U.K. to Oppose EU Plan to Loosen Solvency Rules for Insurers

By Gonzalo Vina

Dec. 2 (Bloomberg) -- U.K. Chancellor of the Exchequer Alistair Darling will oppose loosening solvency rules that govern Europe’s insurance industry, saying the European Union should demand that insurers hold larger reserves of cash.

Representatives of the 27 EU nations on Nov. 20 tentatively endorsed a plan to adjust how much money insurers set aside in case of losses. They opted to give stock holdings more favorable treatment within capital formulas of insurers, letting them count on long-term returns to outweigh short-term volatility, when determining how much money to set aside.

A U.K. official told reporters last yesterday that the EU should be pushing for insurers to increase rather than reduce cash holdings so that they are able to withstand the current global economic crisis.

The official said that it is “odd” that European finance ministers, who meet in Brussels today, should at this time of crisis be arguing for proposals that could “seriously weaken” the regulatory framework of insurers. Darling will attend today’s meeting.

The measures, if confirmed by the ministers, may set up a clash within the European Parliament as Darling will resist the draft law, known as Solvency II, from being weakened, the U.K. official said.

The European Commission, the EU’s executive arm, also may reject the compromise plan. That would make final approval more difficult because the governments would need unanimous approval, rather than a majority vote, to implement their amendments.

To contact the reporters on this story: Gonzalo Vina in London at gvina@bloomberg.net;