Chancellor to save Solvency II?

Chancellor of the Exchequer Alistair Darling will today oppose changing planned Solvency II rules that govern Europe’s insurance industry, but news agency Bloomberg says he will demand insurers retain more cash.

A UK official told the agency 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, Bloomberg reports.

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.

UK insurers, through the Association of British Insurers (ABI), were angry that the EU rejected proposal for insurers to be regulated across Europe by the national regulator in their home country, rather than by individual regulators in each country. The ABI urged minister to save this aspect of the Solvency II talks.

But Bloomberg reports that the issue the government is concerned about covers “giving stock holdings more favourable 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.”

But Bloomberg does say that Darling will resist Solvency II from being weakened.

It also says the European Commission, the EU’s executive arm, 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.

The Treasury was unable this morning to clarify to Insurance Times what message the Chancellor was taking to the meeting.