UK insurers may need to raise £70 billion
As we near the introduction of the EU solvency II directive in 2012 the battle lines are certainly been drawn with the Association of British Insurers today suggesting that UK insurance companies may need to raise as much as £70 billion in the short term to cover the new regulations. The regulations, expected to become law in 2012, would require a total recapitalisation of the insurance sector in an attempt to "align risk with capital strength".
Even though we saw a significant fall in insurance share prices today many people believe that the £70 billion figure suggested by the Association of British Insurers is in fact the start of a very tough negotiating phase between the sector and EU regulators. The doomsday scenario would see a reduction in investment returns, companies leaving the market and policy costs rising. This is a situation which does not suit the sector, consumers or the EU regulators.
Whether the parties involved are able to agree a compromise situation in the short to medium term remains to be seen because recently the EU has been very keen to become more and more involved in the financial sector. This is yet another attempt to break down the barrier between the city of London and the EU financial system.
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