Last updated: November 1, 2012 5:36 pm

L&G head casts doubt on Solvency II plans

Plans to make all insurance companies in the EU meet the same capital requirements are at risk of failing, the head of Legal & General has warned.

Nigel Wilson, who became chief executive of the FTSE 100 life assurance and savings group this year, said the Solvency II regime “may not be a practical solution” in its present form.

His comments about Solvency II, which is designed to impose common capital requirements and risk management standards across the EU, are among the most outspoken yet. Officially, the Solvency II measures are due to be implemented at the start of 2014, when they are expected to have wide-ranging implications for the assets that insurers hold and the business they write. But they have been subject to repeated delays, and further slippages to the timetable make this target date unlikely, according to analysts and executives.

The European Commission has considered pushing back the start of the regime by another year, and Gabriel Bernardino, chairman of the European Insurance and Occupational Pensions Authority, has said the changes may not be adopted before 2016.

However, on Thursday Mr Wilson said even this date was optimistic. He warned that regulators were struggling to overcome big differences between local insurance markets, which have their own sets of products and business models. “You may have something called Solvency II but it will not necessarily have the simultaneous harmonisation across Europe,” said Mr Wilson. “There may be all sorts of local versions of it.”

He complained that Legal & General, which wrote £5.7bn worth of premiums in 2011, had spent about £130m in the past three years on Solvency II. “It’s a large number,” he said. “We’d have all been a lot happier with a nudge of the current [UK] regime, [rather] than trying to have a very complicated, pan-European, 27-country scheme.”

His comments follow criticism by Tim Breedon, his predecessor as chief executive. “We should be encouraged to invest in long-term UK assets, a combination of infrastructure, corporate bonds and equity,” the company said. “At present, the regulations do not encourage this.”

Mr Wilson was speaking as shares in L&G hit a five-year high, boosted by better than expected third-quarter figures.

New business, expressed on an annual premium equivalent basis – an industry measure of sales – rose 28 per cent to £533m. L&G shares rose 5.6p, or 4.1 per cent, to 139.6p on Thursday.

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