Insurers and UK politicians have secured a last ditch amendment to Solvency II rules which could prevent a 20 per cent drop in annuity rates.
There had been concern that measures put forward by the ECON committee of the European Parliament would not contain reference to a so-called ‘matching premium’.
The ABI says the premium is needed to remove the requirement for insurers to take into account market volatility that they are not exposed to. It says failure to include reference to the premium in the Solvency II rules could have forced insurers to hold an additional £50bn in capital, causing a 10 – 20 per cent fall in annuity rates.
The ECON committee yesterday voted in favour of including the matching premium in their version of the Omnibus II directive’s text.
However, officials at the ABI are concerned restrictions in asset allocation put forward alongside the matching premium will limit the effectiveness of the proposals.
ABI director general Otto Thoreson (pictured) says: “The measures agreed in the ECON committee of the European Parliament are far from perfect but pave the way for a constructive discussion in the next phase of negotiations on Solvency II. We urge the finance ministers, the European Parliament and the European Commission to work together in the weeks to come to address the outstanding issues.
“It must remain possible for insurers to continue to deliver products with long term guarantees that are attractive to consumers. These are products that people rely on for their income in retirement.
“Linked to this is the ability of insurers to contribute across Europe to helping governments drive economic growth post the financial crisis, a challenge which we in the industry are keen to meet, if regulation allows.
“The final text must not constrain European insurers from competing successfully in the global market. The issue of equivalence must be resolved in order for the EU insurance industry to remain competitive and this will be an issue for which we, and our European counterparts, must seek a successful regulatory outcome.”