Parliament and member states havebecome bogged down over how much capital insurers should holdagainst products that offer long-term guaranteed returns.

EIOPA has put forward a compromise to help them reach a dealbut lawmakers said member states want to weaken it.

"I am a little bit concerned with some of the values I haveseen floating around in terms of calibrations," Bernardino toldthe European Parliament.

"We need to be careful to get the technical provisions asprudent as they can be. Technical provisions are the basis ofpolicyholder protection."

Solvency II has been years in the making and no start datehas been agreed, leaving the industry in limbo after manyinsurers spent millions of euros to get ready.

"Agreement on the final date is urgently needed ... to avoidmarket fragmentation. We cannot continue with the currentregulatory uncertainty," Bernardino said, complaining that thelack of clarity was affecting investments by insurers.

"I am confident there will be an agreement and it will be agood agreement. The degree of transparency of this regime needsto be preserved," said Bernardino.

A speedy, robust deal on Solvency II would help Europe shapean international push to create the world's first standard oninsurer capital, he added.

STRESS TEST

While Solvency II is seen as a more sophisticated approachto measuring risk than current rules, insurers continue tocomplain that the new regime is over-complicated.

"We are not only facing higher capital requirements but alsomore restrictions that add complexity to our business model,"said Oliver Baete, a board member at Europe's biggest insurer,Allianz.

"In my old job (as CFO) I spent 20 percent of my timedealing with new regulations - 150 pages every Monday," he toldan industry conference last week.

Bernardino said insurers faced a comprehensive stress testnext year, with risks from low interest rates a key focus.

"Following our market analysis and risk assessment, EIOPAidentified a prolonged period of low interest rates as apotential threat to the stability of the EU insurance sector."

EIOPA will not publish individual company results of thetest.

Bernardino said there was no need to centralise supervisionof top insurers in one go, as the European Central Bank will dofor leading euro zone lenders from next year.

Global regulators have designated nine insurers on a listfor extra supervision and possible capital requirements becauseof their size and reach, with five from the EU.

"That calls for a better coordinated supervision and weshould do it on a step-by-step approach," Bernardino said.

Bernardino also said EIOPA should have powers to banproducts that harm policyholders.

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